Guru Analysis
| Strategy: Growth Investor
Based on: Martin Zweig |
| Credit Acceptance Corporation offers financing programs that enable automobile dealers to sell vehicles to consumers. The Company's financing programs are offered through a network of automobile dealers. The Company has two Dealers financing programs: the Portfolio Program and the Purchase Program. Under the Portfolio Program, the Company advances money to dealers (Dealer Loan) in exchange for the right to service the underlying consumer loans. Under the Purchase Program, the Company buys the consumer loans from the dealers (Purchased Loan) and keeps the amounts collected from the consumer. Dealer Loans and Purchased Loans are collectively referred to as Loans. As of December 31, 2016, the Company's target market included approximately 60,000 independent and franchised automobile dealers in the United States. The Company has market area managers located throughout the United States that market its programs to dealers, enroll new dealers and support active dealers. |
P/E RATIO: PASS
The P/E of a company must be greater than 5 to eliminate weak companies, but not more than 3 times the current Market P/E because the situation is much too risky, and never greater than 43. CACC's P/E is 11.39, based on trailing 12 month earnings, while the current market PE is 29.00. Therefore, it passes the first test.
REVENUE GROWTH IN RELATION TO EPS GROWTH: FAIL
Revenue Growth must not be substantially less than earnings growth. For earnings to continue to grow over time they must be supported by a comparable or better sales growth rate and not just by cost cutting or other non-sales measures. CACC's revenue growth is 13.62%, while it's earnings growth rate is 30.32%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, CACC fails this criterion.
SALES GROWTH RATE: FAIL
Another important issue regarding sales growth is that the rate of quarterly sales growth is rising. To evaluate this, the change from this quarter last year to the present quarter (12.1%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (15.1%) of the current year. Sales growth for the prior must be greater than the latter. For CACC this criterion has not been met and fails this test.
The earnings numbers of a company should be examined from various different angles. Three of these angles are stability in the trend of earnings, earnings persistence, and earnings acceleration. To evaluate stability, the stock has to pass the following four criteria.
CURRENT QUARTER EARNINGS: PASS
The first of these criteria is that the current EPS be positive. CACC's EPS ($14.13) pass this test.
QUARTERLY EARNINGS ONE YEAR AGO: PASS
The EPS for the quarter one year ago must be positive. CACC's EPS for this quarter last year ($4.30) pass this test.
POSITIVE EARNINGS GROWTH RATE FOR CURRENT QUARTER: PASS
The growth rate of the current quarter's earnings compared to the same quarter a year ago must also be positive. CACC's growth rate of 228.60% passes this test.
EARNINGS GROWTH RATE FOR THE PAST SEVERAL QUARTERS: PASS
Compare the earnings growth rate of the previous three quarters with long-term EPS growth rate. Earnings growth in the previous 3 quarters should be at least half of the long-term EPS growth rate. Half of the long-term EPS growth rate for CACC is 15.16%. This should be less than the growth rates for the 3 previous quarters, which are 30.03%, 22.36%, and 23.28%. CACC passes this test, which means that it has good, reasonably steady earnings.
This strategy looks at the rate which earnings grow and evaluates this rate of growth from different angles. The 4 tests immediately following are detailed below.
EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN PRIOR 3 QUARTERS: PASS
If the growth rate of the prior three quarter's earnings, 25.00%, (versus the same three quarters a year earlier) is less than the growth rate of the current quarter earnings, 228.60%, (versus the same quarter one year ago) then the stock passes.
EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN THE HISTORICAL GROWTH RATE: PASS
The EPS growth rate for the current quarter, 228.60% must be greater than or equal to the historical growth which is 30.32%. CACC would therefore pass this test.
EARNINGS PERSISTENCE: PASS
Companies must show persistent yearly earnings growth. To fulfill this requirement a company's earnings must increase each year for a five year period. CACC, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 10.54, 11.92, 14.28, 16.31 and 29.14, passes this test.
LONG-TERM EPS GROWTH: PASS
One final earnings test required is that the long-term earnings growth rate must be at least 15% per year. CACC's long-term growth rate of 30.32%, based on the average of the 3, 4 and 5 year historical eps growth rates, passes this test.
INSIDER TRANSACTIONS: PASS
A factor that adds to a stock's attractiveness is if insider buy transactions number 3 or more, while insider sell transactions are zero. Zweig calls this an insider buy signal. For CACC, this criterion has not been met (insider sell transactions are 755, while insiders buying number 71). Despite the fact that insider sells out number insider buys for this company, Zweig considers even one insider buy transaction enough to prevent an insider sell signal, therefore there is not an insider sell signal and the stock passes this criterion. |
IPG PHOTONICS CORPORATION |
| Strategy: Small-Cap Growth Investor
Based on: Motley Fool |
| IPG Photonics Corporation is a developer and manufacturer of a line of fiber lasers, fiber amplifiers, diode lasers, laser systems and optical accessories that are used for various applications. The Company offers a line of lasers and amplifiers, which are used in materials processing, communications and medical applications. The Company sells its products globally to original equipment manufacturers (OEMs), system integrators and end users. The Company's manufacturing facilities are located in the United States, Germany and Russia. The Company offers laser-based systems for certain markets and applications. Its products are designed to be used as general-purpose energy or light sources. Its product line includes High-Power Ytterbium CW (1,000-100,000 Watts), Mid-Power Ytterbium CW (100-999 Watts), Pulsed Ytterbium (0.1 to 200 Watts), Pulsed and CW, Quasi-CW Ytterbium (100-4,500 Watts), Erbium Amplifiers and Transceivers. |
PROFIT MARGIN: PASS
This methodology seeks companies with a minimum trailing 12 month after tax profit margin of 7%. The companies that pass this criterion have strong positions within their respective industries and offer greater shareholder returns. A true test of the quality of a company is that they can sustain this margin. IPGP's profit margin of 28.18% passes this test.
RELATIVE STRENGTH: PASS
The investor must look at the relative strength of the company in question. Companies whose relative strength is 90 or above (that is, the company outperforms 90% or more of the market for the past year), are considered attractive. Companies whose price has been rising much quicker than the market tend to keep rising. IPGP, with a relative strength of 94, satisfies this test.
COMPARE SALES AND EPS GROWTH TO THE SAME PERIOD LAST YEAR: PASS
Companies must demonstrate both revenue and net income growth of at least 25% as compared to the prior year. These growth rates give you the dynamic companies that you are looking for. These rates for IPGP (33.81% for EPS, and 28.89% for Sales) are good enough to pass.
INSIDER HOLDINGS: PASS
IPGP's insiders should own at least 10% (they own 33.35% ) of the company's outstanding shares which is the minimum required. A high percentage typically indicates that the insiders are confident that the company will do well.
CASH FLOW FROM OPERATIONS: PASS
A positive cash flow is typically used for internal expansion, acquisitions, dividend payments, etc. A company that generates rather than consumes cash is in much better shape to fund such activities on their own, rather than needing to borrow funds to do so. IPGP's free cash flow of $5.10 per share passes this test.
PROFIT MARGIN CONSISTENCY: FAIL
The profit margin in the past must be consistently increasing. The profit margin of IPGP has been inconsistent in the past three years (Current year: 24.67%, Last year: 25.92%, Two years ago: 26.87%), which is unacceptable. This inconsistency will carryover directly to the company's bottom line, or earnings per share.
R&D AS A PERCENTAGE OF SALES: FAIL
IPGP has reduced their R&D expenditures(currently $100.9 million) over the past two years which is unacceptable. IPGP is jeopardizing the future in order to boost current EPS numbers. This criterion is particularly important for high-tech and medical stocks because they are so R&D dependant.
CASH AND CASH EQUIVALENTS: PASS
IPGP's level of cash $1,116.2 million passes this criteria. If a company is a cash generator, like IPGP, it has the ability to pay off debt (if it has any) or acquire other companies. Most importantly, good operations generate cash.
INVENTORY TO SALES: PASS
This methodology strongly believes that companies, especially small ones, should have tight control over inventory. It's a warning sign if a company's inventory relative to sales increases significantly when compared to the previous year. Up to a 30% increase is allowed, but no more. Inventory to Sales for IPGP was 23.75% last year, while for this year it is 21.84%. Since the inventory to sales is decreasing by -1.91% the stock passes this criterion.
ACCOUNT RECEIVABLE TO SALES: PASS
This methodology wants to make sure that a company's accounts receivable do not get significantly out of line with sales. It's a warning sign if a company's accounts receivable relative to sales increases significantly when compared to the previous year. Up to a 30% increase is allowed, but no more. Accounts Receivable to Sales for IPGP was 15.49% last year, while for this year it is 16.84%. Although the AR to sales is rising, it is below the max 30% that is allowed. The investor can still consider the stock if all other criteria appear very attractive.
LONG TERM DEBT/EQUITY RATIO: PASS
IPGP's trailing twelve-month Debt/Equity ratio (2.24%) is a little higher than what this methodology is looking for, but is still at an acceptable level. The superior companies that you are looking for don't need to borrow money in order to grow. This company has borrowed very little which is still OK.
"THE FOOL RATIO" (P/E TO GROWTH): FAIL
The "Fool Ratio" is an extremely important aspect of this analysis. The methodology says consider shorting shares when the company's Fool Ratio is greater than 1.30. IPGP's PEG Ratio of 1.45 is very high.
The following criteria for IPGP are less important which means you would place less emphasis on them when making your investment decision using this strategy:
AVERAGE SHARES OUTSTANDING: PASS
IPGP has not been significantly increasing the number of shares outstanding within recent years which is a good sign. IPGP currently has 55.0 million shares outstanding. This means the company is not taking any measures, with regards to the number of shares, that will dilute or devalue the stock.
SALES: FAIL
Companies with sales less than $500 million should be chosen. It is among these small-cap stocks that investors can find "an uncut gem", ones that institutions won't be able to buy yet. IPGP's sales of $1,408.9 million based on trailing 12 month sales, are too high and would therefore fail the test. It is companies with $500 million or less in sales that are most likely to double or triple in size in the next few years.
DAILY DOLLAR VOLUME: FAIL
IPGP does not pass the Daily Dollar Volume (DDV of $152.2 million) test. It exceeds the maximum requirement of $25 million. Stocks that fail the test are too liquid for a small individual investor and many institutions have already discovered it.
PRICE: PASS
This is a very insignificant criterion for this methodology. But basically, low prices are chosen because "small numbers multiply more rapidly than large ones" and the potential for big returns expands. IPGP with a price of $243.80 passes the price test, even though it doesn't fall in the preferred range. The price should be above $7 in order to eliminate penny stocks and below $20 since most stocks in this price range are undiscovered by the institutions.
INCOME TAX PERCENTAGE: PASS
IPGP's income tax paid expressed as a percentage of pretax income this year was (28.06%) and last year (28.88%) are greater than 20% which is an acceptable level. If the tax rate is below 20% this could mean that the earnings that were reported were unrealistically inflated due to the lower level of income tax paid. This is a concern. |
| Strategy: Small-Cap Growth Investor
Based on: Motley Fool |
| Paycom Software, Inc. is a provider of a cloud-based human capital management (HCM) software solution delivered as Software-as-a-Service (SaaS). The Company provides functionality and data analytics that businesses need to manage the complete employment life cycle from recruitment to retirement. The Company's applications streamline client processes and provide clients and their employees with the ability to directly access and manage administrative processes, including applications that identify candidates, on-board employees, manage time and labor, administer payroll deductions and benefits, manage performance, terminate employees and administer post-termination health benefits, such as COBRA. The Company's solution allows clients to analyze employee information to make business decisions. The Company's HCM solution offers a range of applications, including talent acquisition, time and labor management, payroll, talent management and human resources (HR) management. |
PROFIT MARGIN: PASS
This methodology seeks companies with a minimum trailing 12 month after tax profit margin of 7%. The companies that pass this criterion have strong positions within their respective industries and offer greater shareholder returns. A true test of the quality of a company is that they can sustain this margin. PAYC's profit margin of 15.34% passes this test.
RELATIVE STRENGTH: PASS
The investor must look at the relative strength of the company in question. Companies whose relative strength is 90 or above (that is, the company outperforms 90% or more of the market for the past year), are considered attractive. Companies whose price has been rising much quicker than the market tend to keep rising. PAYC, with a relative strength of 93, satisfies this test.
COMPARE SALES AND EPS GROWTH TO THE SAME PERIOD LAST YEAR: PASS
Companies must demonstrate both revenue and net income growth of at least 25% as compared to the prior year. These growth rates give you the dynamic companies that you are looking for. These rates for PAYC (50.00% for EPS, and 29.85% for Sales) are good enough to pass.
INSIDER HOLDINGS: PASS
PAYC's insiders should own at least 10% (they own 16.24% ) of the company's outstanding shares which is the minimum required. A high percentage typically indicates that the insiders are confident that the company will do well.
CASH FLOW FROM OPERATIONS: PASS
A positive cash flow is typically used for internal expansion, acquisitions, dividend payments, etc. A company that generates rather than consumes cash is in much better shape to fund such activities on their own, rather than needing to borrow funds to do so. PAYC's free cash flow of $1.21 per share passes this test.
PROFIT MARGIN CONSISTENCY: PASS
PAYC's profit margin has been consistent or even increasing over the past three years (Current year: 15.43%, Last year: 13.32%, Two years ago: 9.32%), passing the requirement. It is a sign of good management and a healthy and competitive enterprise.
R&D AS A PERCENTAGE OF SALES: PASS
PAYC is either maintaining the same levels of R&D expenditures(currently $30.4 million) or increasing these levels which is a good sign. This allows the company to develop the superior technology and new products that will put everyone else out of business. This criterion is particularly important for high-tech and medical stocks because they are so R&D dependant.
CASH AND CASH EQUIVALENTS: FAIL
PAYC does not have a sufficiently large amount of cash, $46.08 million, on hand relative to its size. Although this criteria does not apply to companies of this size, we defined anything greater than $500 million in cash as having 'a lot of cash' to allow analysis of these companies. PAYC will have more of a difficult time paying off debt (if it has any) or acquiring other companies than a company that passes this criterion.
INVENTORY TO SALES: PASS
This methodology strongly believes that companies, especially small ones, should have tight control over inventory. It's a warning sign if a company's inventory relative to sales increases significantly when compared to the previous year. Up to a 30% increase is allowed, but no more. Inventory to Sales for PAYC was 0.21% last year, while for this year it is 0.23%. Since the inventory to sales has been flat, PAYC passes this test.
ACCOUNT RECEIVABLE TO SALES: PASS
This methodology wants to make sure that a company's accounts receivable do not get significantly out of line with sales. It's a warning sign if a company's accounts receivable relative to sales increases significantly when compared to the previous year. Up to a 30% increase is allowed, but no more. Accounts Receivable to Sales for PAYC was 0.62% last year, while for this year it is 1.99%. Although the AR to sales is rising, it is below the max 30% that is allowed. The investor can still consider the stock if all other criteria appear very attractive.
LONG TERM DEBT/EQUITY RATIO: FAIL
PAYC's trailing twelve-month Debt/Equity ratio (25.42%) is too high, according to this methodology. You can find other more superior companies that do not have to borrow money in order to grow.
"THE FOOL RATIO" (P/E TO GROWTH): PASS
The "Fool Ratio" is an extremely important aspect of this analysis. If the company's Fool Ratio is between 0.5 and 0.65 (PAYC's is 0.57), the company demonstrates excellence in its fundamentals and have soundly beat the earnings estimates. PAYC passes this test.
The following criteria for PAYC are less important which means you would place less emphasis on them when making your investment decision using this strategy:
AVERAGE SHARES OUTSTANDING: PASS
PAYC has not been significantly increasing the number of shares outstanding within recent years which is a good sign. PAYC currently has 59.0 million shares outstanding. This means the company is not taking any measures, with regards to the number of shares, that will dilute or devalue the stock.
SALES: PASS
Companies with sales less than $500 million should be chosen. It is among these small-cap stocks that investors can find "an uncut gem", ones that institutions won't be able to buy yet. PAYC's sales of $433.1 million based on trailing 12 month sales, are fine, making this company one such "prospective gem". PAYC passes the sales test.
DAILY DOLLAR VOLUME: FAIL
PAYC does not pass the Daily Dollar Volume (DDV of $72.1 million) test. It exceeds the maximum requirement of $25 million. Stocks that fail the test are too liquid for a small individual investor and many institutions have already discovered it.
PRICE: PASS
This is a very insignificant criterion for this methodology. But basically, low prices are chosen because "small numbers multiply more rapidly than large ones" and the potential for big returns expands. PAYC with a price of $109.34 passes the price test, even though it doesn't fall in the preferred range. The price should be above $7 in order to eliminate penny stocks and below $20 since most stocks in this price range are undiscovered by the institutions.
INCOME TAX PERCENTAGE: FAIL
PAYC's income tax paid expressed as a percentage of pretax income either this year (13.36%) or last year (23.41%) is below 20% which is cause for concern. Because the tax rate is below 20% this could mean that the earnings that were reported are unrealistically inflated due to the lower level of income tax paid. However, we have utilized a sophisticated formula so that the appropriate figures reflect a 'normal' tax rate (35%). |
| Strategy: P/E/Growth Investor
Based on: Peter Lynch |
| Micron Technology, Inc. is engaged in semiconductor systems. The Company's portfolio of memory technologies, including dynamic random-access memory (DRAM), negative-AND (NAND) Flash and NOR Flash are the basis for solid-state drives, modules, multi-chip packages and other system solutions. Its business segments include Compute and Networking Business Unit (CNBU), which includes memory products sold into compute, networking, graphics and cloud server markets; Mobile Business Unit (MBU), which includes memory products sold into smartphone, tablet and other mobile-device markets; Storage Business Unit (SBU), which includes memory products sold into enterprise, client, cloud and removable storage markets, and SBU also includes products sold to Intel through its Intel/Micron Flash Technology (IMFT) joint venture, and Embedded Business Unit (EBU), which includes memory products sold into automotive, industrial, connected home and consumer electronics markets. |
DETERMINE THE CLASSIFICATION:
This methodology would consider MU a "fast-grower".
P/E/GROWTH RATIO: PASS
The investor should examine the P/E (8.70) relative to the growth rate (30.26%), based on the average of the 3 and 4 year historical eps growth rates, for a company. This is a quick way of determining the fairness of the price. In this particular case, the P/E/G ratio for MU (0.29) is very favorable.
SALES AND P/E RATIO: PASS
For companies with sales greater than $1 billion, this methodology likes to see that the P/E ratio remain below 40. Large companies can have a difficult time maintaining a growth high enough to support a P/E above this threshold. MU, whose sales are $23,155.0 million, needs to have a P/E below 40 to pass this criterion. MU's P/E of (8.70) is considered acceptable.
INVENTORY TO SALES: PASS
When inventories increase faster than sales, it is a red flag. However an increase of up to 5% is considered bearable if all other ratios appear attractive. Inventory to sales for MU was 23.30% last year, while for this year it is 15.37%. Since inventory to sales has decreased from last year by -7.93%, MU passes this test.
EPS GROWTH RATE: PASS
This methodology favors companies that have several years of fast earnings growth, as these companies have a proven formula for growth that in many cases can continue many more years. This methodology likes to see earnings growth in the range of 20% to 50%, as earnings growth over 50% may be unsustainable. The EPS growth rate for MU is 30.3%, based on the average of the 3 and 4 year historical eps growth rates, which is acceptable.
TOTAL DEBT/EQUITY RATIO: PASS
This methodology would consider the Debt/Equity ratio for MU (40.23%) to be normal (equity is approximately twice debt).
FREE CASH FLOW: NEUTRAL
The Free Cash Flow/Price ratio, though not a requirement, is considered a bonus if it is above 35%. A positive Cash Flow (the higher the better) separates a wonderfully reliable investment from a shaky one. This methodology prefers not to invest in companies that rely heavily on capital spending. This ratio for MU (5.36%) is too low to add to the attractiveness of the stock. Keep in mind, however, that it does not adversely affect the company as it is a bonus criteria.
NET CASH POSITION: NEUTRAL
Another bonus for a company is having a Net Cash/Price ratio above 30%. Lynch defines net cash as cash and marketable securities minus long term debt. According to this methodology, a high value for this ratio dramatically cuts down on the risk of the security. The Net Cash/Price ratio for MU (-3.30%) is too low to add to the attractiveness of this company. Keep in mind, however, that it does not adversely affect the company as it is a bonus criteria. |
| Strategy: Small-Cap Growth Investor
Based on: Motley Fool |
| Cutera, Inc. is a medical device company. The Company is engaged in the design, development, manufacture, marketing and servicing of laser and other energy-based aesthetics systems for practitioners across the world. The Company offers products based on product platforms, such as enlighten, excel HR, truSculpt, excel V and xeo, each of which enables physicians and other practitioners to perform aesthetic procedures for customers. Each of its laser and other energy-based platforms consists of one or more hand pieces and a console that incorporates a universal graphical user interface, a laser or other energy-based module, control system software and high voltage electronics. The Company also offers products, such as CoolGlide that includes CV, Excel and Vantage; Solera that includes Titan S, ProWave 770, OPS 600, LP560, AcuTip 500, Titan V/XL and LimeLight, and a third-party sourced system, myQ for the Japanese market. |
PROFIT MARGIN: PASS
This methodology seeks companies with a minimum trailing 12 month after tax profit margin of 7%. The companies that pass this criterion have strong positions within their respective industries and offer greater shareholder returns. A true test of the quality of a company is that they can sustain this margin. CUTR's profit margin of 19.80% passes this test.
RELATIVE STRENGTH: PASS
The investor must look at the relative strength of the company in question. Companies whose relative strength is 90 or above (that is, the company outperforms 90% or more of the market for the past year), are considered attractive. Companies whose price has been rising much quicker than the market tend to keep rising. CUTR, with a relative strength of 95, satisfies this test.
COMPARE SALES AND EPS GROWTH TO THE SAME PERIOD LAST YEAR: PASS
Companies must demonstrate both revenue and net income growth of at least 25% as compared to the prior year. These growth rates give you the dynamic companies that you are looking for. These rates for CUTR (481.48% for EPS, and 25.74% for Sales) are good enough to pass.
INSIDER HOLDINGS: FAIL
CUTR's insiders should own at least 10% (they own 2.12%) of the company's outstanding shares. This does not satisfy the minimum requirement, and companies that do not pass this criteria are less attractive.
CASH FLOW FROM OPERATIONS: PASS
A positive cash flow is typically used for internal expansion, acquisitions, dividend payments, etc. A company that generates rather than consumes cash is in much better shape to fund such activities on their own, rather than needing to borrow funds to do so. CUTR's free cash flow of $0.91 per share passes this test.
PROFIT MARGIN CONSISTENCY: PASS
CUTR's profit margin has been consistent or even increasing over the past three years (Current year: 19.80%, Last year: 2.19%, Two years ago: -4.69%), passing the requirement. It is a sign of good management and a healthy and competitive enterprise.
R&D AS A PERCENTAGE OF SALES: NEUTRAL
This criterion is not critically important for companies that are not high-tech or medical stocks because they are not as R&D dependant as companies within those sectors. Not much emphasis should be placed on this test in CUTR's case.
CASH AND CASH EQUIVALENTS: PASS
CUTR's level of cash $35.9 million passes this criteria. If a company is a cash generator, like CUTR, it has the ability to pay off debt (if it has any) or acquire other companies. Most importantly, good operations generate cash.
INVENTORY TO SALES: PASS
This methodology strongly believes that companies, especially small ones, should have tight control over inventory. It's a warning sign if a company's inventory relative to sales increases significantly when compared to the previous year. Up to a 30% increase is allowed, but no more. Inventory to Sales for CUTR was 12.69% last year, while for this year it is 19.00%. Although the inventory to sales is rising, it is below the max 30% that is allowed. The investor can still consider the stock if all other criteria appear very attractive.
ACCOUNT RECEIVABLE TO SALES: PASS
This methodology wants to make sure that a company's accounts receivable do not get significantly out of line with sales. It's a warning sign if a company's accounts receivable relative to sales increases significantly when compared to the previous year. Up to a 30% increase is allowed, but no more. Accounts Receivable to Sales for CUTR was 14.02% last year, while for this year it is 13.72%. Since the AR to sales is decreasing by -0.30% the stock passes this criterion.
LONG TERM DEBT/EQUITY RATIO: PASS
CUTR's trailing twelve-month Debt/Equity ratio (0.00%) is at a great level according to this methodology because the superior companies that you are looking for don't need to borrow money in order to grow.
"THE FOOL RATIO" (P/E TO GROWTH): FAIL
The "Fool Ratio" is an extremely important aspect of this analysis. Unfortunately, CUTR's "Fool Ratio" is not available due to a lack of one or more important figures. Hence, an opinion cannot be given at this time.
The following criteria for CUTR are less important which means you would place less emphasis on them when making your investment decision using this strategy:
AVERAGE SHARES OUTSTANDING: PASS
CUTR has not been significantly increasing the number of shares outstanding within recent years which is a good sign. CUTR currently has 15.0 million shares outstanding. This means the company is not taking any measures, with regards to the number of shares, that will dilute or devalue the stock.
SALES: PASS
Companies with sales less than $500 million should be chosen. It is among these small-cap stocks that investors can find "an uncut gem", ones that institutions won't be able to buy yet. CUTR's sales of $151.5 million based on trailing 12 month sales, are fine, making this company one such "prospective gem". CUTR passes the sales test.
DAILY DOLLAR VOLUME: PASS
CUTR passes the Daily Dollar Volume (DDV of $12.2 million) test. It is required that this number be less than $25 million because these are the stocks that remain relatively undiscovered by institutions. "You'll be scoring touchdowns against the big guys on your turf."
PRICE: PASS
This is a very insignificant criterion for this methodology. But basically, low prices are chosen because "small numbers multiply more rapidly than large ones" and the potential for big returns expands. CUTR with a price of $49.65 passes the price test, even though it doesn't fall in the preferred range. The price should be above $7 in order to eliminate penny stocks and below $20 since most stocks in this price range are undiscovered by the institutions.
INCOME TAX PERCENTAGE: FAIL
CUTR's income tax paid expressed as a percentage of pretax income either this year (-150.75%) or last year (5.15%) is below 20% which is cause for concern. Because the tax rate is below 20% this could mean that the earnings that were reported are unrealistically inflated due to the lower level of income tax paid. However, we have utilized a sophisticated formula so that the appropriate figures reflect a 'normal' tax rate (35%). |
| Strategy: Growth/Value Investor
Based on: James P. O'Shaughnessy |
| Toll Brothers, Inc. is engaged in designing, building, marketing, selling and arranging financing for detached and attached homes in luxury residential communities. The Company operates through two segments: Traditional Home Building and Toll Brothers City Living (City Living). Within the Traditional Home Building segment, it operates in five geographic segments in the United States: the North, consisting of Connecticut, Illinois, Massachusetts, Michigan, Minnesota, New Jersey and New York; the Mid-Atlantic, consisting of Delaware, Maryland, Pennsylvania and Virginia; the South, consisting of Florida, North Carolina and Texas; the West, consisting of Arizona, Colorado, Nevada and Washington, and California. City Living is the Company's urban development division. Its products include Traditional Home Building Product and City Living Product. Its Traditional Home Building Product includes detached homes, move-up, executive, estate, and active-adult and age-qualified lines of home. |
MARKET CAP: PASS
The first requirement of the Cornerstone Growth Strategy is that the company has a market capitalization of at least $150 million. This will screen out the companies that are too illiquid for most investors, but still include a small growth company. TOL, with a market cap of $6,919 million, passes this criterion.
EARNINGS PER SHARE PERSISTENCE: PASS
The Cornerstone Growth methodology looks for companies that show persistent earnings growth without regard to magnitude. To fulfill this requirement, a company's earnings must increase each year for a five year period. TOL, whose annual EPS before extraordinary items for the last 5 years (from earliest to the most recent fiscal year) were 0.97, 1.84, 1.98, 2.18 and 3.17, passes this test.
PRICE/SALES RATIO: PASS
The Price/Sales ratio should be below 1.5. This value criterion, coupled with the growth criterion, identify growth stocks that are still cheap to buy. TOL's Price/Sales ratio of 1.14, based on trailing 12 month sales, passes this criterion.
RELATIVE STRENGTH: PASS
The final criterion for the Cornerstone Growth Strategy requires that the Relative Strength of the company be among the top 50 of the stocks screened using the previous criterion. This gives you the opportunity to buy the growth stocks you are searching for just as the market is embracing them. TOL, whose relative strength is 72, is in the top 50 and would pass this last criterion. |
MAGNA INTERNATIONAL INC. (USA) |
| Strategy: Growth Investor
Based on: Martin Zweig |
| Magna International Inc. (Magna) is a global automotive supplier. The Company's segments are North America, Europe, Asia, Rest of World, and Corporate and Other. The Company's product capabilities include producing body, chassis, exterior, seating, powertrain, electronic, active driver assistance, vision, closure, and roof systems and modules, as well as vehicle engineering and contract manufacturing. The Company has over 320 manufacturing operations and approximately 100 product development, engineering and sales centers in over 30 countries. It provides a range of body, chassis and engineering solutions to its original equipment manufacturer (OEM) customers. It has capabilities in powertrain design, development, testing and manufacturing. It offers bumper fascia systems, exterior trim and modular systems. It offers exterior and interior mirror systems. It offers sealing, trim, engineered glass and module systems. It offers softtops, retractable hardtops, modular tops and hardtops. |
P/E RATIO: PASS
The P/E of a company must be greater than 5 to eliminate weak companies, but not more than 3 times the current Market P/E because the situation is much too risky, and never greater than 43. MGA's P/E is 9.00, based on trailing 12 month earnings, while the current market PE is 29.00. Therefore, it passes the first test.
REVENUE GROWTH IN RELATION TO EPS GROWTH: FAIL
Revenue Growth must not be substantially less than earnings growth. For earnings to continue to grow over time they must be supported by a comparable or better sales growth rate and not just by cost cutting or other non-sales measures. MGA's revenue growth is 3.93%, while it's earnings growth rate is 12.66%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, MGA fails this criterion.
SALES GROWTH RATE: PASS
Another important issue regarding sales growth is that the rate of quarterly sales growth is rising. To evaluate this, the change from this quarter last year to the present quarter (12.3%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (7.3%) of the current year. Sales growth for the prior must be greater than the latter. For MGA this criterion has been met.
The earnings numbers of a company should be examined from various different angles. Three of these angles are stability in the trend of earnings, earnings persistence, and earnings acceleration. To evaluate stability, the stock has to pass the following four criteria.
CURRENT QUARTER EARNINGS: PASS
The first of these criteria is that the current EPS be positive. MGA's EPS ($1.47) pass this test.
QUARTERLY EARNINGS ONE YEAR AGO: PASS
The EPS for the quarter one year ago must be positive. MGA's EPS for this quarter last year ($1.24) pass this test.
POSITIVE EARNINGS GROWTH RATE FOR CURRENT QUARTER: PASS
The growth rate of the current quarter's earnings compared to the same quarter a year ago must also be positive. MGA's growth rate of 18.55% passes this test.
EARNINGS GROWTH RATE FOR THE PAST SEVERAL QUARTERS: FAIL
Compare the earnings growth rate of the previous three quarters with long-term EPS growth rate. Earnings growth in the previous 3 quarters should be at least half of the long-term EPS growth rate. Half of the long-term EPS growth rate for MGA is 6.33%. This should be less than the growth rates for the 3 previous quarters which are 25.41%, 4.96% and 5.43%. MGA does not pass this test, which means that it does not have good, reasonably steady earnings.
This strategy looks at the rate which earnings grow and evaluates this rate of growth from different angles. The 4 tests immediately following are detailed below.
EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN PRIOR 3 QUARTERS: PASS
If the growth rate of the prior three quarter's earnings, 11.48%, (versus the same three quarters a year earlier) is less than the growth rate of the current quarter earnings, 18.55%, (versus the same quarter one year ago) then the stock passes.
EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN THE HISTORICAL GROWTH RATE: PASS
The EPS growth rate for the current quarter, 18.55% must be greater than or equal to the historical growth which is 12.66%. MGA would therefore pass this test.
EARNINGS PERSISTENCE: PASS
Companies must show persistent yearly earnings growth. To fulfill this requirement a company's earnings must increase each year for a five year period. MGA, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 3.38, 4.44, 4.72, 5.16 and 5.84, passes this test.
LONG-TERM EPS GROWTH: FAIL
The final important criterion in this approach is that Earnings Growth be at least 15% per year. MGA's long-term growth rate of 12.66%, based on the average of the 3, 4 and 5 year historical eps growth rates, fails the minimum required.
TOTAL DEBT/EQUITY RATIO: PASS
A final criterion is that a company must not have a high level of debt. A high level of total debt, due to high interest expenses, can have a very negative effect on earnings if business moderately turns down. If a company does have a high level, an investor may want to avoid this stock altogether. MGA's Debt/Equity (31.72%) is not considered high relative to its industry (124.24%) and passes this test. |
| Strategy: Contrarian Investor
Based on: David Dreman |
| Stamps.com Inc. is a provider of Internet-based mailing and shipping solutions in the United States. The Company offers mailing and shipping products and services to its customers under the Stamps.com, Endicia, ShipStation, ShipWorks and ShippingEasy brands. It operates through the Internet Mailing and Shipping Services segment. Under the Stamps.com and Endicia brands, customers use its United States Postal Service (USPS) only solutions to mail and ship a range of mail pieces and packages through the USPS. USPS mailing and shipping solutions enable users to print electronic postage directly onto envelopes, plain paper, or labels using only a standard personal computer, printer and Internet connection. The Company offers USPS mailing and shipping services, multi-carrier shipping services, mailing and shipping services, branded insurance and international postage solutions. The Company offers customized postage under the PhotoStamps and PictureItPostage brand names. |
MARKET CAP: PASS
Medium to large-sized companies (the largest 1500 companies) should be chosen, because they are more in the public eye. Furthermore, the investor is exposed to less risk of "accounting gimmickry", and companies of this size have more staying power. STMP has a market cap of $3,451 million, therefore passing the test.
EARNINGS TREND: PASS
A company should show a rising trend in the reported earnings for the most recent quarters. STMP's EPS for the past 2 quarters, (from earliest to most recent quarter) 2.49, 2.85 have been increasing, and therefore the company passes this test.
EPS GROWTH RATE IN THE IMMEDIATE PAST AND FUTURE: PASS
This methodology likes to see companies with an EPS growth rate higher than the S&P in the immediate past and a likelihood that this trend will continue in the near future. STMP passes this test as its EPS growth rate over the past 6 months (66.66%) has beaten that of the S&P (-16.08%). STMP's estimated EPS growth for the current year is (3.03%), which indicates the company is expected to experience positive earnings growth. As a result, STMP passes this test.
This methodology would utilize four separate criteria to determine if STMP is a contrarian stock. In order to eliminate weak companies we have stipulated that the stock should pass at least two of the following four major criteria in order to receive "Some Interest".
P/E RATIO: FAIL
The P/E of a company should be in the bottom 20% of the overall market. STMP's P/E of 22.25, based on trailing 12 month earnings, is higher than the bottom 20% criterion (below 13.05), and therefore fails this test.
PRICE/CASH FLOW (P/CF) RATIO: FAIL
The P/CF of a company should be in the bottom 20% of the overall market. STMP's P/CF of 18.65 does not meet the bottom 20% criterion (below 7.00), and therefore fails this test.
PRICE/BOOK (P/B) VALUE: FAIL
The P/B value of a company should be in the bottom 20% of the overall market. STMP's P/B is currently 6.97, which does not meet the bottom 20% criterion (below 1.09), and it therefore fails this test.
PRICE/DIVIDEND (P/D) RATIO: FAIL
The P/D ratio for a company should be in the bottom 20% of the overall market (that is the yield should be in the top 20%). STMP's P/D is not available, and hence an opinion cannot be rendered at this time.
This methodology maintains that investors should look for as many healthy financial ratios as possible to ascertain the financial strength of the company. These criteria are detailed below.
CURRENT RATIO: PASS
A prospective company must have a strong Current Ratio (greater than or equal to the average of it's industry [1.40] or greater than 2). This is one identifier of financially strong companies, according to this methodology. STMP's current ratio of 2.35 passes the test.
PAYOUT RATIO: PASS
A good indicator that a company has the ability to raise its dividend is a low payout ratio. The payout ratio for STMP is 0.00%. Unfortunately, its historical payout ratio is not available. Nonetheless it passes the payout criterion, as this is a very low payout.
RETURN ON EQUITY: PASS
The company should have a high ROE, as this helps to ensure that there are no structural flaws in the company. This methodology feels that the ROE should be greater than the top one third of ROE from among the top 1500 large cap stocks, which is 17.73%, and would consider anything over 27% to be staggering. The ROE for STMP of 37.59% is high enough to pass this criterion.
PRE-TAX PROFIT MARGINS: PASS
This methodology looks for pre-tax profit margins of at least 8%, and considers anything over 22% to be phenomenal. STMP's pre-tax profit margin is 34.19%, thus passing this criterion.
YIELD: FAIL
The company in question should have a yield that is high and that can be maintained or increased. STMP's current yield is not available (or one is not paid) at the present time, while the market yield is 2.49%. Hence, this criterion cannot be evaluated.
LOOK AT THE TOTAL DEBT/EQUITY: PASS
The company must have a low Debt/Equity ratio, which indicates a strong balance sheet. The Debt/Equity ratio should not be greater than 20% or should be less than the average Debt/Equity for its industry of 69.12%. STMP's Total Debt/Equity of 13.87% is considered acceptable. |
| Strategy: Growth/Value Investor
Based on: James P. O'Shaughnessy |
| TriNet Group, Inc. is a provider of human resources (HR) solutions for small to medium-sized businesses (SMBs). The Company's HR solutions include services, such as multi-state payroll processing and tax administration, employee benefits programs, including health insurance and retirement plans, workers' compensation insurance and claims management, employment and benefit law compliance, and other services. The Company provides an HR technology platform with online and mobile tools that allow its clients and their worksite employees (WSEs) to store, view and manage their HR-related information and conduct a range of HR-related transactions anytime and anywhere. The Company's HR products and solutions include capabilities, such as technology platform, HR expertise, benefits and compliance. The Company's clients are distributed across a range of industries, including technology, life sciences, financial services, property management, retail, manufacturing and hospitality. |
MARKET CAP: PASS
The first requirement of the Cornerstone Growth Strategy is that the company has a market capitalization of at least $150 million. This will screen out the companies that are too illiquid for most investors, but still include a small growth company. TNET, with a market cap of $3,308 million, passes this criterion.
EARNINGS PER SHARE PERSISTENCE: PASS
The Cornerstone Growth methodology looks for companies that show persistent earnings growth without regard to magnitude. To fulfill this requirement, a company's earnings must increase each year for a five year period. TNET, whose annual EPS before extraordinary items for the last 5 years (from earliest to the most recent fiscal year) were 0.06, 0.22, 0.44, 0.85 and 2.49, passes this test.
PRICE/SALES RATIO: PASS
The Price/Sales ratio should be below 1.5. This value criterion, coupled with the growth criterion, identify growth stocks that are still cheap to buy. TNET's Price/Sales ratio of 1.01, based on trailing 12 month sales, passes this criterion.
RELATIVE STRENGTH: PASS
The final criterion for the Cornerstone Growth Strategy requires that the Relative Strength of the company be among the top 50 of the stocks screened using the previous criterion. This gives you the opportunity to buy the growth stocks you are searching for just as the market is embracing them. TNET, whose relative strength is 89, is in the top 50 and would pass this last criterion. |
| Strategy: P/E/Growth Investor
Based on: Peter Lynch |
| Signet Jewelers Limited is a retailer of diamond jewelry. The Company's segments include the Sterling Jewelers division; the Zale division, which consists of the Zale Jewelry and Piercing Pagoda segments; the UK Jewelry division, and Other. The Sterling Jewelers division's stores operate in the United States principally as Kay Jewelers (Kay), Kay Jewelers Outlet, Jared The Galleria Of Jewelry (Jared) and Jared Vault. The Zale division operates jewelry stores (Zale Jewelry) and kiosks (Piercing Pagoda), located primarily in shopping malls across the United States, Canada and Puerto Rico. Zale Jewelry includes the United States store brand, Zales, and the Canadian store brand, Peoples Jewellers. Piercing Pagoda operates through mall-based kiosks. The UK Jewelry division operates stores in the United Kingdom, Republic of Ireland and Channel Islands. The Other segment includes the operations of subsidiaries involved in the purchasing and conversion of rough diamonds to polished stones. |
DETERMINE THE CLASSIFICATION:
SIG is considered a "True Stalwart", according to this methodology, as its earnings growth of 13.45% lies within a moderate 10%-19% range and its annual sales of $6,230 million are greater than the multi billion dollar level. This methodology looks for the "Stalwart" securities to gain 30%-50% in value over a two year period if they can be purchased at an attractive price based on the P/E to Growth ratio. SIG is attractive if SIG can hold its own during a recession.
YIELD ADJUSTED P/E TO GROWTH (PEG) RATIO: PASS
The Yield-adjusted P/E/G ratio for SIG (0.52), based on the average of the 3, 4 and 5 year historical eps growth rates, is O.K.
EARNINGS PER SHARE: PASS
The EPS for a stalwart company must be positive. SIG's EPS ($5.76) would satisfy this criterion.
TOTAL DEBT/EQUITY RATIO: PASS
This methodology would consider the Debt/Equity ratio for SIG (35.92%) to be normal (equity is approximately twice debt).
FREE CASH FLOW: NEUTRAL
The Free Cash Flow/Price ratio, though not a requirement, is considered a bonus if it is above 35%. A positive Cash Flow (the higher the better) separates a wonderfully reliable investment from a shaky one. This methodology prefers not to invest in companies that rely heavily on capital spending. This ratio for SIG (8.84%) is too low to add to the attractiveness of the stock. Keep in mind, however, that it does not adversely affect the company as it is a bonus criteria.
NET CASH POSITION: NEUTRAL
Another bonus for a company is having a Net Cash/Price ratio above 30%. Lynch defines net cash as cash and marketable securities minus long term debt. According to this methodology, a high value for this ratio dramatically cuts down on the risk of the security. The Net Cash/Price ratio for SIG (-20.83%) is too low to add to the attractiveness of this company. Keep in mind, however, that it does not adversely affect the company as it is a bonus criteria. |
Watch List
The top scoring stocks not currently in the Hot List portfolio.
| Ticker |
Company Name |
Industry |
Current
Score |
| PFSI |
PENNYMAC FINANCIAL SERVICES INC |
Consumer Financial Services |
86% |
| THO |
THOR INDUSTRIES, INC. |
Mobile Homes & RVs |
78% |
| ORBK |
ORBOTECH LTD |
Semiconductors |
58% |
| SUPV |
GRUPO SUPERVIELLE SA -ADR |
Regional Banks |
57% |
| DHI |
D. R. HORTON INC |
Construction Services |
57% |
| PLNT |
PLANET FITNESS INC |
Recreational Activities |
55% |
| CVS |
CVS HEALTH CORP |
Retail (Drugs) |
53% |
| CPB |
CAMPBELL SOUP COMPANY |
Food Processing |
52% |
| IBKR |
INTERACTIVE BROKERS GROUP, INC. |
Investment Services |
52% |
| HAS |
HASBRO, INC. |
Recreational Products |
50% |
|
