Guru Analysis
| Strategy: Growth Investor
Based on: Martin Zweig |
| 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. |
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. SAFM's P/E is 13.62, based on trailing 12 month earnings, while the current market PE is 25.00. 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. SAFM's revenue growth is 2.92%, while it's earnings growth rate is 25.52%, based on the average of the 3 and 4 year historical eps growth rates. Therefore, SAFM 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 (28%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (15.9%) of the current year. Sales growth for the prior must be greater than the latter. For SAFM 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. SAFM's EPS ($5.09) pass this test.
QUARTERLY EARNINGS ONE YEAR AGO: PASS
The EPS for the quarter one year ago must be positive. SAFM's EPS for this quarter last year ($2.42) 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. SAFM's growth rate of 110.33% 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 SAFM is 12.76%. This should be less than the growth rates for the 3 previous quarters, which are 173.17%, 117.02%, and 41.23%. SAFM 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, 93.18%, (versus the same three quarters a year earlier) is less than the growth rate of the current quarter earnings, 110.33%, (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, 110.33% must be greater than or equal to the historical growth which is 25.52%. SAFM 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. SAFM, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 2.35, 5.68, 10.80, 9.52, and 8.37, 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. SAFM's long-term growth rate of 25.52%, based on the average of the 3 and 4 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. SAFM's Debt/Equity (0.00%) is not considered high relative to its industry (159.43%) 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 SAFM, this criterion has not been met (insider sell transactions are 1,149, while insiders buying number 323). 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 |
| LGI Homes, Inc. is a homebuilder and land developer. The Company is engaged in the design, construction, marketing and sale of new homes in markets in Texas, Arizona, Florida, Georgia, New Mexico, South Carolina, North Carolina, Colorado, Washington and Tennessee. The Company operates through five segments: the Texas division, the Southwest division, the Southeast division, the Florida division and the Northwest division. The Texas division includes homebuilding operations in Houston, Dallas/Fort Worth, San Antonio and Austin locations. The Southwest division includes homebuilding operations in Phoenix, Tucson, Albuquerque, Denver and Colorado Springs locations. The Southeast division includes homebuilding operations in Atlanta, Charlotte and Nashville locations. The Florida division includes homebuilding operations in Tampa, Orlando, Fort Myers and Jacksonville locations. The Northwest division includes homebuilding operations in Seattle location. |
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. LGIH, with a market cap of $1,518 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. LGIH, whose annual EPS before extraordinary items for the last 5 years (from earliest to the most recent fiscal year) were 0.50, 1.07, 1.33, 2.44 and 3.41, 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. LGIH's Price/Sales ratio of 1.39, 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. LGIH, whose relative strength is 94, is in the top 50 and would pass this last criterion. |
| Strategy: Value Investor
Based on: Benjamin Graham |
| NetEase, Inc. (NetEase) is a technology company. The Company operates an interactive online community in China and is a provider of Chinese language content and services through its online games, Internet media, e-mail, e-commerce and other businesses. The Company operates through three segments: Online Game Services; Advertising Services, and E-mail, E-commerce and Others. Its online games business primarily focuses on offering personal computer (PC)-client massively multi-player online role-playing games (PC-client MMORPGs), as well as mobile games to the Chinese market. The NetEase Websites provide Internet users with Chinese language online services centered over three core service categories, which include content, community and communication. Its online advertising offerings include banner advertising, direct e-mail, sponsored special events, games, contests and other activities. It offers free and fee-based premium e-mail services to its individual users and corporate users. |
SECTOR: PASS
NTES 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 $1 billion. NTES's sales of $7,806.5 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. NTES's current ratio of 2.93 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 NTES is $0.0 million, while the net current assets are $5,860.4 million. NTES passes this test.
LONG-TERM EPS GROWTH: PASS
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 10 years. Companies with this type of growth tend to be financially secure and have proven themselves over time. NTES's EPS growth over that period of 457.9% passes the EPS growth test.
P/E RATIO: FAIL
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. NTES's P/E of 21.98 (using the current PE) fails this test.
PRICE/BOOK RATIO: FAIL
The Price/Book ratio must also be reasonable. That is, the Price/Book multiplied by P/E cannot be greater than 22. NTES's Price/Book ratio is 6.34, while the P/E is 21.98. NTES fails the Price/Book test. |
| Strategy: Small-Cap Growth Investor
Based on: Motley Fool |
| Paycom Software, Inc. is a provider of a cloud-based human capital management (HCM) software solution delivered as Software-as-a-Service (SaaS). The Company provides functionality and data analytics that businesses need to manage the complete employment life cycle from recruitment to retirement. The Company's applications streamline client processes and provide clients and their employees with the ability to directly access and manage administrative processes, including applications that identify candidates, on-board employees, manage time and labor, administer payroll deductions and benefits, manage performance, terminate employees and administer post-termination health benefits, such as COBRA. The Company's solution allows clients to analyze employee information to make business decisions. The Company's HCM solution offers a range of applications, including talent acquisition, time and labor management, payroll, talent management and human resources (HR) management. |
PROFIT MARGIN: PASS
This methodology seeks companies with a minimum trailing 12 month after tax profit margin of 7%. The companies that pass this criterion have strong positions within their respective industries and offer greater shareholder returns. A true test of the quality of a company is that they can sustain this margin. PAYC's profit margin of 15.37% passes this test.
RELATIVE STRENGTH: PASS
The investor must look at the relative strength of the company in question. Companies whose relative strength is 90 or above (that is, the company outperforms 90% or more of the market for the past year), are considered attractive. Companies whose price has been rising much quicker than the market tend to keep rising. PAYC, with a relative strength of 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 PAYC (140.00% for EPS, and 31.00% for Sales) are good enough to pass.
INSIDER HOLDINGS: PASS
PAYC's insiders should own at least 10% (they own 16.24% ) of the company's outstanding shares which is the minimum required. A high percentage typically indicates that the insiders are confident that the company will do well.
CASH FLOW FROM OPERATIONS: PASS
A positive cash flow is typically used for internal expansion, acquisitions, dividend payments, etc. A company that generates rather than consumes cash is in much better shape to fund such activities on their own, rather than needing to borrow funds to do so. PAYC's free cash flow of $0.94 per share passes this test.
PROFIT MARGIN CONSISTENCY: PASS
PAYC's profit margin has been consistent or even increasing over the past three years (Current year: 13.32%, Last year: 9.32%, Two years ago: 3.75%), passing the requirement. It is a sign of good management and a healthy and competitive enterprise.
R&D AS A PERCENTAGE OF SALES: PASS
PAYC is either maintaining the same levels of R&D expenditures(currently $21.0 million) or increasing these levels which is a good sign. This allows the company to develop the superior technology and new products that will put everyone else out of business. This criterion is particularly important for high-tech and medical stocks because they are so R&D dependant.
CASH AND CASH EQUIVALENTS: FAIL
PAYC does not have a sufficiently large amount of cash, $60.16 million, on hand relative to its size. Although this criteria does not apply to companies of this size, we defined anything greater than $500 million in cash as having 'a lot of cash' to allow analysis of these companies. PAYC will have more of a difficult time paying off debt (if it has any) or acquiring other companies than a company that passes this criterion.
INVENTORY TO SALES: PASS
This methodology strongly believes that companies, especially small ones, should have tight control over inventory. It's a warning sign if a company's inventory relative to sales increases significantly when compared to the previous year. Up to a 30% increase is allowed, but no more. Inventory to Sales for PAYC was 0.49% last year, while for this year it is 0.21%. Since the inventory to sales is decreasing by -0.28% 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 PAYC was 4.05% last year, while for this year it is 0.62%. Since the AR to sales is decreasing by -3.43% the stock passes this criterion.
LONG TERM DEBT/EQUITY RATIO: FAIL
PAYC's trailing twelve-month Debt/Equity ratio (21.12%) 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 (PAYC's is 0.38), the shares are looked upon favorably. These high quality companies can often wind up as the biggest winners. PAYC passes this test.
The following criteria for PAYC are less important which means you would place less emphasis on them when making your investment decision using this strategy:
AVERAGE SHARES OUTSTANDING: PASS
PAYC has not been significantly increasing the number of shares outstanding within recent years which is a good sign. PAYC currently has 59.0 million shares outstanding. This means the company is not taking any measures, with regards to the number of shares, that will dilute or devalue the stock.
SALES: PASS
Companies with sales less than $500 million should be chosen. It is among these small-cap stocks that investors can find "an uncut gem", ones that institutions won't be able to buy yet. PAYC's sales of $406.8 million based on trailing 12 month sales, are fine, making this company one such "prospective gem". PAYC passes the sales test.
DAILY DOLLAR VOLUME: FAIL
PAYC does not pass the Daily Dollar Volume (DDV of $39.3 million) test. It exceeds the maximum requirement of $25 million. Stocks that fail the test are too liquid for a small individual investor and many institutions have already discovered it.
PRICE: PASS
This is a very insignificant criterion for this methodology. But basically, low prices are chosen because "small numbers multiply more rapidly than large ones" and the potential for big returns expands. PAYC with a price of $82.00 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
PAYC's income tax paid expressed as a percentage of pretax income this year was (23.41%) and last year (37.53%) 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: Price/Sales Investor
Based on: Kenneth Fisher |
| Argan, Inc. is a holding company. The Company conducts operations through its subsidiaries, Gemma Power Systems, LLC and affiliates (GPS), Atlantic Projects Company Limited (APC), Southern Maryland Cable, Inc. (SMC) and The Roberts Company (Roberts). Through GPS and APC, the Company's power industry services segment provides engineering, procurement, construction, commissioning, operations management, maintenance, development, technical and consulting services to the power generation and renewable energy markets. Through SMC, the telecommunications infrastructure services segment of the Company provides project management, construction, installation and maintenance services to commercial, local government and federal government customers. Through Roberts, the Company's industrial fabrication and field services segment produces, delivers and installs fabricated steel components specializing in pressure vessels and heat exchangers for industrial plants. |
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. AGX's P/S ratio of 1.05 based on trailing 12 month sales, falls within the "good values" range for non-cyclical companies and is considered attractive.
TOTAL DEBT/EQUITY RATIO: PASS
Less debt equals less risk according to this methodology. AGX's Debt/Equity of 0.00% is exceptional, thus passing the test.
PRICE/RESEARCH RATIO: PASS
This methodology considers companies in the Technology and Medical sectors to be attractive if they have low Price/Research ratios. AGX is neither a Technology nor Medical company. Therefore the Price/Research ratio is not available and, hence, not much emphasis should be placed on this particular variable.
PRELIMINARY GRADE: Some Interest in AGX At this Point
Is AGX a "Super Stock"? NO
PRICE/SALES RATIO: FAIL
The prospective company should have a low Price/Sales ratio. To be considered a "Super Stock", non-cyclical (non-Smokestack) companies should have Price/Sales ratios below .75. However, AGX, who has a P/S of 1.05, does not fall within the "Super Stock" range. It does fall between 0.75 and 1.5, which is considered the "good values" range for non-cyclical companies. Nonetheless, it does not pass this "Super Stock" criterion.
LONG-TERM EPS GROWTH RATE: PASS
This methodology looks for companies that have an inflation adjusted EPS growth rate greater than 15%. AGX's inflation adjusted EPS growth rate of 30.16% passes the test.
FREE CASH PER SHARE: PASS
This methodology looks for companies that have a positive free cash per share. Companies should have enough free cash available to sustain three years of losses. This is based on the premise that companies without cash will soon be out of business. AGX's free cash per share of 15.42 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. AGX, whose three year net profit margin averages 9.05%, passes this evaluation.
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| Strategy: Growth Investor
Based on: Martin Zweig |
| 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). |
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. THO's P/E is 19.12, based on trailing 12 month earnings, while the current market PE is 25.00. 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. THO's revenue growth is 23.83%, while it's earnings growth rate is 27.41%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, THO passes 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 (30.6%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (49.7%) of the current year. Sales growth for the prior must be greater than the latter. For THO 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. THO's EPS ($2.43) pass this test.
QUARTERLY EARNINGS ONE YEAR AGO: PASS
The EPS for the quarter one year ago must be positive. THO's EPS for this quarter last year ($1.49) 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. THO's growth rate of 63.09% 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 THO is 13.71%. This should be less than the growth rates for the 3 previous quarters, which are 43.02%, 39.74%, and 43.95%. THO 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, 42.13%, (versus the same three quarters a year earlier) is less than the growth rate of the current quarter earnings, 63.09%, (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, 63.09% must be greater than or equal to the historical growth which is 27.41%. THO 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. THO, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 2.86, 3.29, 3.79, 4.91 and 7.09, 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. THO's long-term growth rate of 27.41%, 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. THO's Debt/Equity (5.34%) is not considered high relative to its industry (17.63%) 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 THO, this criterion has not been met (insider sell transactions are 203, while insiders buying number 22). 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: Price/Sales Investor
Based on: Kenneth Fisher |
| Signet Jewelers Limited is a retailer of diamond jewelry. The Company's segments include the Sterling Jewelers division; the Zale division, which consists of the Zale Jewelry and Piercing Pagoda segments; the UK Jewelry division, and Other. The Sterling Jewelers division's stores operate in the United States principally as Kay Jewelers (Kay), Kay Jewelers Outlet, Jared The Galleria Of Jewelry (Jared) and Jared Vault. The Zale division operates jewelry stores (Zale Jewelry) and kiosks (Piercing Pagoda), located primarily in shopping malls across the United States, Canada and Puerto Rico. Zale Jewelry includes the United States store brand, Zales, and the Canadian store brand, Peoples Jewellers. Piercing Pagoda operates through mall-based kiosks. The UK Jewelry division operates stores in the United Kingdom, Republic of Ireland and Channel Islands. The Other segment includes the operations of subsidiaries involved in the purchasing and conversion of rough diamonds to polished stones. |
PRICE/SALES RATIO: PASS
The prospective company should have a low Price/Sales ratio. Non-cyclical (non-Smokestack) companies with Price/Sales ratios below 0.75 are tremendous values and should be sought. SIG's P/S of 0.51 based on trailing 12 month sales, is below 0.75 which is considered quite attractive. It passes this methodology's P/S ratio test with flying colors.
TOTAL DEBT/EQUITY RATIO: PASS
Less debt equals less risk according to this methodology. SIG's Debt/Equity of 35.92% is acceptable, thus passing the test.
PRICE/RESEARCH RATIO: PASS
This methodology considers companies in the Technology and Medical sectors to be attractive if they have low Price/Research ratios. SIG is neither a Technology nor Medical company. Therefore the Price/Research ratio is not available and, hence, not much emphasis should be placed on this particular variable.
PRELIMINARY GRADE: Some Interest in SIG At this Point
Is SIG a "Super Stock"? NO
PRICE/SALES RATIO: PASS
The prospective company should have a low Price/Sales ratio. Non-cyclical(non-Smokestack) companies with Price/Sales ratios below .75 are tremendous values and should be sought.SIG's P/S ratio of 0.51 is below .75 which is considered extremely attractive. It passes this methodology's P/S ratio test with flying colors.
LONG-TERM EPS GROWTH RATE: FAIL
This methodology looks for companies that have an inflation adjusted EPS growth rate greater than 15%. SIG's inflation adjusted EPS growth rate of 11.13% fails the test.
FREE CASH PER SHARE: PASS
This methodology looks for companies that have a positive free cash per share. Companies should have enough free cash available to sustain three years of losses. This is based on the premise that companies without cash will soon be out of business. SIG's free cash per share of 4.23 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. SIG, whose three year net profit margin averages 7.42%, passes this evaluation.
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| Strategy: Price/Sales Investor
Based on: Kenneth Fisher |
| Cooper Tire & Rubber Company is a manufacturer and marketer of replacement tires. The Company specializes in the design, manufacture, marketing and sales of passenger car, light truck, medium truck, motorcycle, and racing tires. The Company operates through four segments: North America, Latin America, Europe, and Asia. The North America segment comprises its operations in the United States and Canada. The Americas Tire Operations segment manufactures and markets passenger car and light truck tires, for sale in the United States replacement markets. The Latin America segment comprises its operations in Mexico, Central America, and South America. The European segment has operations in the United Kingdom and the Republic of Serbia. Its the United Kingdom entity manufactures and markets passenger car, light truck, motorcycle and racing tires and tire retread material. As of December 31, 2016, the Company operated nine manufacturing facilities and 20 distribution centers in 10 countries. |
PRICE/SALES RATIO: PASS
The prospective company should have a low Price/Sales ratio. Smokestack (cyclical) companies with a Price/Sales ratio between .4 and .8 represent good values according to this methodology. CTBpasses this test as its P/S of 0.65 based on trailing 12 month sales, falls within the "good values" range for cyclical companies.
TOTAL DEBT/EQUITY RATIO: PASS
Less debt equals less risk according to this methodology. CTB's Debt/Equity of 28.43% is acceptable, thus passing the test.
PRICE/RESEARCH RATIO: PASS
This methodology considers companies in the Technology and Medical sectors to be attractive if they have low Price/Research ratios. CTB is neither a Technology nor Medical company. Therefore the Price/Research ratio is not available and, hence, not much emphasis should be placed on this particular variable.
PRELIMINARY GRADE: Some Interest in CTB At this Point
Is CTB a "Super Stock"? NO
PRICE/SALES RATIO: PASS
The prospective company should have a low Price/Sales ratio. Non-Smokestack(non-cyclical) companies with a Price/Sales ratio between .75 and 1.5 are good values. Otherwise, Smokestack(cyclical) companies with a Price/Sales ratio between .4 and .8 represent good values. CTB's P/S ratio of 0.65 falls within the "good values " range for cyclical industries and is considered attractive.
LONG-TERM EPS GROWTH RATE: FAIL
This methodology looks for companies that have an inflation adjusted EPS growth rate greater than 15%. CTB's inflation adjusted EPS growth rate of 13.06% fails the test.
FREE CASH PER SHARE: PASS
This methodology looks for companies that have a positive free cash per share. Companies should have enough free cash available to sustain three years of losses. This is based on the premise that companies without cash will soon be out of business. CTB's free cash per share of 2.02 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. CTB, whose three year net profit margin averages 7.30%, passes this evaluation.
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IPG PHOTONICS CORPORATION |
| Strategy: Small-Cap Growth Investor
Based on: Motley Fool |
| IPG Photonics Corporation is a developer and manufacturer of a line of fiber lasers, fiber amplifiers, diode lasers, laser systems and optical accessories that are used for various applications. The Company offers a line of lasers and amplifiers, which are used in materials processing, communications and medical applications. The Company sells its products globally to original equipment manufacturers (OEMs), system integrators and end users. The Company's manufacturing facilities are located in the United States, Germany and Russia. The Company offers laser-based systems for certain markets and applications. Its products are designed to be used as general-purpose energy or light sources. Its product line includes High-Power Ytterbium CW (1,000-100,000 Watts), Mid-Power Ytterbium CW (100-999 Watts), Pulsed Ytterbium (0.1 to 200 Watts), Pulsed and CW, Quasi-CW Ytterbium (100-4,500 Watts), Erbium Amplifiers and Transceivers. |
PROFIT MARGIN: PASS
This methodology seeks companies with a minimum trailing 12 month after tax profit margin of 7%. The companies that pass this criterion have strong positions within their respective industries and offer greater shareholder returns. A true test of the quality of a company is that they can sustain this margin. IPGP's profit margin of 27.84% passes this test.
RELATIVE STRENGTH: PASS
The investor must look at the relative strength of the company in question. Companies whose relative strength is 90 or above (that is, the company outperforms 90% or more of the market for the past year), are considered attractive. Companies whose price has been rising much quicker than the market tend to keep rising. IPGP, with a relative strength of 95, satisfies this test.
COMPARE SALES AND EPS GROWTH TO THE SAME PERIOD LAST YEAR: PASS
Companies must demonstrate both revenue and net income growth of at least 25% as compared to the prior year. These growth rates give you the dynamic companies that you are looking for. These rates for IPGP (63.57% for EPS, and 47.59% for Sales) are good enough to pass.
INSIDER HOLDINGS: PASS
IPGP's insiders should own at least 10% (they own 33.35% ) of the company's outstanding shares which is the minimum required. A high percentage typically indicates that the insiders are confident that the company will do well.
CASH FLOW FROM OPERATIONS: PASS
A positive cash flow is typically used for internal expansion, acquisitions, dividend payments, etc. A company that generates rather than consumes cash is in much better shape to fund such activities on their own, rather than needing to borrow funds to do so. IPGP's free cash flow of $3.07 per share passes this test.
PROFIT MARGIN CONSISTENCY: FAIL
The profit margin in the past must be consistently increasing. The profit margin of IPGP has been inconsistent in the past three years (Current year: 25.92%, Last year: 26.87%, Two years ago: 26.04%), which is unacceptable. This inconsistency will carryover directly to the company's bottom line, or earnings per share.
R&D AS A PERCENTAGE OF SALES: PASS
IPGP is either maintaining the same levels of R&D expenditures(currently $78.6 million) or increasing these levels which is a good sign. This allows the company to develop the superior technology and new products that will put everyone else out of business. This criterion is particularly important for high-tech and medical stocks because they are so R&D dependant.
CASH AND CASH EQUIVALENTS: PASS
IPGP's level of cash $830.6 million passes this criteria. If a company is a cash generator, like IPGP, it has the ability to pay off debt (if it has any) or acquire other companies. Most importantly, good operations generate cash.
INVENTORY TO SALES: PASS
This methodology strongly believes that companies, especially small ones, should have tight control over inventory. It's a warning sign if a company's inventory relative to sales increases significantly when compared to the previous year. Up to a 30% increase is allowed, but no more. Inventory to Sales for IPGP was 22.61% last year, while for this year it is 23.75%. Although the inventory to sales is rising, it is below the max 30% that is allowed. The investor can still consider the stock if all other criteria appear very attractive.
ACCOUNT RECEIVABLE TO SALES: PASS
This methodology wants to make sure that a company's accounts receivable do not get significantly out of line with sales. It's a warning sign if a company's accounts receivable relative to sales increases significantly when compared to the previous year. Up to a 30% increase is allowed, but no more. Accounts Receivable to Sales for IPGP was 16.70% last year, while for this year it is 15.49%. Since the AR to sales is decreasing by -1.20% the stock passes this criterion.
LONG TERM DEBT/EQUITY RATIO: PASS
IPGP's trailing twelve-month Debt/Equity ratio (2.36%) is a little higher than what this methodology is looking for, but is still at an acceptable level. The superior companies that you are looking for don't need to borrow money in order to grow. This company has borrowed very little which is still OK.
"THE FOOL RATIO" (P/E TO GROWTH): FAIL
The "Fool Ratio" is an extremely important aspect of this analysis. The methodology says consider shorting shares when the company's Fool Ratio is greater than 1.30. IPGP's PEG Ratio of 2.15 is excessively high.
The following criteria for IPGP are less important which means you would place less emphasis on them when making your investment decision using this strategy:
AVERAGE SHARES OUTSTANDING: PASS
IPGP has not been significantly increasing the number of shares outstanding within recent years which is a good sign. IPGP currently has 55.0 million shares outstanding. This means the company is not taking any measures, with regards to the number of shares, that will dilute or devalue the stock.
SALES: FAIL
Companies with sales less than $500 million should be chosen. It is among these small-cap stocks that investors can find "an uncut gem", ones that institutions won't be able to buy yet. IPGP's sales of $1,328.0 million based on trailing 12 month sales, are too high and would therefore fail the test. It is companies with $500 million or less in sales that are most likely to double or triple in size in the next few years.
DAILY DOLLAR VOLUME: FAIL
IPGP does not pass the Daily Dollar Volume (DDV of $102.7 million) test. It exceeds the maximum requirement of $25 million. Stocks that fail the test are too liquid for a small individual investor and many institutions have already discovered it.
PRICE: PASS
This is a very insignificant criterion for this methodology. But basically, low prices are chosen because "small numbers multiply more rapidly than large ones" and the potential for big returns expands. IPGP with a price of $228.98 passes the price test, even though it doesn't fall in the preferred range. The price should be above $7 in order to eliminate penny stocks and below $20 since most stocks in this price range are undiscovered by the institutions.
INCOME TAX PERCENTAGE: PASS
IPGP's income tax paid expressed as a percentage of pretax income this year was (28.88%) and last year (29.15%) 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. |
MAGNA INTERNATIONAL INC. (USA) |
| Strategy: Contrarian Investor
Based on: David Dreman |
| Magna International Inc. (Magna) is a global automotive supplier. The Company's segments are North America, Europe, Asia, Rest of World, and Corporate and Other. The Company's product capabilities include producing body, chassis, exterior, seating, powertrain, electronic, active driver assistance, vision, closure, and roof systems and modules, as well as vehicle engineering and contract manufacturing. The Company has over 320 manufacturing operations and approximately 100 product development, engineering and sales centers in over 30 countries. It provides a range of body, chassis and engineering solutions to its original equipment manufacturer (OEM) customers. It has capabilities in powertrain design, development, testing and manufacturing. It offers bumper fascia systems, exterior trim and modular systems. It offers exterior and interior mirror systems. It offers sealing, trim, engineered glass and module systems. It offers softtops, retractable hardtops, modular tops and hardtops. |
MARKET CAP: PASS
Medium to large-sized companies (the largest 1500 companies) should be chosen, because they are more in the public eye. Furthermore, the investor is exposed to less risk of "accounting gimmickry", and companies of this size have more staying power. MGA has a market cap of $20,282 million, therefore passing the test.
EARNINGS TREND: FAIL
A company should show a rising trend in the reported earnings for the most recent quarters. MGA's EPS for the latest quarter is not greater than the prior quarter, (from earliest to most recent quarter) 1.48, 1.36. Hence the stock fails this test, but the investor should evaluate this company qualitatively to see if it qualifies under this methodology's "exception rule".
EPS GROWTH RATE IN THE IMMEDIATE PAST AND FUTURE: FAIL
This methodology likes to see companies with an EPS growth rate higher than the S&P in the immediate past and a likelihood that this trend will continue in the near future. MGA fails this test as its EPS growth rate for the past 6 months (-11.11%) does not beat that of the S&P (11.94%).
This methodology would utilize four separate criteria to determine if MGA is a contrarian stock. In order to eliminate weak companies we have stipulated that the stock should pass at least two of the following four major criteria in order to receive "Some Interest".
P/E RATIO: PASS
The P/E of a company should be in the bottom 20% of the overall market. MGA's P/E of 9.99, based on trailing 12 month earnings, meets the bottom 20% criterion (below 13.94), and therefore passes this test.
PRICE/CASH FLOW (P/CF) RATIO: PASS
The P/CF of a company should be in the bottom 20% of the overall market. MGA's P/CF of 6.12 meets the bottom 20% criterion (below 7.47) and therefore passes this test.
PRICE/BOOK (P/B) VALUE: FAIL
The P/B value of a company should be in the bottom 20% of the overall market. MGA's P/B is currently 1.85, which does not meet the bottom 20% criterion (below 1.11), and it therefore fails this test.
PRICE/DIVIDEND (P/D) RATIO: FAIL
The P/D ratio for a company should be in the bottom 20% of the overall market (that is the yield should be in the top 20%). MGA's P/D of 51.02 does not meet the bottom 20% criterion (below 20.79), and it therefore fails this test.
This methodology maintains that investors should look for as many healthy financial ratios as possible to ascertain the financial strength of the company. These criteria are detailed below.
CURRENT RATIO: FAIL
A prospective company must have a strong Current Ratio (greater than or equal to the average of it's industry [1.52] or greater than 2). This is one identifier of financially strong companies, according to this methodology. MGA's current ratio of 1.26 fails the test.
PAYOUT RATIO: PASS
A good indicator that a company has the ability to raise its dividend is a low payout ratio. The payout ratio for MGA is 18.80%, while its historical payout ratio has been 24.61%. Therefore, it passes the payout criterion.
RETURN ON EQUITY: PASS
The company should have a high ROE, as this helps to ensure that there are no structural flaws in the company. This methodology feels that the ROE should be greater than the top one third of ROE from among the top 1500 large cap stocks, which is 17.40%, and would consider anything over 27% to be staggering. The ROE for MGA of 20.46% is high enough to pass this criterion.
PRE-TAX PROFIT MARGINS: FAIL
This methodology looks for pre-tax profit margins of at least 8%, and considers anything over 22% to be phenomenal. MGA's pre-tax profit margin is 7.63%, thus failing this criterion.
YIELD: FAIL
The company in question should have a yield that is high and that can be maintained or increased. MGA's current yield is 1.96%, while the market yield is 2.40%. MGA fails this test.
LOOK AT THE TOTAL DEBT/EQUITY: PASS
The company must have a low Debt/Equity ratio, which indicates a strong balance sheet. The Debt/Equity ratio should not be greater than 20% or should be less than the average Debt/Equity for its industry of 125.81%. MGA's Total Debt/Equity of 33.95% is considered acceptable. |
Watch List
The top scoring stocks not currently in the Hot List portfolio.
| Ticker |
Company Name |
Industry |
Current
Score |
| UTHR |
UNITED THERAPEUTICS CORPORATION |
Biotechnology & Drugs |
72% |
| SKX |
SKECHERS USA INC |
Footwear |
68% |
| JP |
JUPAI HOLDINGS LTD (ADR) |
Investment Services |
67% |
| CUTR |
CUTERA, INC. |
Medical Equipment & Supplies |
63% |
| MAN |
MANPOWERGROUP INC. |
Business Services |
58% |
| NTRI |
NUTRISYSTEM INC. |
Personal Services |
57% |
| UFPI |
UNIVERSAL FOREST PRODUCTS, INC. |
Forestry & Wood Products |
56% |
| SUPV |
GRUPO SUPERVIELLE SA -ADR |
Regional Banks |
53% |
| ESNT |
ESSENT GROUP LTD |
Insurance (Prop. & Casualty) |
52% |
| HIBB |
HIBBETT SPORTS, INC. |
Retail (Specialty) |
49% |
|
