Guru Analysis
| Strategy: Value Investor
Based on: Benjamin Graham |
| Sanderson Farms, Inc. is a poultry processing company. The Company is engaged in the production, processing, marketing and distribution of fresh and frozen chicken, and also preparation, processing, marketing and distribution of processed and minimally prepared chicken. It sells ice pack, chill pack, bulk pack and frozen chicken, in whole, cut-up and boneless form, under the Sanderson Farms brand name to retailers, distributors, casual dining operators, customers reselling frozen chicken into export markets. The Company, through its subsidiaries, Sanderson Farms, Inc. (Production Division) and Sanderson Farms, Inc. (Processing Division), conducts its chicken operations. Sanderson Farms, Inc. (Production Division) is engaged in the production of chickens to the broiler-stage. Sanderson Farms, Inc. (Foods Division) is engaged in the processing, sale and distribution of chickens. The Company, through Sanderson Farms, Inc. (Foods Division), conducts its prepared chicken business. |
SECTOR: PASS
SAFM is neither a technology nor financial Company, and therefore this methodology is applicable.
SALES: PASS
The investor must select companies of "adequate size". This includes companies with annual sales greater than $340 million. SAFM's sales of $2,816.1 million, based on trailing 12 month sales, pass this test.
CURRENT RATIO: PASS
The current ratio must be greater than or equal to 2. Companies that meet this criterion are typically financially secure and defensive. SAFM's current ratio of 4.14 passes the test.
LONG-TERM DEBT IN RELATION TO NET CURRENT ASSETS: PASS
For industrial companies, long-term debt must not exceed net current assets (current assets minus current liabilities). Companies that meet this criterion display one of the attributes of a financially secure organization. The long-term debt for SAFM is $0.0 million, while the net current assets are $465.1 million. SAFM passes this test.
LONG-TERM EPS GROWTH: FAIL
Companies must increase their EPS by at least 30% over a ten-year period and EPS must not have been negative for any year within the last 5 years. EPS for SAFM were negative within the last 5 years and therefore the company fails this criterion.
P/E RATIO: PASS
The Price/Earnings (P/E) ratio, based on the greater of the current PE or the PE using average earnings over the last 3 fiscal years, must be "moderate", which this methodology states is not greater than 15. Stocks with moderate P/Es are more defensive by nature. SAFM's P/E of 11.37 (using the current PE) passes this test.
PRICE/BOOK RATIO: PASS
The Price/Book ratio must also be reasonable. That is, the Price/Book multiplied by P/E cannot be greater than 22. SAFM's Price/Book ratio is 1.81, while the P/E is 11.37. SAFM passes the Price/Book test. |
GRUPO FINANCIERO GALICIA S.A. (ADR) |
| Strategy: Price/Sales Investor
Based on: Kenneth Fisher |
| Grupo Financiero Galicia S.A. (Grupo Financiero Galicia) is a financial services holding company. The Company's segments include Banking, Regional Credit Cards, CFA, Insurance and Other Grupo Galicia Businesses. Banco de Galicia y Buenos Aires S.A. (Banco Galicia) is a subsidiary of the Company. Its banking business segment represents Banco Galicia consolidated line by line with Banco Galicia Uruguay S.A. (Galicia Uruguay). It operates the regional credit cards segment through Tarjetas Regionales S.A. and its subsidiaries. Its CFA business segment extends unsecured personal loans to low and middle-income segments of the Argentine population. The Company operates the insurance segment through Sudamericana Holding S.A. and its subsidiaries. Its Other Grupo Galicia Businesses segment includes the results of Galicia Warrants S.A., Galicia Administradora de Fondos S.A. Sociedad Gerente de Fondos Comunes de Inversion and Net Investment S.A. |
PRICE/SALES RATIO: PASS
The prospective company should have a low Price/Sales ratio. Non-cyclical (non-Smokestack) companies with Price/Sales ratio between .75 and 1.5 are good values. GGAL's P/S ratio of 1.34 based on trailing 12 month sales, falls within the "good values" range for non-cyclical companies and is considered attractive.
PRICE/RESEARCH RATIO: PASS
This methodology considers companies in the Technology and Medical sectors to be attractive if they have low Price/Research ratios. GGAL 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: No Interest in GGAL At this Point
Is GGAL a "Super Stock"? NO
Price/Sales Ratio: FAIL
The Price/Sales ratio is the most important variable according to this methodology. The prospective company should have a low Price/Sales ratio. GGAL's Price/Sales ratio of 1.34 does not pass this criterion.
LONG-TERM EPS GROWTH RATE: PASS
This methodology looks for companies that have an inflation adjusted EPS growth rate greater than 15%. GGAL's inflation adjusted EPS growth rate of 45.11% passes this 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. GGAL's free cash per share of 11.87 passes this criterion.
THREE YEAR AVERAGE NET PROFIT MARGIN: PASS
This methodology looks for companies that have an average net profit margin of 5% or greater over a three year period. GGAL's three year net profit margin, which averages 20.58%, passes this criterion. |
LEGACYTEXAS FINANCIAL GROUP INC |
| Strategy: P/E/Growth Investor
Based on: Peter Lynch |
| LegacyTexas Financial Group, Inc. is a bank holding company. LegacyTexas Bank (the Bank) is the Company's principal operating subsidiary, which is a commercial bank that is focused on meeting the needs of businesses and consumers in the North Texas area. Its principal business consists of attracting retail deposits from general public and business community and investing those funds, along with borrowed funds, in commercial real estate loans, secured and unsecured commercial and industrial loans, as well as permanent loans secured by first and second mortgages on one- to four-family residences and consumer loans. Its Warehouse Purchase Program allows mortgage banking company customers to close one- to four-family real estate loans in their own name and manage its cash flow needs until the loans are sold to investors. It offers title services, as well as brokerage services for purchase and sale of non-deposit investment and insurance products through a third-party brokerage arrangement. |
DETERMINE THE CLASSIFICATION:
This methodology would consider LTXB a "fast-grower".
P/E/GROWTH RATIO: PASS
The investor should examine the P/E (20.92) relative to the growth rate (25.78%), 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 LTXB (0.81) 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. LTXB, whose sales are $317.4 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 LTXB is 25.8%, based on the average of the 3, 4 and 5 year historical eps growth rates, which is acceptable.
TOTAL DEBT/EQUITY RATIO: NEUTRAL
LTXB 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. LTXB's Equity/Assets ratio (11.00%) is 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. LTXB's ROA (1.22%) is above the minimum 1% that this methodology looks for, thus passing the criterion.
FREE CASH FLOW: NEUTRAL
The Free Cash Flow/Price ratio, though not a requirement, is considered a bonus if it is above 35%. A positive Cash Flow (the higher the better) separates a wonderfully reliable investment from a shaky one. This methodology prefers not to invest in companies that rely heavily on capital spending. This ratio for LTXB (4.72%) 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 LTXB (-3.60%) 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: P/E/Growth Investor
Based on: Peter Lynch |
| Thor Industries, Inc. manufactures a range of recreational vehicles (RVs) in the United States and sells those vehicles primarily in the United States and Canada. The Company's segments include towable recreational vehicles, which consists of the operations of Airstream, Inc. (Airstream) (towable); Heartland Recreational Vehicles, LLC (Heartland) (including Bison Coach, LLC (Bison), Cruiser RV, LLC (CRV) and DRV, LLC (DRV)); Jayco, Corp. (Jayco) (including Jayco towable, Starcraft and Highland Ridge), Keystone RV Company (Keystone) (including CrossRoads and Dutchmen) and K.Z., Inc. (KZ) (including Livin' Lite RV, Inc. (Livin' Lite)); motorized recreational vehicles, which consists of the operations of Airstream (motorized), Jayco (including Jayco motorized and Entegra Coach) and Thor Motor Coach, Inc. (Thor Motor Coach), and Other, which includes the operations of its subsidiary, Postle Operating, LLC (Postle). |
DETERMINE THE CLASSIFICATION:
This methodology would consider THO a "fast-grower".
P/E/GROWTH RATIO: PASS
The investor should examine the P/E (20.27) relative to the growth rate (22.61%), 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 THO (0.90) makes it favorable.
SALES AND P/E RATIO: PASS
For companies with sales greater than $1 billion, this methodology likes to see that the P/E ratio remain below 40. Large companies can have a difficult time maintaining a growth high enough to support a P/E above this threshold. THO, whose sales are $5,260.3 million, needs to have a P/E below 40 to pass this criterion. THO's P/E of (20.27) is considered acceptable.
INVENTORY TO SALES: PASS
When inventories increase faster than sales, it is a red flag. However an increase of up to 5% is considered bearable if all other ratios appear attractive. Inventory to sales for THO was 6.14% last year, while for this year it is 8.81%. 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 (2.67%) 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 THO is 22.6%, based on the average of the 3, 4 and 5 year historical eps growth rates, which is considered very good.
TOTAL DEBT/EQUITY RATIO: PASS
This methodology would consider the Debt/Equity ratio for THO (25.65%) to be acceptable (equity is three to 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 (3.90%) 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 (-2.23%) 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: P/E/Growth Investor
Based on: Peter Lynch |
| Banco Macro SA is an Argnetina-based financial institution (the Bank) that offers traditional bank products and services to companies, including those operating in regional economies, as well as to individuals. In addition, the Bank performs certain transactions through its subsidiaries, including mainly Banco del Tucuman, Macro Bank Ltd, Macro Securities SA, Macro Fiducia SA and Macro Fondos SGFCI SA. It has approximately two categories of customers, such as retail customers, including individuals and entrepreneurs and corporate customers, which include small, medium and large companies and major corporations. In addition, it provides services to over four provincial governments. It provides its corporate customers with traditional banking products and services, such as deposits, lending (including overdraft facilities), check cashing advances and factoring, guaranteed loans and credit lines for financing foreign trade and cash management services. |
DETERMINE THE CLASSIFICATION:
This methodology would consider BMA a "fast-grower".
P/E/GROWTH RATIO: PASS
The investor should examine the P/E (11.34) relative to the growth rate (41.34%), based on the average of the 3, 4 and 5 year historical eps growth rates, for a company. This is a quick way of determining the fairness of the price. In this particular case, the P/E/G ratio for BMA (0.27) is very favorable.
SALES AND P/E RATIO: PASS
For companies with sales greater than $1 billion, this methodology likes to see that the P/E ratio remain below 40. Large companies can have a difficult time maintaining a growth high enough to support a P/E above this threshold. BMA, whose sales are $1,866.8 million, needs to have a P/E below 40 to pass this criterion. BMA's P/E of (11.34) is considered acceptable.
EPS GROWTH RATE: PASS
This methodology favors companies that have several years of fast earnings growth, as these companies have a proven formula for growth that in many cases can continue many more years. This methodology likes to see earnings growth in the range of 20% to 50%, as earnings growth over 50% may be unsustainable. The EPS growth rate for BMA is 41.3%, based on the average of the 3, 4 and 5 year historical eps growth rates, which is considered 'OK'. However, it may be difficult to sustain such a high growth rate.
TOTAL DEBT/EQUITY RATIO: NEUTRAL
BMA is a financial company so debt to equity rules are not applied to determine the company's financial soundness.
EQUITY/ASSETS RATIO: PASS
This methodology uses the Equity/Assets Ratio as a way to determine a financial intermediary's health, as it is a better measure than the Debt/Equity Ratio. BMA's Equity/Assets ratio (14.00%) is very healthy and above the minimum 5% this methodology looks for, thus passing the criterion.
RETURN ON ASSETS: PASS
This methodology uses Return on Assets as a way to measure a financial intermediary's profitability. BMA's ROA (5.03%) is above the minimum 1% that this methodology looks for, thus passing the criterion.
FREE CASH FLOW: NEUTRAL
The Free Cash Flow/Price ratio, though not a requirement, is considered a bonus if it is above 35%. A positive Cash Flow (the higher the better) separates a wonderfully reliable investment from a shaky one. This methodology prefers not to invest in companies that rely heavily on capital spending. This ratio for BMA (15.26%) is too low to add to the attractiveness of the stock. Keep in mind, however, that it does not adversely affect the company as it is a bonus criteria.
NET CASH POSITION: NEUTRAL
Another bonus for a company is having a Net Cash/Price ratio above 30%. Lynch defines net cash as cash and marketable securities minus long term debt. According to this methodology, a high value for this ratio dramatically cuts down on the risk of the security. The Net Cash/Price ratio for BMA (-5.68%) 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. |
PRINCIPAL FINANCIAL GROUP INC |
| Strategy: Growth/Value Investor
Based on: James P. O'Shaughnessy |
| Principal Financial Group, Inc. is an investment management company. The Company offers a range of financial products and services, including retirement, asset management and insurance. Its segments include Retirement and Income Solutions; Principal Global Investors, Principal International; U.S. Insurance Solutions, and Corporate. The Company offers a portfolio of products and services for retirement savings and retirement income. The Company's Principal Global Investors segment manages assets for investors around the world. The Company offers pension accumulation products and services, mutual funds, asset management, income annuities and life insurance accumulation products. The Company's U.S. Insurance Solutions segment provides group and individual insurance solutions. It focuses on small and medium-sized businesses, providing a range of retirement and employee benefit solutions, and individual insurance solutions to meet the needs of the business owners and their employees. |
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. PFG, with a market cap of $18,074 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. PFG, whose annual EPS before extraordinary items for the last 5 years (from earliest to the most recent fiscal year) were 2.58, 2.95, 3.72, 4.06 and 4.50, 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. PFG's Price/Sales ratio of 1.45, 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. PFG, whose relative strength is 82, is in the top 50 and would pass this last criterion. |
| Strategy: Growth Investor
Based on: Martin Zweig |
| ManpowerGroup Inc. is a provider of workforce solutions and services. The Company's segments include Americas, Southern Europe, Northern Europe, Asia Pacific Middle East (APME), Right Management and Corporate. The Company's Americas segment includes operations in the United States and Other Americas. Its Southern Europe segment includes operations in France, Italy and Other Southern Europe. Its Northern Europe segment includes operations in the United Kingdom, the Nordics, Germany and the Netherlands. Its APME operations provide a range of workforce solutions and services offered through Manpower, Experis and ManpowerGroup Solutions, including permanent, temporary and contract recruitment, assessment and selection, training and outsourcing. Its Right Management segment provides talent and career management workforce solutions. It provides services under its Experis brand, particularly in the areas of information technology (IT), engineering, finance and accounting, and healthcare. |
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. MAN's P/E is 15.44, based on trailing 12 month earnings, while the current market PE is 18.00. Therefore, it passes the first test.
REVENUE GROWTH IN RELATION TO EPS GROWTH: FAIL
Revenue Growth must not be substantially less than earnings growth. For earnings to continue to grow over time they must be supported by a comparable or better sales growth rate and not just by cost cutting or other non-sales measures. MAN's revenue growth is -1.41%, while it's earnings growth rate is 20.56%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, MAN 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 (0%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (2.3%) of the current year. Sales growth for the prior must be greater than the latter. For MAN 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. MAN's EPS ($1.86) pass this test.
QUARTERLY EARNINGS ONE YEAR AGO: PASS
The EPS for the quarter one year ago must be positive. MAN's EPS for this quarter last year ($1.66) 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. MAN's growth rate of 12.05% 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 MAN is 10.28%. This should be less than the growth rates for the 3 previous quarters, which are 19.51%, 20.30%, and 16.15%. MAN 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, 18.35%, (versus the same three quarters a year earlier) is greater than the growth rate of the current quarter earnings, 12.05%, (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 MAN is 12.0%, 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, 12.05% must be greater than or equal to the historical growth which is 20.56%. Since this is not the case MAN 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. MAN, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 2.47, 3.62, 5.30, 5.40 and 6.27, 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. MAN's long-term growth rate of 20.56%, 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. MAN's Debt/Equity (34.95%) is not considered high relative to its industry (122.60%) 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 MAN, this criterion has not been met (insider sell transactions are 947, while insiders buying number 498). 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 Investor
Based on: Martin Zweig |
| Facebook, Inc. builds products that enable people to connect and share through mobile devices and personal computers. The Company enables people to share their opinions, ideas, photos and videos, and other activities. Its products include Facebook, Instagram, Messenger, WhatsApp and Oculus. Facebook is a mobile application and Website that enables people to connect, share, discover and communicate with each other on mobile devices and personal computers. Instagram is a mobile application that enables people to take photos or videos, customize them with filter effects, and share them with friends and followers in a photo feed or send them to friends. Messenger is a messaging application available for mobile and Web on various platforms and devices. WhatsApp Messenger is a mobile messaging application that is used by people around the world. Oculus virtual reality technology and content platform allows people to play games, consume content and connect with others. |
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. FB's P/E is 38.97, based on trailing 12 month earnings, while the current market PE is 18.00. Therefore, it passes the first test.
REVENUE GROWTH IN RELATION TO EPS GROWTH: 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. FB's revenue growth is 51.14%, while it's earnings growth rate is 134.84%, based on the average of the 3, 4 and 5 year historical eps growth rates. Sales growth is not at least 85% of EPS growth so the initial part of this criteria is not met, however, since both sales growth and eps growth are greater than 30%, that requirement is waived and the company passes this test.
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 (50.8%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (55.8%) of the current year. Sales growth for the prior must be greater than the latter. For FB 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. FB's EPS ($1.43) pass this test.
QUARTERLY EARNINGS ONE YEAR AGO: PASS
The EPS for the quarter one year ago must be positive. FB's EPS for this quarter last year ($0.54) 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. FB's growth rate of 164.81% 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 FB is 67.42%. This should be less than the growth rates for the 3 previous quarters, which are 188.89%, 184.00%, and 164.52%. FB 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, 177.03%, (versus the same three quarters a year earlier) is greater than the growth rate of the current quarter earnings, 164.81%, (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 FB is 164.8%, 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, 164.81% must be greater than or equal to the historical growth which is 134.84%. FB 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. FB, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 0.02, 0.60, 1.10, 1.29 and 3.49, 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. FB's long-term growth rate of 134.84%, 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. FB's Debt/Equity (0.00%) is not considered high relative to its industry (332.55%) 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 FB, this criterion has not been met (insider sell transactions are 1,112, while insiders buying number 48). 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 |
| NK LUKOIL PAO is an energy company. The primary activities of LUKOIL and its subsidiaries are oil exploration, production, refining, marketing and distribution. The Company's 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 relating 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. In addition to its production, the Company purchases crude oil in Russia and on international markets. 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. |
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 $47,075 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 ($1.52). LUKOY's cash flow per share of $10.49 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 (633 million shares). These are the more well known and highly traded companies. LUKOY, who has 713 million shares outstanding, passes this test.
TRAILING 12 MONTH SALES: PASS
A company's trailing 12 month sales ($89,341 million) are required to be 1.5 times greater than the mean of the market's trailing 12 month sales ($20,833 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 5.40%, is one of the 50 companies that satisfy this last criterion. |
| Strategy: P/E/Growth Investor
Based on: Peter Lynch |
| Corning Incorporated (Corning) is engaged in the manufacture of specialty glass and ceramics. The Company operates in five segments: Display Technologies, which manufactures glass substrates; Optical Communications, which is engaged in providing optical solutions; Environmental Technologies, which manufactures ceramic substrates and filter products; Specialty Materials, which manufactures products that provide over 150 material formulations for glass, glass ceramics and fluoride crystals, and Life Sciences segment, which is a developer, manufacturer and supplier of scientific laboratory products. The Display Technologies segment develops, manufactures and supplies glass substrates using a fusion manufacturing process. It manufactures and processes products at approximately 90 plants in approximately 20 countries. Corning offers its products under the trademarks, including Corning, Celcor, ClearCurve, DuraTrap, Eagle XG, Epic, Gorilla, HPFS, Pyrex, Steuben, Falcon, SMF-28e and Willow. |
DETERMINE THE CLASSIFICATION:
This methodology would consider GLW a "fast-grower".
P/E/GROWTH RATIO: PASS
The investor should examine the P/E (8.43) relative to the growth rate (25.85%), 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 GLW (0.33) is very favorable.
SALES AND P/E RATIO: PASS
For companies with sales greater than $1 billion, this methodology likes to see that the P/E ratio remain below 40. Large companies can have a difficult time maintaining a growth high enough to support a P/E above this threshold. GLW, whose sales are $9,390.0 million, needs to have a P/E below 40 to pass this criterion. GLW's P/E of (8.43) is considered acceptable.
INVENTORY TO SALES: PASS
When inventories increase faster than sales, it is a red flag. However an increase of up to 5% is considered bearable if all other ratios appear attractive. Inventory to sales for GLW was 15.20% last year, while for this year it is 15.67%. 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 (0.46%) 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 GLW is 25.9%, 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 GLW (21.81%) to be acceptable (equity is three to 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 GLW (2.36%) is too low to add to the attractiveness of the stock. Keep in mind, however, that it does not adversely affect the company as it is a bonus criteria.
NET CASH POSITION: NEUTRAL
Another bonus for a company is having a Net Cash/Price ratio above 30%. Lynch defines net cash as cash and marketable securities minus long term debt. According to this methodology, a high value for this ratio dramatically cuts down on the risk of the security. The Net Cash/Price ratio for GLW (7.04%) is too low to add to the attractiveness of this company. Keep in mind, however, that it does not adversely affect the company as it is a bonus criteria. |
Watch List
The top scoring stocks not currently in the Hot List portfolio.
| Ticker |
Company Name |
Industry |
Current
Score |
| NLS |
NAUTILUS, INC. |
Recreational Products |
84% |
| ESNT |
ESSENT GROUP LTD |
Insurance (Prop. & Casualty) |
83% |
| MLHR |
HERMAN MILLER, INC. |
Constr. - Supplies & Fixtures |
78% |
| CIM |
CHIMERA INVESTMENT CORPORATION |
Consumer Financial Services |
72% |
| HIBB |
HIBBETT SPORTS, INC. |
Retail (Specialty) |
70% |
| MASI |
MASIMO CORPORATION |
Medical Equipment & Supplies |
62% |
| KORS |
MICHAEL KORS HOLDINGS LTD |
Apparel/Accessories |
61% |
| PAYC |
PAYCOM SOFTWARE INC |
Software & Programming |
58% |
| RTEC |
RUDOLPH TECHNOLOGIES INC |
Semiconductors |
55% |
| AFSI |
AMTRUST FINANCIAL SERVICES INC |
Insurance (Prop. & Casualty) |
54% |
|
