Guru Analysis
| Strategy: P/E/Growth Investor
Based on: Peter Lynch |
| Banco Macro SA is an Argnetina-based financial institution (the Bank) that offers traditional bank products and services to companies, including those operating in regional economies, as well as to individuals. In addition, the Bank performs certain transactions through its subsidiaries, including mainly Banco del Tucuman, Macro Bank Ltd, Macro Securities SA, Macro Fiducia SA and Macro Fondos SGFCI SA. It has approximately two categories of customers, such as retail customers, including individuals and entrepreneurs and corporate customers, which include small, medium and large companies and major corporations. In addition, it provides services to over four provincial governments. It provides its corporate customers with traditional banking products and services, such as deposits, lending (including overdraft facilities), check cashing advances and factoring, guaranteed loans and credit lines for financing foreign trade and cash management services. |
DETERMINE THE CLASSIFICATION:
This methodology would consider BMA a "fast-grower".
P/E/GROWTH RATIO: PASS
The investor should examine the P/E (12.12) relative to the growth rate (41.33%), based on the average of the 3, 4 and 5 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 BMA (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. BMA, whose sales are $1,878.1 million, needs to have a P/E below 40 to pass this criterion. BMA's P/E of (12.12) is considered acceptable.
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 BMA is 41.3%, based on the average of the 3, 4 and 5 year historical eps growth rates, which is considered 'OK'. However, it may be difficult to sustain such a high growth rate.
TOTAL DEBT/EQUITY RATIO: NEUTRAL
BMA is a financial company so debt to equity rules are not applied to determine the company's financial soundness.
EQUITY/ASSETS RATIO: PASS
This methodology uses the Equity/Assets Ratio as a way to determine a financial intermediary's health, as it is a better measure than the Debt/Equity Ratio. BMA's Equity/Assets ratio (14.00%) is very healthy and above the minimum 5% this methodology looks for, thus passing the criterion.
RETURN ON ASSETS: PASS
This methodology uses Return on Assets as a way to measure a financial intermediary's profitability. BMA's ROA (4.88%) is above the minimum 1% that this methodology looks for, thus passing the criterion.
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 BMA (13.48%) 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 BMA (-5.01%) 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: Contrarian Investor
Based on: David Dreman |
| Walker & Dunlop, Inc. is a holding company, which conducts its operations through Walker & Dunlop, LLC. The Company provides commercial real estate financial products and services primarily to developers and owners of multifamily properties. The Company originates, sells and services a range of multifamily and other commercial real estate financing products, including Multifamily Finance, Federal Housing Administration (FHA) Finance, Capital Markets, and Proprietary Capital. It originates and sells loans through the programs of the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac, and together with Fannie Mae, the government-sponsored enterprises (GSEs)), the Government National Mortgage Association (Ginnie Mae) and the Federal Housing Administration, a division of the United States Department of Housing and Urban Development (together with Ginnie Mae, HUD). |
MARKET CAP: FAIL
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. WD has a market cap of $1,523 million, therefore failing the test.
EARNINGS TREND: PASS
A company should show a rising trend in the reported earnings for the most recent quarters. WD's EPS for the past 2 quarters, (from earliest to most recent quarter) 1.13, 1.35 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. WD passes this test as its EPS growth rate over the past 6 months (40.62%) has beaten that of the S&P (3.85%). WD's estimated EPS growth for the current year is (22.47%), which indicates the company is expected to experience positive earnings growth. As a result, WD passes this test.
This methodology would utilize four separate criteria to determine if WD 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: PASS
The P/E of a company should be in the bottom 20% of the overall market. WD's P/E of 10.84, based on trailing 12 month earnings, meets the bottom 20% criterion (below 13.22), and therefore passes this test.
PRICE/CASH FLOW (P/CF) RATIO: PASS
The P/CF of a company should be in the bottom 20% of the overall market. WD's P/CF of 5.84 meets the bottom 20% criterion (below 7.41) and therefore passes 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. WD's P/B is currently 2.28, which does not meet the bottom 20% criterion (below 1.07), 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%). WD'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.
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 WD 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 16.88%, and would consider anything over 27% to be staggering. The ROE for WD of 24.74% 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. WD's pre-tax profit margin is 34.04%, thus passing this criterion.
YIELD: FAIL
The company in question should have a yield that is high and that can be maintained or increased. WD's current yield is not available (or one is not paid) at the present time, while the market yield is 2.63%. Hence, this criterion cannot be evaluated. |
MAGNA INTERNATIONAL INC. (USA) |
| Strategy: Price/Sales Investor
Based on: Kenneth Fisher |
| 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. |
PRICE/SALES RATIO: PASS
The prospective company should have a low Price/Sales ratio. Non-cyclical (non-Smokestack) companies with Price/Sales ratios below 0.75 are tremendous values and should be sought. MGA's P/S of 0.48 based on trailing 12 month sales, is below 0.75 which is considered quite attractive. It passes this methodology's P/S ratio test with flying colors.
TOTAL DEBT/EQUITY RATIO: PASS
Less debt equals less risk according to this methodology. MGA's Debt/Equity of 29.33% is acceptable, thus passing the test.
PRICE/RESEARCH RATIO: PASS
This methodology considers companies in the Technology and Medical sectors to be attractive if they have low Price/Research ratios. MGA is neither a Technology nor Medical company. Therefore the Price/Research ratio is not available and, hence, not much emphasis should be placed on this particular variable.
PRELIMINARY GRADE: Some Interest in MGA At this Point
Is MGA a "Super Stock"? NO
PRICE/SALES RATIO: PASS
The prospective company should have a low Price/Sales ratio. Non-cyclical(non-Smokestack) companies with Price/Sales ratios below .75 are tremendous values and should be sought.MGA's P/S ratio of 0.48 is below .75 which is considered extremely attractive. It passes this methodology's P/S ratio test with flying colors.
LONG-TERM EPS GROWTH RATE: FAIL
This methodology looks for companies that have an inflation adjusted EPS growth rate greater than 15%. MGA's inflation adjusted EPS growth rate of 8.77% fails the test.
FREE CASH PER SHARE: PASS
This methodology looks for companies that have a positive free cash per share. Companies should have enough free cash available to sustain three years of losses. This is based on the premise that companies without cash will soon be out of business. MGA's free cash per share of 3.04 passes this criterion.
THREE YEAR AVERAGE NET PROFIT MARGIN: PASS
This methodology looks for companies that have an average net profit margin of 5% or greater over a three year period. MGA, whose three year net profit margin averages 5.77%, passes this evaluation.
|
| Strategy: Small-Cap Growth Investor
Based on: Motley Fool |
| Willdan Group, Inc. is a holding company. The Company provides professional technical and consulting services to utilities, private industry and public agencies at all levels of government, primarily in California and New York. It operates through four segments: Energy Efficiency Services, Engineering Services, Public Finance Services and Homeland Security Services. The Energy Efficiency Services segment provides energy efficiency consulting services to utilities, state agencies, municipalities, private industry and non-profit organizations. The Engineering Services segment offers a range of engineering and planning services to its public and private sector clients. The Public Finance Services segment provides support for the various financing techniques employed by public agencies to finance their operations and infrastructure. The Homeland Security Services segment provides national preparedness, homeland security consulting, public safety and emergency response services. |
PROFIT MARGIN: FAIL
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. WLDN's profit margin of 4.05% fails 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. WLDN, with a relative strength of 98, 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 WLDN (130.77% for EPS, and 101.50% for Sales) are good enough to pass.
INSIDER HOLDINGS: FAIL
WLDN's insiders should own at least 10% (they own 7.44%) 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. WLDN's free cash flow of $2.33 per share passes this test.
PROFIT MARGIN CONSISTENCY: FAIL
The profit margin in the past must be consistently increasing. The profit margin of WLDN has been inconsistent in the past three years (Current year: 3.97%, Last year: 3.15%, Two years ago: 8.72%), 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: 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 WLDN's case.
CASH AND CASH EQUIVALENTS: FAIL
WLDN's level of cash and cash equivalents per sales, 9.31 %, does not pass this criteria of roughly 20%(a number we determined to be appropriate based on various examples). WLDN will have a more difficult time paying off debt (if it has any) or acquiring other companies than a company that passes this criteria.
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 WLDN was 10.24% last year, while for this year it is 9.09%. Since the inventory to sales is decreasing by -1.16% 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 WLDN was 13.40% last year, while for this year it is 14.83%. 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
WLDN's trailing twelve-month Debt/Equity ratio (3.04%) 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 holding the shares when the company's Fool Ratio is greater than 0.65 (WLDN's is 0.83), but initial purchases in this range are unfavorable.
The following criteria for WLDN are less important which means you would place less emphasis on them when making your investment decision using this strategy:
AVERAGE SHARES OUTSTANDING: PASS
WLDN has not been significantly increasing the number of shares outstanding within recent years which is a good sign. WLDN currently has 9.0 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. WLDN's sales of $243.4 million based on trailing 12 month sales, are fine, making this company one such "prospective gem". WLDN passes the sales test.
DAILY DOLLAR VOLUME: PASS
WLDN passes the Daily Dollar Volume (DDV of $5.2 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. WLDN with a price of $33.81 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
WLDN's income tax paid expressed as a percentage of pretax income this year was (27.00%) and last year (41.96%) 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 |
| Argan, Inc. is a holding company. The Company conducts operations through its subsidiaries, Gemma Power Systems, LLC and affiliates (GPS), Atlantic Projects Company Limited (APC), Southern Maryland Cable, Inc. (SMC) and The Roberts Company (Roberts). Through GPS and APC, the Company's power industry services segment provides engineering, procurement, construction, commissioning, operations management, maintenance, development, technical and consulting services to the power generation and renewable energy markets. Through SMC, the telecommunications infrastructure services segment of the Company provides project management, construction, installation and maintenance services to commercial, local government and federal government customers. Through Roberts, the Company's industrial fabrication and field services segment produces, delivers and installs fabricated steel components specializing in pressure vessels and heat exchangers for industrial plants. |
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. AGX's profit margin of 11.47% 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. AGX, with a relative strength of 91, 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 AGX (182.22% for EPS, and 77.64% for Sales) are good enough to pass.
INSIDER HOLDINGS: FAIL
AGX's insiders should own at least 10% (they own 7.08%) 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. AGX's free cash flow of $15.42 per share passes this test.
PROFIT MARGIN CONSISTENCY: PASS
AGX's profit margin has been consistent or even increasing over the past three years (Current year: 10.42%, Last year: 8.79%, Two years ago: 7.95%), 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 AGX's case.
CASH AND CASH EQUIVALENTS: PASS
AGX's level of cash $523.0 million passes this criteria. If a company is a cash generator, like AGX, it has the ability to pay off debt (if it has any) or acquire other companies. Most importantly, good operations generate cash.
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 AGX was 15.53% last year, while for this year it is 8.12%. Since the AR to sales is decreasing by -7.41% the stock passes this criterion.
LONG TERM DEBT/EQUITY RATIO: PASS
AGX'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): PASS
The "Fool Ratio" is an extremely important aspect of this analysis. If the company has attractive fundamentals and its Fool Ratio is 0.5 or less (AGX's is 0.42), the shares are looked upon favorably. These high quality companies can often wind up as the biggest winners. AGX passes this test.
The following criteria for AGX are less important which means you would place less emphasis on them when making your investment decision using this strategy:
AVERAGE SHARES OUTSTANDING: PASS
AGX has not been significantly increasing the number of shares outstanding within recent years which is a good sign. AGX currently has 16.0 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. AGX's sales of $675.1 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: PASS
AGX passes the Daily Dollar Volume (DDV of $10.7 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. AGX with a price of $61.60 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
AGX's income tax paid expressed as a percentage of pretax income this year was (32.40%) and last year (33.51%) 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 |
| Essent Group Ltd. is a private mortgage insurance company. The Company is engaged in offering private mortgage insurance and reinsurance for mortgages secured by residential properties located in the United States. Its products and services include mortgage insurance, contract underwriting, and Bermuda-based insurance and reinsurance. The Company's primary mortgage insurance is offered to customers on individual loans at the time of origination on a flow basis, but can also be written in bulk transactions. Its pool insurance provides additional credit enhancement for certain secondary market and other mortgage transactions. The primary mortgage insurance operations were conducted through Essent Guaranty, Inc. which is a mortgage insurer licensed to write mortgage insurance in all 50 states and the District of Columbia, as of December 31, 2016. It offers primary mortgage insurance, pool insurance and master policy. It provides contract underwriting services through CUW Solutions, LLC. |
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. ESNT's profit margin of 49.91% passes this test.
RELATIVE STRENGTH: FAIL
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. Although ESNT's relative strength of 88 is below the acceptable level, yet it is very close. Keep an eye on the stock as it could move into the acceptable range.
COMPARE SALES AND EPS GROWTH TO THE SAME PERIOD LAST YEAR: FAIL
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 ESNT (38.46% for EPS, and 24.51% for Sales) are not good enough to pass.
INSIDER HOLDINGS: PASS
ESNT's insiders should own at least 10% (they own 16.26% ) 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. ESNT's free cash flow of $2.93 per share passes this test.
PROFIT MARGIN CONSISTENCY: PASS
ESNT's profit margin has been consistent or even increasing over the past three years (Current year: 48.58%, Last year: 44.53%, Two years ago: 36.96%), 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 ESNT's case.
CASH AND CASH EQUIVALENTS: FAIL
ESNT does not have a sufficiently large amount of cash, $27.53 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. ESNT 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.
"THE FOOL RATIO" (P/E TO GROWTH): FAIL
The "Fool Ratio" is an extremely important aspect of this analysis. The methodology says consider holding the shares when the company's Fool Ratio is greater than 0.65 (ESNT's is 0.76), but initial purchases in this range are unfavorable.
The following criteria for ESNT are less important which means you would place less emphasis on them when making your investment decision using this strategy:
AVERAGE SHARES OUTSTANDING: PASS
ESNT has not been significantly increasing the number of shares outstanding within recent years which is a good sign. ESNT currently has 93.0 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. ESNT's sales of $483.4 million based on trailing 12 month sales, are fine, making this company one such "prospective gem". ESNT passes the sales test.
DAILY DOLLAR VOLUME: PASS
ESNT passes the Daily Dollar Volume (DDV of $22.9 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. ESNT with a price of $36.74 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
ESNT's income tax paid expressed as a percentage of pretax income this year was (28.63%) and last year (31.12%) 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: Growth Investor
Based on: Martin Zweig |
| Nutrisystem, Inc. is a provider of weight management products and services, including nutritionally balanced weight loss programs, multi-day kits available at retail locations and digital tools to support weight loss. The Company's program customers purchase monthly food packages containing four-week meal plan consisting supply of breakfasts, lunches, dinners and snacks and flex meal plan recipes, which they supplement with fresh fruits, vegetables and dairy. Its customers order on an auto-delivery basis (Auto-Delivery), where means it sends a four-week meal plan on an ongoing basis until notified of a customer's cancellation. The Company offers its pre-selected favorites food pack or personalized plans, where customers can hand pick their entire menu or customize plans to their dietary preference. As of December 31, 2016, its meal plans featured over 150 menu options at different price points, including frozen and ready-to-go entrees, desserts, snacks and shakes. |
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. NTRI's P/E is 38.55, based on trailing 12 month earnings, while the current market PE is 18.00. 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. NTRI's revenue growth is 10.62%, while it's earnings growth rate is 44.96%, based on the average of the 3 and 5 year historical eps growth rates. Therefore, NTRI 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 (31.2%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (20.7%) of the current year. Sales growth for the prior must be greater than the latter. For NTRI 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. NTRI's EPS ($0.25) pass this test.
QUARTERLY EARNINGS ONE YEAR AGO: PASS
The EPS for the quarter one year ago must be positive. NTRI's EPS for this quarter last year ($0.08) 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. NTRI's growth rate of 212.50% 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 NTRI is 22.48%. This should be less than the growth rates for the 3 previous quarters which are 31.71%, 8.00% and 130.77%. NTRI 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, 40.51%, (versus the same three quarters a year earlier) is less than the growth rate of the current quarter earnings, 212.50%, (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, 212.50% must be greater than or equal to the historical growth which is 44.96%. NTRI 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. NTRI, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were -0.10, 0.25, 0.66, 0.89 and 1.19, 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. NTRI's long-term growth rate of 44.96%, based on the average of the 3 and 5 year historical eps growth rates, passes this test.
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. NTRI's Debt/Equity (0.00%) is not considered high relative to its industry (1,344.20%) and 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 NTRI, this criterion has not been met (insider sell transactions are 133, while insiders buying number 54). 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. |
| Strategy: Contrarian Investor
Based on: David Dreman |
| Foot Locker, Inc. is a retailer of shoes and apparel. The Company operates through two segments: Athletic Stores and Direct-to-Customers. The Company is an athletic footwear and apparel retailer, which include businesses, such as include Foot Locker, Kids Foot Locker, Lady Foot Locker, Champs Sports, Footaction, Runners Point, Sidestep and SIX:02. The Direct-to-Customers segment is multi-branded and sells directly to customers through Internet and mobile sites and catalogs. The Direct-to-Customers segment operates the Websites for eastbay.com, final-score.com, eastbayteamsales.com and sp24.com. Additionally, this segment includes the Websites, both desktop and mobile, aligned with the brand names of its store banners (footlocker.com, ladyfootlocker.com, six02.com kidsfootlocker.com, champssports.com, footaction.com, footlocker.ca, footlocker.eu, runnerspoint.com and sidestep-shoes.com). |
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. FL has a market cap of $7,790 million, therefore passing the test.
EARNINGS TREND: FAIL
A company should show a rising trend in the reported earnings for the most recent quarters. FL's EPS for the latest quarter is not greater than the prior quarter, (from earliest to most recent quarter) 1.42, 1.36. Hence the stock fails this test, but the investor should evaluate this company qualitatively to see if it qualifies under this methodology's "exception rule".
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. FL passes this test as its EPS growth rate over the past 6 months (16.23%) has beaten that of the S&P (3.85%). FL's estimated EPS growth for the current year is (4.67%), which indicates the company is expected to experience positive earnings growth. As a result, FL passes this test.
This methodology would utilize four separate criteria to determine if FL 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: PASS
The P/E of a company should be in the bottom 20% of the overall market. FL's P/E of 12.15, based on trailing 12 month earnings, meets the bottom 20% criterion (below 13.22), and therefore passes 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. FL's P/CF of 9.58 does not meet the bottom 20% criterion (below 7.41), 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. FL's P/B is currently 2.77, which does not meet the bottom 20% criterion (below 1.07), 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%). FL's P/D of 47.85 does not meet the bottom 20% criterion (below 20.66), and it therefore fails this test.
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 [2.56] or greater than 2). This is one identifier of financially strong companies, according to this methodology. FL's current ratio of 4.90 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 FL is 16.84%, while its historical payout ratio has been 24.97%. Therefore, it passes the payout criterion.
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 16.88%, and would consider anything over 27% to be staggering. The ROE for FL of 23.76% 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. FL's pre-tax profit margin is 12.53%, thus passing this criterion.
YIELD: FAIL
The company in question should have a yield that is high and that can be maintained or increased. FL's current yield is 2.09%, while the market yield is 2.63%. FL fails this test.
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 66.00%. FL's Total Debt/Equity of 4.50% is considered acceptable. |
| Strategy: Value Investor
Based on: Benjamin Graham |
| Sanderson Farms, Inc. is a poultry processing company. The Company is engaged in the production, processing, marketing and distribution of fresh and frozen chicken, and also preparation, processing, marketing and distribution of processed and minimally prepared chicken. It sells ice pack, chill pack, bulk pack and frozen chicken, in whole, cut-up and boneless form, under the Sanderson Farms brand name to retailers, distributors, casual dining operators, customers reselling frozen chicken into export markets. The Company, through its subsidiaries, Sanderson Farms, Inc. (Production Division) and Sanderson Farms, Inc. (Processing Division), conducts its chicken operations. Sanderson Farms, Inc. (Production Division) is engaged in the production of chickens to the broiler-stage. Sanderson Farms, Inc. (Foods Division) is engaged in the processing, sale and distribution of chickens. The Company, through Sanderson Farms, Inc. (Foods Division), conducts its prepared chicken business. |
SECTOR: PASS
SAFM is neither a technology nor financial Company, and therefore this methodology is applicable.
SALES: PASS
The investor must select companies of "adequate size". This includes companies with annual sales greater than $340 million. SAFM's sales of $3,009.2 million, based on trailing 12 month sales, pass this test.
CURRENT RATIO: PASS
The current ratio must be greater than or equal to 2. Companies that meet this criterion are typically financially secure and defensive. SAFM's current ratio of 4.97 passes the test.
LONG-TERM DEBT IN RELATION TO NET CURRENT ASSETS: PASS
For industrial companies, long-term debt must not exceed net current assets (current assets minus current liabilities). Companies that meet this criterion display one of the attributes of a financially secure organization. The long-term debt for SAFM is $0.0 million, while the net current assets are $528.5 million. SAFM passes this test.
LONG-TERM EPS GROWTH: FAIL
Companies must increase their EPS by at least 30% over a ten-year period and EPS must not have been negative for any year within the last 5 years. EPS for SAFM were negative within the last 5 years and therefore the company fails this criterion.
P/E RATIO: PASS
The Price/Earnings (P/E) ratio, based on the greater of the current PE or the PE using average earnings over the last 3 fiscal years, must be "moderate", which this methodology states is not greater than 15. Stocks with moderate P/Es are more defensive by nature. SAFM's P/E of 12.50 (using the 3 year PE) passes this test.
PRICE/BOOK RATIO: FAIL
The Price/Book ratio must also be reasonable. That is, the Price/Book multiplied by P/E cannot be greater than 22. SAFM's Price/Book ratio is 2.12, while the P/E is 12.50. SAFM fails the Price/Book test. |
| Strategy: P/E/Growth Investor
Based on: Peter Lynch |
| LeMaitre Vascular, Inc. is a provider of medical devices for the treatment of peripheral vascular disease. The Company develops, manufactures and markets medical devices and implants used primarily in the field of vascular surgery. It is engaged in the design, marketing, sales and technical support of medical devices and implants for the treatment of peripheral vascular disease industry segment. The Company's product lines include valvulotomes, balloon catheters, carotid shunts, biologic vascular patches, radiopaque marking tape, anastomotic clips, remote endarterectomy devices, laparoscopic cholecystectomy devices, prosthetic vascular grafts, biologic vascular grafts and powered phlebectomy devices. Its portfolio of peripheral vascular devices consists of brand name products that are used in arteries and veins outside of the heart, including the Expandable LeMaitre Valvulotome, the Pruitt F3 Carotid Shunt, VascuTape Radiopaque Tape and the XenoSure biologic patch. |
DETERMINE THE CLASSIFICATION:
This methodology would consider LMAT a "fast-grower".
P/E/GROWTH RATIO: PASS
The investor should examine the P/E (52.42) relative to the growth rate (36.41%), based on the average of the 3, 4 and 5 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 LMAT (1.44) is on the high side, but is acceptable if all the other tests are met.
SALES AND P/E RATIO: NEUTRAL
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 rate high enough to support a P/E above this threshold. LMAT, whose sales are $93.0 million, is not considered large enough to apply the P/E ratio analysis. However, an investor can analyze the P/E ratio relative to the EPS growth rate.
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 LMAT was 19.40% last year, while for this year it is 19.02%. Since inventory to sales has decreased from last year by -0.38%, LMAT 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 LMAT is 36.4%, based on the average of the 3, 4 and 5 year historical eps growth rates, which is considered 'OK'. However, it may be difficult to sustain such a high growth rate.
TOTAL DEBT/EQUITY RATIO: PASS
This methodology would consider the Debt/Equity ratio for LMAT (0.00%) to be wonderfully low (equity is at least ten times debt). This ratio is one quick way to determine the financial strength of the company.
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 LMAT (1.78%) 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 LMAT (3.86%) 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 |
| TX |
TERNIUM SA (ADR) |
Iron & Steel |
54% |
| ATH |
ATHENE HOLDING LTD |
Insurance (Life) |
51% |
| MAN |
MANPOWERGROUP INC. |
Business Services |
51% |
| HQY |
HEALTHEQUITY INC |
Regional Banks |
49% |
| HSKA |
HESKA CORP |
Biotechnology & Drugs |
47% |
| MASI |
MASIMO CORPORATION |
Medical Equipment & Supplies |
47% |
| JBSS |
JOHN B. SANFILIPPO & SON, INC. |
Food Processing |
46% |
| CTB |
COOPER TIRE & RUBBER CO |
Tires |
46% |
| AVY |
AVERY DENNISON CORP |
Containers & Packaging |
45% |
| KORS |
MICHAEL KORS HOLDINGS LTD |
Apparel/Accessories |
45% |
|
