Guru Analysis
| Strategy: Small-Cap Growth Investor
Based on: Motley Fool |
| Banco Macro S.A. (the Bank) is a bank. The Bank offers traditional bank products and services to companies, including those operating in regional economies, as well as to individuals. The Bank offers savings and checking accounts, credit and debit cards, consumer finance loans (including personal loans), mortgage loans, automobile loans, overdrafts, credit-related services, home and car insurance coverage, tax collection, utility payments, automatic teller machines (ATMs) and money transfers. The Bank offers Plan Sueldo payroll services, lending, corporate credit cards, mortgage finance, transaction processing and foreign exchange. The Bank offers transaction services to its corporate customers, such as cash management, customer collections, payments to suppliers, payroll administration, foreign exchange transactions, foreign trade services, corporate credit cards and information services, such as its Datanet and Interpymes services. |
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. BMA's profit margin of 28.15% 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. BMA, 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 BMA (1,500.00% for EPS, and 41.88% for Sales) are good enough to pass.
INSIDER HOLDINGS: FAIL
BMA's insiders ownership is not available at the current time. Insiders of a company should own at least 15% of the outstanding shares. 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. BMA's free cash flow of $4.75 per share passes this test.
PROFIT MARGIN CONSISTENCY: FAIL
The profit margin in the past must be consistently increasing. The profit margin of BMA has been inconsistent in the past three years (Current year: 24.91%, Last year: 23.70%, Two years ago: 25.05%), 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 BMA's case.
CASH AND CASH EQUIVALENTS: FAIL
BMA does not have a sufficiently large amount of cash, $84.79 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. BMA 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): 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 (BMA's is 0.27), the shares are looked upon favorably. These high quality companies can often wind up as the biggest winners. BMA passes this test.
The following criteria for BMA are less important which means you would place less emphasis on them when making your investment decision using this strategy:
AVERAGE SHARES OUTSTANDING: PASS
BMA has not been significantly increasing the number of shares outstanding within recent years which is a good sign. BMA currently has 58.0 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. BMA's sales of $1,461.6 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
BMA passes the Daily Dollar Volume (DDV of $11.3 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. BMA with a price of $74.22 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
BMA's income tax paid expressed as a percentage of pretax income this year was (33.17%) and last year (35.90%) 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: P/E/Growth Investor
Based on: Peter Lynch |
| Anika Therapeutics, Inc. is an orthopedic medicines company. The Company offers therapeutic pain management solutions. It is engaged in developing, manufacturing and commercializing approximately 20 products based on its hyaluronic acid (HA) technology. It orthopedic medicine portfolio consists of marketed (ORTHOVISC and MONOVISC) and pipeline (CINGAL and HYALOFAST in the United States) products to alleviate pain and restore joint function by replenishing depleted HA and aiding cartilage repair and regeneration. Its therapeutic offerings consist of products in the areas, such as Orthobiologics, Dermal, Surgical, Ophthalmic and Veterinary. It offers products made from HA based on two technologies: HYAFF, which is a solid form of HA, and ACP gel, an autocross-linked polymer of HA. Its orthobiologics products primarily consist of viscosupplementation and regenerative orthopedics products. Its viscosupplementation franchise includes ORTHOVISC, ORTHOVISC mini, MONOVISC, and CINGAL. |
DETERMINE THE CLASSIFICATION:
This methodology would consider ANIK a "fast-grower".
P/E/GROWTH RATIO: PASS
The investor should examine the P/E (24.09) relative to the growth rate (37.67%), 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 ANIK (0.64) makes it favorable.
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. ANIK, whose sales are $99.8 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 ANIK was 11.75% last year, while for this year it is 16.06%. Since inventory has been rising, this methodology would not look favorably at the stock but would not completely eliminate it from consideration as the inventory increase (4.31%) is below 5%.
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 ANIK is 37.7%, 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 ANIK (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 ANIK (3.63%) 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 ANIK (17.21%) 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. |
VALERO ENERGY CORPORATION |
| Strategy: Contrarian Investor
Based on: David Dreman |
| Valero Energy Corporation (Valero), through Valero Energy Partners LP (VLP), owns, operates, develops and acquires crude oil and refined petroleum products pipelines, terminals, and other transportation and logistics assets. The Company operates in two segments: refining and ethanol. Its refining segment includes refining and marketing operations in the United States, Canada, the United Kingdom, Aruba and Ireland. Its ethanol segment includes ethanol and marketing operations in the United States. VLP's assets include crude oil and refined petroleum products pipeline and terminal systems in the United States Gulf Coast and the United States Mid-Continent regions. Its refineries can produce conventional gasolines, premium gasolines, gasoline meeting the specifications of the California Air Resources Board (CARB), diesel, low-sulfur diesel, ultra-low-sulfur diesel, CARB diesel, other distillates, jet fuel, asphalt, petrochemicals, lubricants and other refined products. |
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. VLO has a market cap of $23,960 million, therefore passing the test.
EARNINGS TREND: PASS
A company should show a rising trend in the reported earnings for the most recent quarters. VLO's EPS for the past 2 quarters, (from earliest to most recent quarter) 0.61, 1.06 have been increasing, and therefore the company passes this test.
EPS GROWTH RATE IN THE IMMEDIATE PAST AND FUTURE: FAIL
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. VLO fails this test as its EPS growth rate for the past 6 months (-62.00%) does not beat that of the S&P (-13.79%).
This methodology would utilize four separate criteria to determine if VLO 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. VLO's P/E of 7.19, based on trailing 12 month earnings, meets the bottom 20% criterion (below 11.86), 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. VLO's P/CF of 4.33 meets the bottom 20% criterion (below 6.82) 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. VLO's P/B is currently 1.16, which does not meet the bottom 20% criterion (below 0.92), 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%). VLO's P/D of 21.23 does not meet the bottom 20% criterion (below 19.42), 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 [1.30] or greater than 2). This is one identifier of financially strong companies, according to this methodology. VLO's current ratio of 2.19 passes the test.
PAYOUT RATIO: FAIL
A good indicator that a company has the ability to raise its dividend is a low payout ratio. The payout ratio for VLO is 26.29%, while its historical payout ratio has been 15.73%. Therefore, it fails 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 16.05%, and would consider anything over 27% to be staggering. The ROE for VLO of 16.98% is high enough to pass this criterion.
PRE-TAX PROFIT MARGINS: FAIL
This methodology looks for pre-tax profit margins of at least 8%, and considers anything over 22% to be phenomenal. VLO's pre-tax profit margin is 6.43%, thus failing this criterion.
YIELD: PASS
The company in question should have a yield that is high and that can be maintained or increased. VLO's current yield is 4.71%, while the market yield is 2.74%. VLO passes 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 59.81%. VLO's Total Debt/Equity of 35.51% is considered acceptable. |
| Strategy: Small-Cap Growth Investor
Based on: Motley Fool |
| Ormat Technologies, Inc. is engaged in the geothermal and recovered energy power business. The Company designs, develops, builds, owns and operates geothermal and recovered energy-based power plants. The Company's equipment manufacturing operations are located in Israel. The Company conducts its business activities in two business segments: Electricity segment and Product segment. The Company's Electricity segment develops, builds, owns and operates geothermal and recovered energy-based power plants in the United States and geothermal power plants in other countries around the world, and sells the electricity it generates. The Company's Product Segment designs, manufactures and sells equipment for geothermal and recovered energy-based electricity generation, remote power units and other power generating units, and provide services relating to the engineering, procurement, construction, operation and maintenance of geothermal, and recovered energy-based power 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. ORA's profit margin of 23.91% 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. ORA, with a relative strength of 80, fails 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 ORA (180.95% for EPS, and 26.08% for Sales) are good enough to pass.
INSIDER HOLDINGS: PASS
ORA's insiders should own at least 10% (they own 22.22% ) 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. ORA's free cash flow of $0.50 per share passes this test.
PROFIT MARGIN CONSISTENCY: PASS
ORA's profit margin has been consistent or even increasing over the past three years (Current year: 20.11%, Last year: 9.68%, Two years ago: 7.73%), 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 ORA's case.
CASH AND CASH EQUIVALENTS: PASS
ORA's level of cash $185.9 million passes this criteria. If a company is a cash generator, like ORA, 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 ORA was 7.99% last year, while for this year it is 7.26%. Since the inventory to sales is decreasing by -0.73% 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 ORA was 10.82% last year, while for this year it is 10.63%. Since the AR to sales is decreasing by -0.19% the stock passes this criterion.
LONG TERM DEBT/EQUITY RATIO: FAIL
ORA's trailing twelve-month Debt/Equity ratio (82.31%) 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 (ORA's is 0.60), the company demonstrates excellence in its fundamentals and have soundly beat the earnings estimates. ORA passes this test.
The following criteria for ORA are less important which means you would place less emphasis on them when making your investment decision using this strategy:
AVERAGE SHARES OUTSTANDING: PASS
ORA has not been significantly increasing the number of shares outstanding within recent years which is a good sign. ORA currently has 50.0 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. ORA's sales of $626.0 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
ORA passes the Daily Dollar Volume (DDV of $6.0 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. ORA with a price of $43.76 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
ORA's income tax paid expressed as a percentage of pretax income either this year (-13.43%) or last year (32.16%) 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: Price/Sales Investor
Based on: Kenneth Fisher |
| Caleres, Inc., formerly Brown Shoe Company, Inc., is a global footwear retailer and wholesaler. The Company is engaged in the operation of retail shoe stores and e-commerce Websites, as well as the design, sourcing and marketing of footwear for women and men. It operates through two segments: Famous Footwear, which includes its Famous Footwear stores and Famous.com, and Brand Portfolio, which offers retailers and consumers a portfolio of brands from its Healthy Living and Contemporary Fashion platforms. It operates approximately 1,210 retail shoe stores in the United States, Canada and Guam. It offers brands, including Nike, Skechers, Converse, Vans, adidas, Sperry, New Balance, Asics, Bearpaw and Sof Sole. It also offers Company-owned and licensed brands, including LifeStride, Dr. Scholl's, Naturalizer, Fergalicious and Carlos by Carlos Santana. Through its Brand Portfolio segment, it also designs, sources and markets footwear to retail stores domestically and internationally. |
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. CAL's P/S of 0.41 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. CAL's Debt/Equity of 32.40% 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. CAL 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 CAL At this Point
Is CAL 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.CAL's P/S ratio of 0.41 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: PASS
This methodology looks for companies that have an inflation adjusted EPS growth rate greater than 15%. CAL's inflation adjusted EPS growth rate of 43.60% passes 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. CAL's free cash per share of 1.30 passes this criterion.
THREE YEAR AVERAGE NET PROFIT MARGIN: FAIL
This methodology looks for companies that have an average net profit margin of 5% or greater over a three year period. CAL, whose three year net profit margin averages 2.63%, fails this evaluation.
|
| Strategy: Growth Investor
Based on: Martin Zweig |
| NIC Inc. is a provider of digital government services that help governments use technology. The Company operates through Outsourced Portals segment. The Other Software & Services category includes its subsidiaries that provide software development and services, other than outsourced portal services, to state and local governments, as well as federal agencies. The Company offers its services through two channels: primary outsourced portal businesses, and software & services businesses. In its primary outsourced portal businesses, it enters into long-term contracts with state and local governments to design, build, and operate Internet-based, enterprise-wide portals on their behalf. These portals consist of Websites and applications that the Company has built to allow businesses and citizens to access government information online and secure transactions, such as applying for a permit, retrieving government records, or filing a government-mandated form or report. |
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. EGOV's P/E is 31.68, based on trailing 12 month earnings, while the current market PE is 15.00. 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. EGOV's revenue growth is 12.29%, while it's earnings growth rate is 16.54%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, EGOV 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 (11.4%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (-73.8%) of the current year. Sales growth for the prior must be greater than the latter. For EGOV 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. EGOV's EPS ($0.19) pass this test.
QUARTERLY EARNINGS ONE YEAR AGO: PASS
The EPS for the quarter one year ago must be positive. EGOV's EPS for this quarter last year ($0.14) 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. EGOV's growth rate of 35.71% 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 EGOV is 8.27%. This should be less than the growth rates for the 3 previous quarters which are 0.00%, 18.75% and -76.27%. EGOV 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, -45.65%, (versus the same three quarters a year earlier) is less than the growth rate of the current quarter earnings, 35.71%, (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, 35.71% must be greater than or equal to the historical growth which is 16.54%. EGOV 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. EGOV, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 0.35, 0.40, 0.49, 0.59 and 0.63, 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. EGOV's long-term growth rate of 16.54%, based on the average of the 3, 4 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. EGOV's Debt/Equity (0.00%) is not considered high relative to its industry (59.31%) 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 EGOV, this criterion has not been met (insider sell transactions are 351, while insiders buying number 4). 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: Growth/Value Investor
Based on: James P. O'Shaughnessy |
| Polaris Industries Inc. (Polaris) designs, engineers and manufactures off-road vehicles (ORV), including all-terrain vehicles (ATV) and side-by-side vehicles for recreational and utility use, snowmobiles, motorcycles and global adjacent markets vehicles, together with the related parts, garments and accessories. The Company's segments are ORV/Snowmobiles, Motorcycles and Global Adjacent Markets. These products are sold through dealers and distributors located in the United States, Canada, Western Europe, Australia and Mexico. Its ORVs include Sportsman ATVs, Polaris ACE, RANGER, RZR and Polaris GENERAL side-by-side vehicles. It produces snowmobiles, ranging from youth models to utility and economy models to performance and competition models. Its Motorcycles segment consists of Victory, Indian motorcycles and the moto-roadster, Slingshot. It offers products in the light-duty hauling, people mover and urban/suburban commuting sub-sectors of the Work and Transportation industry. |
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. PII, with a market cap of $5,284 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. PII, whose annual EPS before extraordinary items for the last 5 years (from earliest to the most recent fiscal year) were 3.20, 4.40, 5.40, 6.65 and 6.75, 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. PII's Price/Sales ratio of 1.13, based on trailing 12 month sales, passes this criterion.
RELATIVE STRENGTH: FAIL
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. PII has a relative strength of 26. This does not pass the final criterion. As a result, this methodology would not consider the stock even though it passed the previous three criteria. |
| Strategy: Small-Cap Growth Investor
Based on: Motley Fool |
| LGI Homes, Inc. is a homebuilder. The Company is engaged in the design, construction, marketing and sale of new homes in markets in Texas, Arizona, Florida, Georgia, New Mexico, South Carolina, North Carolina, Colorado, Washington and Tennessee. The Company has five segments: the Texas division, the Southwest division, the Southeast division, the Florida division and the Northwest division. The Texas division includes homebuilding operations in Houston, Dallas/Fort Worth, San Antonio and Austin locations. The Southwest division includes homebuilding operations in Phoenix, Tucson, Albuquerque, Denver and Colorado Springs locations. The Southeast division includes homebuilding operations in Atlanta, Charlotte and Nashville locations. The Florida division includes homebuilding operations in Tampa, Orlando, Fort Myers and Jacksonville locations. The Northwest division includes homebuilding operations in Seattle location. Its product offerings include entry-level homes and move-up homes. |
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. LGIH's profit margin of 8.46% 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. LGIH, 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 LGIH (72.73% for EPS, and 34.61% for Sales) are good enough to pass.
INSIDER HOLDINGS: PASS
LGIH's insiders should own at least 10% (they own 17.57% ) 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: FAIL
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. LGIH's free cash flow of $-4.10 per share fails this test.
PROFIT MARGIN CONSISTENCY: FAIL
The profit margin in the past must be consistently increasing. The profit margin of LGIH has been inconsistent in the past three years (Current year: 8.38%, Last year: 7.36%, Two years ago: 13.72%), 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 LGIH's case.
CASH AND CASH EQUIVALENTS: FAIL
LGIH's level of cash and cash equivalents per sales, 5.59 %, does not pass this criteria of roughly 20%(a number we determined to be appropriate based on various examples). LGIH 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 LGIH was 95.99% last year, while for this year it is 84.29%. Since the inventory to sales is decreasing by -11.70% 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 LGIH was 1.92% last year, while for this year it is 2.75%. 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
LGIH's trailing twelve-month Debt/Equity ratio (122.62%) 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 has attractive fundamentals and its Fool Ratio is 0.5 or less (LGIH's is 0.14), the shares are looked upon favorably. These high quality companies can often wind up as the biggest winners. LGIH passes this test.
The following criteria for LGIH are less important which means you would place less emphasis on them when making your investment decision using this strategy:
AVERAGE SHARES OUTSTANDING: PASS
LGIH has not been significantly increasing the number of shares outstanding within recent years which is a good sign. LGIH currently has 20.0 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. LGIH's sales of $672.0 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
LGIH passes the Daily Dollar Volume (DDV of $13.4 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. LGIH with a price of $31.94 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
LGIH's income tax paid expressed as a percentage of pretax income this year was (34.19%) and last year (34.52%) 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: P/E/Growth Investor
Based on: Peter Lynch |
| Thor Industries, Inc. (Thor), manufactures and sells various recreational vehicles (RV) throughout the United States and Canada, as well as related parts and accessories. The principal types of The Company's towable recreational vehicles that the Company produces include conventional travel trailers and fifth wheels. In addition, it also produces truck and folding campers and equestrian, and other specialty towable recreational vehicles, as well as Class A, Class C and Class B motorhomes. The Company operates through two segments: towable recreational vehicles and motorized recreational vehicles. The Company through its operating subsidiaries manufactures recreational vehicles in North America. The subsidiaries are Airstream, Inc., CrossRoads RV, Thor Motor Coach, Inc., Keystone RV Company, Heartland Recreational Vehicles, LLC, Livin' Lite RV, Inc., Bison Coach, K.Z., Inc. and Postle Operating, LLC. |
DETERMINE THE CLASSIFICATION:
THO is considered a "True Stalwart", according to this methodology, as its earnings growth of 19.29% lies within a moderate 10%-19% range and its annual sales of $4,348 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. THO is attractive if THO can hold its own during a recession.
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 THO was 6.14% last year, while for this year it is 6.14%. Since inventory to sales has not changed appreciably, THO passes this test.
YIELD ADJUSTED P/E TO GROWTH (PEG) RATIO: PASS
The Yield-adjusted P/E/G ratio for THO (0.66), 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. THO's EPS ($4.64) would satisfy this criterion.
TOTAL DEBT/EQUITY RATIO: PASS
This methodology would consider the Debt/Equity ratio for THO (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 THO (4.29%) 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 THO (5.35%) 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: Growth Investor
Based on: Martin Zweig |
| Drew Industries Incorporated, through its subsidiaries, supplies an array of components in the United States and abroad for the manufacturers of recreational vehicles (RVs) and manufactured homes. The Company also supplies components for adjacent industries, including buses; trailers used to haul boats, livestock, equipment and other cargo; pontoon boats; modular housing, and mobile office units. It operates in two segments, which include the recreational vehicle products segment (the RV Segment), and the manufactured housing products segment (the MH Segment). RVs are motorized (motorhomes) or towable, such as travel trailers, fifth-wheel travel trailers, folding camping trailers and truck campers. It manufactures and distributes a range of products used primarily in the production of RVs and manufactured homes, such as electronic components, windows, slide-out mechanisms and solutions, furniture and mattresses, chassis components, and thermoformed bath, kitchen and other products. |
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. DW's P/E is 23.25, based on trailing 12 month earnings, while the current market PE is 15.00. Therefore, it passes the first test.
REVENUE GROWTH IN RELATION TO EPS GROWTH: PASS
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. DW's revenue growth is 18.38%, while it's earnings growth rate is 21.31%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, DW passes 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 (17%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (15.5%) of the current year. Sales growth for the prior must be greater than the latter. For DW 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. DW's EPS ($1.45) pass this test.
QUARTERLY EARNINGS ONE YEAR AGO: PASS
The EPS for the quarter one year ago must be positive. DW's EPS for this quarter last year ($0.82) 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. DW's growth rate of 76.83% 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 DW is 10.66%. This should be less than the growth rates for the 3 previous quarters which are 10.39%, 9.38% and 32.65%. DW 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, 15.79%, (versus the same three quarters a year earlier) is less than the growth rate of the current quarter earnings, 76.83%, (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, 76.83% must be greater than or equal to the historical growth which is 21.31%. DW 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. DW, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 1.34, 1.64, 2.11, 2.56 and 3.02, 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. DW's long-term growth rate of 21.31%, based on the average of the 3, 4 and 5 year historical eps growth rates, passes this test.
TOTAL DEBT/EQUITY RATIO: FAIL
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. DW's Debt/Equity (10.68%) is considered high relative to its industry (7.06%) and fails 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 DW, this criterion has not been met (insider sell transactions are 295, while insiders buying number 896). Despite the lack of an insider buy signal, there also is not an insider sell signal, so the stock passes this criterion. |
Watch List
The top scoring stocks not currently in the Hot List portfolio.
| Ticker |
Company Name |
Industry |
Current
Score |
| UFPI |
UNIVERSAL FOREST PRODUCTS, INC. |
Forestry & Wood Products |
60% |
| SWHC |
SMITH & WESSON HOLDING CORP |
Recreational Products |
57% |
| JLL |
JONES LANG LASALLE INC |
Real Estate Operations |
57% |
| IBP |
INSTALLED BUILDING PRODUCTS INC |
Construction Services |
55% |
| SAFM |
SANDERSON FARMS, INC. |
Food Processing |
52% |
| UTHR |
UNITED THERAPEUTICS CORPORATION |
Biotechnology & Drugs |
52% |
| SANM |
SANMINA CORP |
Semiconductors |
51% |
| AMSF |
AMERISAFE, INC. |
Insurance (Prop. & Casualty) |
51% |
| WLK |
WESTLAKE CHEMICAL CORPORATION |
Chemicals - Plastics & Rubber |
49% |
| LPL |
LG DISPLAY CO LTD. (ADR) |
Electronic Instr. & Controls |
49% |
|
