Guru Analysis
| Strategy: P/E/Growth Investor
Based on: Peter Lynch |
| Medifast, Inc. produces, distributes and sells weight loss, weight management, and healthy living products, and other consumable health and nutritional products. The Company's product lines include weight loss, weight management, and healthy living meal replacements, snacks, hydration products, and vitamins. Its business units include Optavia, Medifast Direct, Franchise Medifast Weight Control Centers (MWCC) and Medifast Wholesale. Optavia is a personal coaching division of the Company that consists of Optavia Coaches, who provides coaching and support to clients utilizing the Optavia platform. Medifast Direct is its direct-to-consumer business unit that allows customers to order Medifast products directly through its Website or its in-house call center. The MWCC business unit sells product through franchise and reseller locations, which offers structured programs and a team of professionals to help customers achieve weight-loss and weight-management success at center locations. |
DETERMINE THE CLASSIFICATION:
This methodology would consider MED a "fast-grower".
P/E/GROWTH RATIO: PASS
The investor should examine the P/E (12.62) relative to the growth rate (29.80%), 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 MED (0.42) is very 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. MED, whose sales are $688.9 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 MED was 6.41% last year, while for this year it is 7.76%. 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 (1.35%) 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 MED is 29.8%, based on the average of the 3, 4 and 5 year historical eps growth rates, which is acceptable.
TOTAL DEBT/EQUITY RATIO: PASS
This methodology would consider the Debt/Equity ratio for MED (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 MED (3.54%) 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 MED (10.99%) 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/Value Investor
Based on: James P. O'Shaughnessy |
| NK Lukoil PAO is an energy company. The primary activities of LUKOIL and its subsidiaries are oil exploration, production, refining, marketing and distribution. Its segments include Exploration and Production; Refining, Marketing and Distribution, and Corporate and other. The Exploration and Production segment includes its exploration, development and production operations related to crude oil and gas. These activities are located within Russia, with additional activities in Azerbaijan, Kazakhstan, Uzbekistan, the Middle East, Northern and Western Africa, Norway, Romania and Mexico. The Refining, Marketing and Distribution segment includes refining, petrochemical and transport operations, marketing and trading of crude oil, natural gas and refined products, generation, transportation and sales of electricity, heat and related services. The Corporate and other segment includes operations related to finance activities, production of diamonds and certain other activities. |
MARKET CAP: PASS
The Cornerstone Value Strategy looks for large, well known companies whose market cap is greater than $1 billion. These companies exhibit solid and stable earnings. LUKOY's market cap of $67,595 million passes this test.
CASH FLOW PER SHARE: PASS
The second criterion requires that the company exhibit strong cash flows. Companies with strong cash flow are typically the value oriented investments that this strategy looks for. The company's cash flow per share must be greater than the mean of the market cash flow per share ($1.90). LUKOY's cash flow per share of $22.84 passes this test.
SHARES OUTSTANDING: PASS
This particular strategy looks for companies whose total number of outstanding shares are in excess of the market average (596 million shares). These are the more well known and highly traded companies. LUKOY, who has 674 million shares outstanding, passes this test.
TRAILING 12 MONTH SALES: PASS
A company's trailing 12 month sales ($130,185 million) are required to be 1.5 times greater than the mean of the market's trailing 12 month sales ($24,544 million). LUKOY passes this test.
DIVIDEND: PASS
The final step in the Cornerstone Value strategy is to select the 50 companies from the market leaders group (those that have passed the previous four criteria) that have the highest dividend yield. LUKOY, with a dividend yield of 4.10%, is one of the 50 companies that satisfy this last criterion. |
| Strategy: Patient Investor
Based on: Warren Buffett |
| Copart, Inc. (Copart) is a provider of online auctions and vehicle remarketing services in the United States, Canada, the United Kingdom, the United Arab Emirates, Oman, Bahrain, Brazil, Ireland, Spain and India. The Company also provides vehicle remarketing services in Germany. The Company operates through two segments: United States and International. The Company provides vehicle sellers with a range of services to process and sell vehicles primarily over the Internet through its virtual bidding third generation Internet auction-style sales technology (VB3). The Company's service offerings include Online Seller Access, Salvage Estimation Services, Estimating Services, End-Of-Life Vehicle Processing, Virtual Insured Exchange (VIX), Transportation Services, Vehicle Inspection Stations, On-Demand Reporting, Department of Motor Vehicle (DMV) Processing, Flexible Vehicle Processing Programs, Buy It Now, Member Network, Sales Process, Copart Dealer Services, CashForCars.com and U-Pull-It. |
STAGE 1: "Is this a Buffett type company?"
A bedrock principle for Buffett is that his type of company has a "durable competitive advantage" as compared to being a "price competitive" or "commodity" type of business. Companies with a "durable competitive advantage" are more likely to be found in these sub-industries: Brand Name Fast Food Restaurants, Brand Name Beverages, Brand Name Foods, Brand Name Toiletries and Household Products, Brand Name Clothing, Brand Name Prescription Drugs, Advertising, Advertising Agencies, TV, Newspapers, Magazines, Direct Mail, Repetitive Services for Businesses, Low Cost Producers of Insurance, furniture, or Low Cost Retailers. While you should be easily able to explain where the company's pricing power comes from (i.e. a strong regional brand image, a business tollgate, its main products are #1 or # 2 in its field and has been on the market for years and hasn't changed at all, a consumer or business ends up buying the same product many times in a year, etc. or having the lowest production cost among its competition), there are certain figures that one can look at that can qualify the company as having a durable competitive advantage.
LOOK FOR EARNINGS PREDICTABILITY: PASS
Buffett likes companies to have solid, stable earnings that are continually expanding. This allows him to accurately predict future earnings. Annual earnings per share from earliest to most recent were 0.45, 0.54, 0.70, 0.69, 0.68, 0.84, 1.11, 1.66, 1.76, 2.46. Buffett would consider CPRT's earnings predictable, although earnings have declined 2 time(s) in the past seven years, with the most recent decline 6 years ago. The dips have totaled 2.9%. CPRT's long term historical EPS growth rate is 19.6%, based on the 10 year average EPS growth rate, and it is expected to grow earnings 9.0% per year in the future, based on the analysts' consensus estimated long term growth rate. For the purposes of our analysis, we will use the more conservative of the two EPS growth numbers.
LOOK AT THE ABILITY TO PAY OFF DEBT PASS
Buffett likes companies that are conservatively financed. Nonetheless, he has invested in companies with large financing divisions and in firms with rather high levels of debt. CPRT has a debt of 400.1 million and earnings of 587.9 million, which could be used to pay off the debt in less than two years, which is considered exceptional.
LOOK FOR CONSISTENTLY HIGHER THAN AVERAGE RETURN ON EQUITY: PASS
Buffett likes companies with above average return on equity of at least 15% or better, as this is an indicator that the company has a durable competitive advantage. US corporations have, on average, returned about 12% on equity over the last 30 years. The average ROE for CPRT, over the last ten years, is 25.6%, which is high enough to pass. It is not enough that the average be at least 15%. For each of the last 10 years, with the possible exception of the last fiscal year, the ROE must be at least 10% for Buffett to feel comfortable that the ROE is consistent. In addition, the average ROE over the last 3 years must also exceed 15%. The ROE for the last 10 years, from earliest to latest, is 13.8%, 25.8%, 31.1%, 22.9%, 17.1%, 20.8%, 31.5%, 34.9%, 26.1%, 31.9%, and the average ROE over the last 3 years is 30.9%, thus passing this criterion.
LOOK FOR CONSISTENTLY HIGHER THAN AVERAGE RETURN ON TOTAL CAPITAL: PASS
Because some companies can be financed with debt that is many times their equity, they can show a consistently high ROE, yet still be in unattractive price competitive businesses. To screen this out, for non-financial companies Buffett also requires that the average Return On Total Capital (ROTC) be at least 12% and consistent. In addition, the average ROTC over the last 3 years must also exceed 12%. Return On Total Capital is defined as the net earnings of the business divided by the total capital in the business, both equity and debt. The average ROTC for CPRT, over the last ten years, is 18.0% and the average ROTC over the past 3 years is 23.4%, which is high enough to pass. It is not enough that the average be at least 12%. For each of the last 10 years, with the possible exception of the last fiscal year, the ROTC must be at least 9% for Buffett to feel comfortable that the ROTC is consistent. The ROTC for the last 10 years, from earliest to latest, is 13.8%, 16.3%, 18.8%, 16.5%, 14.0%, 12.9%, 18.2%, 23.3%, 20.8%, 26.0%, thus passing this criterion.
LOOK AT CAPITAL EXPENDITURES: PASS
Buffett likes companies that do not have major capital expenditures. That is, he looks for companies that do not need to spend a ton of money on major upgrades of plant and equipment or on research and development to stay competitive. CPRT's free cash flow per share of $1.13 is positive, indicating that the company is generating more cash than it is consuming. This is a favorable sign, and so the company passes this criterion.
LOOK AT MANAGEMENT'S USE OF RETAINED EARNINGS: PASS
Buffett likes to see if management has spent retained earnings in a way that benefits shareholders. To figure this out, Buffett takes the total amount of retained earnings over the previous ten years of $10.89 and compares it to the gain in EPS over the same period of $2.01. CPRT's management has proven it can earn shareholders a 18.5% return on the earnings they kept. This return is more than acceptable to Buffett. Essentially, management is doing a great job putting the retained earnings to work.
HAS THE COMPANY BEEN BUYING BACK SHARES: BONUS PASS
Buffett likes to see falling shares outstanding, which indicates that the company has been repurchasing shares. This indicates that management has been using excess capital to increase shareholder value. CPRT's shares outstanding have fallen over the past five years from 240,309,998 to 238,000,000, thus passing this criterion. This is a bonus criterion and will not adversely affect the ability of a stock to pass the strategy as a whole if it is failed.
The preceding concludes Buffett's qualitative analysis. If and when he gets positive responses to all the above criteria, he would then proceed with a price analysis. The price analysis will determine whether or not the stock should be bought. The following is how he would evaluate CPRT quantitatively.
STAGE 2: "Should I buy at this price?" Although a firm may be a Buffett type company, he won't invest in it unless he can get a favorable price that allows him a great long term return.
CALCULATE THE INITIAL RATE OF RETURN: [No Pass/Fail]
Buffett compares his type of stocks to bonds, and likes to see what a company's initial rate of return is. To calculate the initial rate of return, take the trailing 12-month EPS of $2.47 and divide it by the current market price of $85.82. An investor, purchasing CPRT, could expect to receive a 2.88% initial rate of return. Furthermore, he or she could expect the rate to increase 9.0% per year, based on the analysts' consensus estimated long term growth rate, as this is how fast earnings are growing.
COMPARE THE INITIAL RATE OF RETURN WITH THE LONG-TERM TREASURY YIELD: PASS
Buffett favors companies in which the initial rate of return is around the long-term treasury yield. Nonetheless, he has invested in companies with low initial rates of return, as long as the yield is expected to expand rapidly. Currently, the long-term treasury yield is about 2.00%. Compare this with CPRT's initial yield of 2.88%, which will expand at an annual rate of 9.0%, based on the analysts' consensus estimated long term growth rate. The company is the better choice, as the initial rate of return is close to or above the long term bond yield and is expanding.
CALCULATE THE FUTURE EPS: [No Pass/Fail]
CPRT currently has a book value of $7.74. It is safe to say that if CPRT can preserve its average rate of return on equity of 25.6% and continues to retain 100.00% of its earnings, it will be able to sustain an earnings growth rate of 25.6% and it will have a book value of $75.49 in ten years. If it can still earn 25.6% on equity in ten years, then expected EPS will be $19.31.
CALCULATE THE FUTURE STOCK PRICE BASED ON THE AVERAGE ROE METHOD: [No Pass/Fail]
Now take the expected future EPS of $19.31 and multiply them by the lower of the 5 year average P/E ratio or current P/E ratio (34.7) (5 year average P/E in this case), which is 26.8 and you get CPRT's projected future stock price of $516.90.
CALCULATE THE EXPECTED RATE OF RETURN BASED ON THE AVERAGE ROE METHOD: [No Pass/Fail]
Now add in the total expected dividend pool to be paid over the next ten years, which is $0.00. This gives you a total dollar amount of $516.90. These numbers indicate that one could expect to make a 19.7% average annual return on CPRT's stock at the present time. Buffett would consider this a great return.
CALCULATE THE EXPECTED FUTURE STOCK PRICE BASED ON AVERAGE EPS GROWTH: [No Pass/Fail]
If you take the EPS growth of 9.0%, based on the analysts' consensus estimated long term growth rate, you can project EPS in ten years to be $5.85. Now multiply EPS in 10 years by the lower of the 5 year average P/E ratio or current P/E ratio (34.7) (5 year average P/E in this case), which is 26.8. This equals the future stock price of $156.53. Add in the total expected dividend pool of $0.00 to get a total dollar amount of $156.53.
CALCULATE THE EXPECTED RETURN USING THE AVERAGE EPS GROWTH METHOD: [No Pass/Fail]
Now you can figure out your expected return based on a current price of $85.82 and the future expected stock price, including the dividend pool, of $156.53. If you were to invest in CPRT at this time, you could expect a 6.19% average annual return on your money. Buffett likes to see a 15% return, and would even go down to 12%.
LOOK AT THE RANGE OF EXPECTED RATE OF RETURN: PASS
Based on the two different methods, you could expect an annual compounding rate of return somewhere between 6.2% and 19.7%. To pinpoint the average return a little better, we have taken an average of the two different methods. Investors could expect an average return of 12.9% on CPRT stock for the next ten years, based on the current fundamentals. Buffett likes to see a 15% return, but nonetheless would accept this return, thus passing the criterion. |
PENNYMAC FINANCIAL SERVICES INC |
| Strategy: Small-Cap Growth Investor
Based on: Motley Fool |
| PennyMac Financial Services, Inc. is a specialty financial services firm. The Company conducts business in three segments: production, servicing (together, production and servicing comprise its mortgage banking activities) and investment management. Production segment performs mortgage loan origination, acquisition and sale activities. Servicing segment performs mortgage loan servicing for its own account and for others, including for PennyMac Mortgage Investment Trust (PMT). Investment management segment represents its investment management activities, which include the activities associated with investment asset acquisitions and dispositions, such as sourcing, due diligence, negotiation and settlement; managing correspondent production activities for PMT; and managing the acquired investments for PMT. Its primary subsidiaries are: PNMAC Capital Management, LLC, PennyMac Loan Services, LLC and PNMAC Opportunity Fund Associates, 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. PFSI's profit margin of 15.06% 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. PFSI, 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 PFSI (169.64% for EPS, and 83.89% for Sales) are good enough to pass.
INSIDER HOLDINGS: PASS
PFSI's insiders should own at least 10% (they own 41.14% ) of the company's outstanding shares which is extremely attractive since the minimum requirement is 10%. A high percentage 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. PFSI's free cash flow of $8.60 per share passes this test.
PROFIT MARGIN CONSISTENCY: PASS
PFSI's profit margin has been consistent or even increasing over the past three years (Current year: 6.42%, Last year: 7.24%, Two years ago: 4.85%), 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 PFSI's case.
CASH AND CASH EQUIVALENTS: FAIL
PFSI does not have a sufficiently large amount of cash, $155.29 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. PFSI 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.
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 PFSI was 1.95% last year, while for this year it is 2.45%. 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.
"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 (PFSI's is 0.19), the shares are looked upon favorably. These high quality companies can often wind up as the biggest winners. PFSI passes this test.
The following criteria for PFSI are less important which means you would place less emphasis on them when making your investment decision using this strategy:
AVERAGE SHARES OUTSTANDING: PASS
PFSI has not been significantly increasing the number of shares outstanding within recent years which is a good sign. PFSI currently has 80.0 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. PFSI's sales of $1,946.9 million based on trailing 12 month sales, are too high and would therefore fail the test. It is companies with $500 million or less in sales that are most likely to double or triple in size in the next few years.
DAILY DOLLAR VOLUME: PASS
PFSI passes the Daily Dollar Volume (DDV of $13.7 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. PFSI with a price of $31.89 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
PFSI's income tax paid expressed as a percentage of pretax income either this year (8.69%) or last year (11.34%) is below 20% which is cause for concern. Because the tax rate is below 20% this could mean that the earnings that were reported are unrealistically inflated due to the lower level of income tax paid. However, we have utilized a sophisticated formula so that the appropriate figures reflect a 'normal' tax rate (35%). |
| Strategy: Growth Investor
Based on: Martin Zweig |
| OneMain Holdings, Inc. is a financial services holding company. The Company is a consumer finance company, which is engaged in providing personal loan products; credit and non-credit insurance, and service loans owned by it and service or subservice loans owned by third-parties. The Company's segments include Consumer and Insurance; Acquisitions and Servicing; Real Estate, and Other. It is engaged in pursuing strategic acquisitions and dispositions of assets and businesses, including loan portfolios or other financial assets. The Company originates and services personal loans (secured and unsecured) through two business divisions: branch operations and centralized operations. As of December 31, 2016, its combined branch operations included over 1,800 branch offices in 44 states. It offers optional credit insurance products to its customers, including credit life insurance, credit disability insurance, credit involuntary unemployment insurance and collateral protection insurance. |
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. OMF's P/E is 7.40, based on trailing 12 month earnings, while the current market PE is 20.00. 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. OMF's revenue growth is 18.44%, while it's earnings growth rate is 33.23%, based on the average of the 3 and 5 year historical eps growth rates using the current fiscal year eps estimate. Therefore, OMF 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 (13.6%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (11%) of the current year. Sales growth for the prior must be greater than the latter. For OMF 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. OMF's EPS ($1.82) pass this test.
QUARTERLY EARNINGS ONE YEAR AGO: PASS
The EPS for the quarter one year ago must be positive. OMF's EPS for this quarter last year ($1.09) 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. OMF's growth rate of 66.97% passes this test.
EARNINGS GROWTH RATE FOR THE PAST SEVERAL QUARTERS: PASS
Compare the earnings growth rate of the previous three quarters with long-term EPS growth rate. Earnings growth in the previous 3 quarters should be at least half of the long-term EPS growth rate. Half of the long-term EPS growth rate for OMF is 16.61%. This should be less than the growth rates for the 3 previous quarters, which are 39.77%, 23.08%, and 2,740.00%. OMF passes this test, which means that it has good, reasonably steady earnings.
This strategy looks at the rate which earnings grow and evaluates this rate of growth from different angles. The 4 tests immediately following are detailed below.
EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN PRIOR 3 QUARTERS: PASS
If the growth rate of the prior three quarter's earnings, 104.89%, (versus the same three quarters a year earlier) is greater than the growth rate of the current quarter earnings, 66.97%, (versus the same quarter one year ago) then the stock fails, with one exception: if the growth rate in earnings between the current quarter and the same quarter one year ago is greater than 30%, then the stock would pass. The growth rate over this period for OMF is 67.0%, and it would therefore pass this test.
EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN THE HISTORICAL GROWTH RATE: PASS
The EPS growth rate for the current quarter, 66.97% must be greater than or equal to the historical growth which is 33.23%. OMF would therefore pass this test.
EARNINGS PERSISTENCE: FAIL
Companies must show persistent yearly earnings growth. To fulfill this requirement a company's earnings must increase each year for a five year period. OMF, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 4.38, -1.72, 1.59, 1.95, and 3.29, fails 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. OMF's long-term growth rate of 33.23%, based on the average of the 3 and 5 year historical eps growth rates using the current fiscal year eps estimate, 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 OMF, this criterion has not been met (insider sell transactions are 0, while insiders buying number 2). Despite the lack of an insider buy signal, there also is not an insider sell signal, so the stock passes this criterion. |
| Strategy: Small-Cap Growth Investor
Based on: Motley Fool |
| D.R. Horton, Inc. is a homebuilding company. The Company has operations in 84 markets in 29 states across the United States. The Company's segments include its 44 homebuilding divisions, its financial services operations and its other business activities. In the homebuilding segment, the Company builds and sells single-family detached homes and attached homes, such as town homes, duplexes, triplexes and condominiums. The Company's 44 homebuilding divisions are aggregated into six segments: East Region, South Central Region, Midwest Region, West Region, Southwest Region and Southeast Region. In the financial services segment, the Company sells mortgages and collects fees for title insurance agency and closing services. The Company has subsidiaries that conduct insurance-related operations; construct and own income-producing rental properties; own non-residential real estate, including ranch land and improvements, and own and operate oil and gas-related assets. |
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. DHI's profit margin of 9.20% 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. DHI, with a relative strength of 91, satisfies this test.
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 DHI (10.66% for EPS, and 11.85% for Sales) are not good enough to pass.
INSIDER HOLDINGS: FAIL
DHI's insiders should own at least 10% (they own 8.24%) 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. DHI's free cash flow of $1.18 per share passes this test.
PROFIT MARGIN CONSISTENCY: PASS
DHI's profit margin has been consistent or even increasing over the past three years (Current year: 9.09%, Last year: 7.37%, Two years ago: 7.29%), 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 DHI's case.
CASH AND CASH EQUIVALENTS: PASS
DHI has a large amount of cash $1,494.3 million on hand. Although this criteria does not apply to companies of this size, we define anything greater than $500 million in cash as having 'a lot of cash' to allow analysis of these companies. A company like DHI 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 DHI was 65.55% last year, while for this year it is 64.69%. Since the inventory to sales is decreasing by -0.86% 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 DHI was 0.95% last year, while for this year it is 0.85%. Since the AR to sales is decreasing by -0.11% the stock passes this criterion.
LONG TERM DEBT/EQUITY RATIO: FAIL
DHI's trailing twelve-month Debt/Equity ratio (33.92%) 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 (DHI's is 0.46), the shares are looked upon favorably. These high quality companies can often wind up as the biggest winners. DHI passes this test.
The following criteria for DHI are less important which means you would place less emphasis on them when making your investment decision using this strategy:
AVERAGE SHARES OUTSTANDING: FAIL
DHI has either issued a significant amount of new shares over the past year or has been issuing more and more shares over the past five years. DHI currently has 375.0 million shares outstanding. Neither of these are a good sign. Generally when a small-cap company issues more stock, the existing stock becomes devalued by the market, and hence diluted.
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. DHI's sales of $17,592.9 million based on trailing 12 month sales, are too high and would therefore fail the test. It is companies with $500 million or less in sales that are most likely to double or triple in size in the next few years.
DAILY DOLLAR VOLUME: FAIL
DHI does not pass the Daily Dollar Volume (DDV of $247.1 million) test. It exceeds the maximum requirement of $25 million. Stocks that fail the test are too liquid for a small individual investor and many institutions have already discovered it.
PRICE: PASS
This is a very insignificant criterion for this methodology. But basically, low prices are chosen because "small numbers multiply more rapidly than large ones" and the potential for big returns expands. DHI with a price of $54.26 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
DHI's income tax paid expressed as a percentage of pretax income this year was (23.74%) and last year (35.19%) 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 |
| Bruker Corporation designs and manufactures scientific instruments, and analytical and diagnostic solutions. Its segments include the Bruker BioSpin Group; the Bruker Chemicals, Applied Markets, Life Science, In-Vitro Diagnostics, Detection (CALID) Group; the Bruker Nano Group, and the Bruker Energy & Supercon Technologies (BEST) Segment. The Bruker BioSpin Group segment designs, manufactures and distributes enabling life science tools. The Bruker CALID segment designs, manufactures and distributes life science mass spectrometry instruments that can be integrated and used along with other sample preparation or chromatography instruments, as well as chemical, biological, radiological, nuclear and explosive detection products. The Bruker Nano segment designs, manufactures and distributes spectroscopy and microscopy instruments. The BEST segment develops and manufactures superconducting and non-superconducting materials and devices. It also focuses on nanomechanical testing instruments. |
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. BRKR's P/E is 37.32, based on trailing 12 month earnings, while the current market PE is 20.00. 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. BRKR's revenue growth is 2.34%, while it's earnings growth rate is 25.93%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, BRKR 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 (11.7%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (10.5%) of the current year. Sales growth for the prior must be greater than the latter. For BRKR 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. BRKR's EPS ($0.39) pass this test.
QUARTERLY EARNINGS ONE YEAR AGO: PASS
The EPS for the quarter one year ago must be positive. BRKR's EPS for this quarter last year ($0.28) 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. BRKR's growth rate of 39.29% passes this test.
EARNINGS GROWTH RATE FOR THE PAST SEVERAL QUARTERS: PASS
Compare the earnings growth rate of the previous three quarters with long-term EPS growth rate. Earnings growth in the previous 3 quarters should be at least half of the long-term EPS growth rate. Half of the long-term EPS growth rate for BRKR is 12.97%. This should be less than the growth rates for the 3 previous quarters, which are 19.05%, 17.65%, and 15.00%. BRKR passes this test, which means that it has good, reasonably steady earnings.
This strategy looks at the rate which earnings grow and evaluates this rate of growth from different angles. The 4 tests immediately following are detailed below.
EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN PRIOR 3 QUARTERS: PASS
If the growth rate of the prior three quarter's earnings, 17.72%, (versus the same three quarters a year earlier) is less than the growth rate of the current quarter earnings, 39.29%, (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, 39.29% must be greater than or equal to the historical growth which is 25.93%. BRKR would therefore pass this test.
EARNINGS PERSISTENCE: FAIL
Companies must show persistent yearly earnings growth. To fulfill this requirement a company's earnings must increase each year for a five year period. BRKR, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 0.34, 0.60, 0.95, 0.93, and 1.14, fails 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. BRKR's long-term growth rate of 25.93%, 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. BRKR's Debt/Equity (61.38%) is not considered high relative to its industry (203.13%) 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 BRKR, this criterion has not been met (insider sell transactions are 6, while insiders buying number 9). Despite the lack of an insider buy signal, there also is not an insider sell signal, so the stock passes this criterion. |
META FINANCIAL GROUP INC. |
| Strategy: P/E/Growth Investor
Based on: Peter Lynch |
| Meta Financial Group, Inc. is a unitary savings and loan holding company. The Company operates through its banking subsidiary, MetaBank (the Bank). Its segments include Payments, Banking, and Corporate Services/Other. MetaBank is both a community-oriented financial institution offering a range of financial services to meet the needs of the communities it serves and a payments company providing services on a nationwide basis. It operates in both the banking and payments industries through MetaBank, its retail banking operation; Meta Payment Systems (MPS), its electronic payments division; AFS/IBEX Financial Services Inc. (AFS/IBEX), its insurance premium financing division, and Refund Advantage, EPS Financial, LLC (EPS) Financial and Specialty Consumer Services, its tax-related financial solutions divisions. The Company, through its Meta Commercial Finance Division, which includes its state-chartered bank subsidiary, Crestmark Bank, provides business-to-business commercial financing. |
DETERMINE THE CLASSIFICATION:
This methodology would consider CASH a "fast-grower".
P/E/GROWTH RATIO: PASS
The investor should examine the P/E (13.45) relative to the growth rate (25.74%), 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 CASH (0.52) 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. CASH, whose sales are $325.7 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.
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 CASH is 25.7%, based on the average of the 3, 4 and 5 year historical eps growth rates, which is acceptable.
TOTAL DEBT/EQUITY RATIO: NEUTRAL
CASH 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. CASH's Equity/Assets ratio (14.00%) is extremely 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. CASH's ROA (1.69%) is above the minimum 1% that this methodology looks for, thus passing the criterion. |
| Strategy: Growth Investor
Based on: Martin Zweig |
| Oshkosh Corp is a designer, manufacturer and marketer of a broad range of engineered specialty vehicles and vehicle bodies. The Company operates through four segments: access equipment, defense, fire & emergency and commercial. Access equipment segment designs and manufactures aerial work platforms and telehandlers used in a wide variety of construction, industrial, institutional and general maintenance applications and also manufactures towing and recovery equipment in the United States. Defense segment manufactures heavy, medium, and light tactical wheeled vehicles. Fire & emergency segment designs and manufactures fire apparatus assembled on custom chassis, aircraft rescue and firefighting vehicles to domestic and international airports and broadcast and communication vehicles. Commercial segment designs and manufactures front- and rear-discharge concrete mixers and portable and stationary concrete batch plants, refuse collection vehicles and field service vehicles. |
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. OSK's P/E is 10.92, based on trailing 12 month earnings, while the current market PE is 20.00. 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. OSK's revenue growth is 7.51%, while it's earnings growth rate is 29.48%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, OSK fails this criterion.
SALES GROWTH RATE: FAIL
Another important issue regarding sales growth is that the rate of quarterly sales growth is rising. To evaluate this, the change from this quarter last year to the present quarter (6.7%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (10%) of the current year. Sales growth for the prior must be greater than the latter. For OSK this criterion has not been met and fails this test.
The earnings numbers of a company should be examined from various different angles. Three of these angles are stability in the trend of earnings, earnings persistence, and earnings acceleration. To evaluate stability, the stock has to pass the following four criteria.
CURRENT QUARTER EARNINGS: PASS
The first of these criteria is that the current EPS be positive. OSK's EPS ($2.17) pass this test.
QUARTERLY EARNINGS ONE YEAR AGO: PASS
The EPS for the quarter one year ago must be positive. OSK's EPS for this quarter last year ($2.02) 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. OSK's growth rate of 7.43% passes this test.
EARNINGS GROWTH RATE FOR THE PAST SEVERAL QUARTERS: PASS
Compare the earnings growth rate of the previous three quarters with long-term EPS growth rate. Earnings growth in the previous 3 quarters should be at least half of the long-term EPS growth rate. Half of the long-term EPS growth rate for OSK is 14.74%. This should be less than the growth rates for the 3 previous quarters, which are 143.94%, 23.13%, and 34.16%. OSK passes this test, which means that it has good, reasonably steady earnings.
This strategy looks at the rate which earnings grow and evaluates this rate of growth from different angles. The 4 tests immediately following are detailed below.
EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN PRIOR 3 QUARTERS: FAIL
If the growth rate of the prior three quarter's earnings, 47.71%, (versus the same three quarters a year earlier) is greater than the growth rate of the current quarter earnings, 7.43%, (versus the same quarter one year ago) then the stock fails, with one exception: if the growth rate in earnings between the current quarter and the same quarter one year ago is greater than 30%, then the stock would pass. The growth rate over this period for OSK is 7.4%, and it would therefore fail this test.
EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN THE HISTORICAL GROWTH RATE: FAIL
The EPS growth rate for the current quarter, 7.43% must be greater than or equal to the historical growth which is 29.48%. Since this is not the case OSK would therefore fail 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. OSK, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 2.90, 2.91, 3.77, 6.15 and 8.21, 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. OSK's long-term growth rate of 29.48%, 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. OSK's Debt/Equity (31.50%) is not considered high relative to its industry (174.40%) 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 OSK, this criterion has not been met (insider sell transactions are 4, while insiders buying number 31). Despite the lack of an insider buy signal, there also is not an insider sell signal, so the stock passes this criterion. |
| Strategy: Growth/Value Investor
Based on: James P. O'Shaughnessy |
| United Rentals, Inc. is a holding company. The Company is an equipment rental company, which operates throughout the United States and Canada. It operates through two segments: general rentals, and trench, power and pump. The general rentals segment includes the rental of construction, aerial, industrial and homeowner equipment and related services and activities. The trench, power and pump segment includes the rental of specialty construction products and related services. Its general rentals segment includes the rental of general construction and industrial equipment, such as backhoes, skid-steer loaders, forklifts and material handling equipment; aerial work platforms, such as boom lifts and scissor lifts, and general tools and light equipment, such as pressure washers, water pumps and power tools. As of October 17, 2018, it operated 1075 rental locations. It conducts its operations through its subsidiary, United Rentals (North America), Inc. (URNA) and subsidiaries of URNA. |
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. URI, with a market cap of $11,448 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. URI, whose annual EPS before extraordinary items for the last 5 years (from earliest to the most recent fiscal year) were 5.14, 6.07, 6.45, 7.68 and 13.19, 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. URI's Price/Sales ratio of 1.24, based on trailing 12 month sales, passes this criterion.
RELATIVE STRENGTH: PASS
The final criterion for the Cornerstone Growth Strategy requires that the Relative Strength of the company be among the top 50 of the stocks screened using the previous criterion. This gives you the opportunity to buy the growth stocks you are searching for just as the market is embracing them. URI, whose relative strength is 80, is in the top 50 and would pass this last criterion. |
Watch List
The top scoring stocks not currently in the Hot List portfolio.
| Ticker |
Company Name |
Industry |
Current
Score |
| SKX |
SKECHERS USA INC |
Footwear |
59% |
| CRTO |
CRITEO SA (ADR) |
Advertising |
57% |
| LPLA |
LPL FINANCIAL HOLDINGS INC |
Investment Services |
55% |
| MBT |
MOBIL'NYE TELESISTEMY PAO (ADR) |
Communications Services |
52% |
| EME |
EMCOR GROUP INC |
Construction Services |
52% |
| ESNT |
ESSENT GROUP LTD |
Insurance (Prop. & Casualty) |
49% |
| TECK |
TECK RESOURCES LTD (USA) |
Coal |
47% |
| BBY |
BEST BUY CO INC |
Retail (Technology) |
47% |
| TX |
TERNIUM SA (ADR) |
Iron & Steel |
47% |
| UFPI |
UNIVERSAL FOREST PRODUCTS, INC. |
Forestry & Wood Products |
45% |
|
