Guru Analysis
| Strategy: P/E/Growth Investor
Based on: Peter Lynch |
| Credit Acceptance Corporation offers financing programs that enable automobile dealers to sell vehicles to consumers. The Company's financing programs are offered through a network of automobile dealers. The Company has two Dealers financing programs: the Portfolio Program and the Purchase Program. Under the Portfolio Program, the Company advances money to dealers (Dealer Loan) in exchange for the right to service the underlying consumer loans. Under the Purchase Program, the Company buys the consumer loans from the dealers (Purchased Loan) and keeps the amounts collected from the consumer. Dealer Loans and Purchased Loans are collectively referred to as Loans. As of December 31, 2016, the Company's target market included approximately 60,000 independent and franchised automobile dealers in the United States. The Company has market area managers located throughout the United States that market its programs to dealers, enroll new dealers and support active dealers. |
DETERMINE THE CLASSIFICATION:
This methodology would consider CACC a "fast-grower".
P/E/GROWTH RATIO: PASS
The investor should examine the P/E (11.69) relative to the growth rate (30.32%), 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 CACC (0.39) 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. CACC, whose sales are $1,230.3 million, needs to have a P/E below 40 to pass this criterion. CACC's P/E of (11.69) 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 CACC is 30.3%, based on the average of the 3, 4 and 5 year historical eps growth rates, which is acceptable.
TOTAL DEBT/EQUITY RATIO: NEUTRAL
CACC 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. CACC's Equity/Assets ratio (31.00%) 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. CACC's ROA (12.63%) 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 CACC (6.81%) 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 CACC (-48.63%) 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. |
EXPRESS SCRIPTS HOLDING CO |
| Strategy: P/E/Growth Investor
Based on: Peter Lynch |
| Express Scripts Holding Company is a pharmacy benefit management (PBM) company. The Company is engaged in providing healthcare management and administration services to its clients, including managed care organizations, health insurers, third-party administrators, employers, union-sponsored benefit plans, workers' compensation plans and government health programs. The Company operates through two segments: PBM and Other Business Operations. The PBM segment includes its integrated PBM operations and specialty pharmacy operations. Its Other Business Operations segment includes its subsidiary, United BioSource Corporation (UBC), and its specialty distribution operations. Its integrated PBM services include clinical solutions, Express Scripts SafeGuardRx, specialized pharmacy care, home delivery pharmacy services, specialty pharmacy services, retail network pharmacy administration, benefit design consultation, drug utilization review and drug formulary management. |
DETERMINE THE CLASSIFICATION:
This methodology would consider ESRX a "fast-grower".
P/E/GROWTH RATIO: PASS
The investor should examine the P/E (8.81) relative to the growth rate (47.20%), 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 ESRX (0.19) 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. ESRX, whose sales are $101,353.2 million, needs to have a P/E below 40 to pass this criterion. ESRX's P/E of (8.81) 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 ESRX is 47.2%, based on the average of the 3, 4 and 5 year historical eps growth rates, which is considered 'OK'. However, it may be difficult to sustain such a high growth rate.
TOTAL DEBT/EQUITY RATIO: PASS
This methodology would consider the Debt/Equity ratio for ESRX (72.91%) to be mediocre. If the Debt/Equity ratio is this high, the other ratios and financial statistics for ESRX should be good enough to compensate.
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 ESRX (8.94%) 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 ESRX (-19.27%) 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: Patient Investor
Based on: Warren Buffett |
| MAXIMUS, Inc. provides business process services (BPS) to government health and human services agencies. The Company operates through three segments: U.S. Federal Services, Health Services and Human Services. The U.S. Federal Services segment provides BPS and program management for large government programs, independent health review and appeals services for both the United States Federal Government, and state-based programs and technology solutions for civilian federal programs. The Health Services segment provides a range of BPS, as well as related consulting services, for state, provincial and national government programs. The Human Services segment provides national, state and local human services agencies with a range of BPS and related consulting services for welfare-to-work, child support, higher education and K-12 special education programs. |
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 0.38, 0.75, 0.97, 1.16, 1.09, 1.67, 2.10, 2.35, 2.69, 3.17. Buffett would consider MMS's earnings predictable, although earnings have declined 1 time(s) in the past seven years, with the most recent decline 6 years ago. The dips have totaled 6.0%. MMS's long term historical EPS growth rate is 18.6%, based on the average of the 3, 4 and 5 year historical eps growth rates, and it is expected to grow earnings 12.5% 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. MMS has no long term debt and therefore would pass this criterion.
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 MMS, over the last ten years, is 20.2%, 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 10.1%, 17.8%, 19.6%, 20.9%, 16.5%, 21.6%, 25.2%, 25.1%, 23.5%, 22.0%, and the average ROE over the last 3 years is 23.5%, 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 MMS, over the last ten years, is 19.1% and the average ROTC over the past 3 years is 19.9%, 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 10.1%, 17.8%, 19.5%, 20.8%, 16.4%, 21.6%, 25.2%, 18.7%, 19.2%, 22.0%, 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. MMS's free cash flow per share of $4.56 is positive, indicating that the company is generating more cash that 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 $14.37 and compares it to the gain in EPS over the same period of $2.79. MMS's management has proven it can earn shareholders a 19.4% 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. MMS's shares outstanding have fallen over the past five years from 68,529,999 to 66,000,000, 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 MMS 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 $2.93 and divide it by the current market price of $66.41. An investor, purchasing MMS, could expect to receive a 4.41% initial rate of return. Furthermore, he or she could expect the rate to increase 12.5% 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 3.25%. Compare this with MMS's initial yield of 4.41%, which will expand at an annual rate of 12.5%, 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]
MMS currently has a book value of $16.36. It is safe to say that if MMS can preserve its average rate of return on equity of 20.2% and continues to retain 86.52% of its earnings, it will be able to sustain an earnings growth rate of 17.5% and it will have a book value of $82.01 in ten years. If it can still earn 20.2% on equity in ten years, then expected EPS will be $16.58.
CALCULATE THE FUTURE STOCK PRICE BASED ON THE AVERAGE ROE METHOD: [No Pass/Fail]
Now take the expected future EPS of $16.58 and multiply them by the lower of the 5 year average P/E ratio or current P/E ratio (22.7) (5 year average P/E in this case), which is 22.2 and you get MMS's projected future stock price of $367.82.
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 $7.99. This gives you a total dollar amount of $375.81. These numbers indicate that one could expect to make a 18.9% average annual return on MMS'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 12.5%, based on the analysts' consensus estimated long term growth rate, you can project EPS in ten years to be $9.51. Now multiply EPS in 10 years by the lower of the 5 year average P/E ratio or current P/E ratio (22.7) (5 year average P/E in this case), which is 22.2. This equals the future stock price of $211.03. Add in the total expected dividend pool of $7.99 to get a total dollar amount of $219.03.
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 $66.41 and the future expected stock price, including the dividend pool, of $219.03. If you were to invest in MMS at this time, you could expect a 12.67% average annual return on your money. Buffett likes to see a 15% return, but nonetheless would accept this return.
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 12.7% and 18.9%. 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 15.8% on MMS stock for the next ten years, based on the current fundamentals. Buffett would consider this a great return, thus passing the criterion. |
| Strategy: Growth Investor
Based on: Martin Zweig |
| AeroVironment, Inc. designs, develops, produces, supports and operates a portfolio of products and services for government agencies, businesses and consumers. The Company operates through the Unmanned Aircraft Systems (UAS) segment, which focuses primarily on the design, development, production, support and operation of UAS and tactical missile systems that provide situational awareness, multi-band communications, force protection and other mission effects. The Company supplies UAS, tactical missile systems and related services primarily to organizations within the United States Department of Defense (DoD). The Company's small UAS products include Raven, Wasp AE, Puma AE and Shrike. The Company also offers the Qube, an UAS for law enforcement, search and rescue and fire department personnel. |
P/E RATIO: FAIL
The P/E of a company must be greater than 5 to eliminate weak companies, not more than 3 times the current Market P/E because the situation is much too risky, and never greater than 43. AVAV's P/E is 46.27, based on trailing 12 month earnings, while the current market P/E is 16.00. Therefore, it fails 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. AVAV's revenue growth is 1.93%, while it's earnings growth rate is 47.18%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, AVAV 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 (127.1%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (0.1%) of the current year. Sales growth for the prior must be greater than the latter. For AVAV 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. AVAV's EPS ($0.85) pass this test.
QUARTERLY EARNINGS ONE YEAR AGO: FAIL
The EPS for the quarter one year ago must be positive. AVAV's EPS for this quarter last year ($-0.19) fail 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. AVAV's growth rate of 547.37% passes this test.
EARNINGS GROWTH RATE FOR THE PAST SEVERAL QUARTERS: FAIL
Compare the earnings growth rate of the previous three quarters with long-term EPS growth rate. Earnings growth in the previous 3 quarters should be at least half of the long-term EPS growth rate. Half of the long-term EPS growth rate for AVAV is 23.59%. This should be less than the growth rates for the 3 previous quarters which are 261.11%, 200.00% and -38.46%. AVAV does not pass this test, which means that it does not have good, reasonably steady earnings.
This strategy looks at the rate which earnings grow and evaluates this rate of growth from different angles. The 4 tests immediately following are detailed below.
EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN PRIOR 3 QUARTERS: PASS
If the growth rate of the prior three quarter's earnings, 10.43%, (versus the same three quarters a year earlier) is less than the growth rate of the current quarter earnings, 547.37%, (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, 547.37% must be greater than or equal to the historical growth which is 47.18%. AVAV 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. AVAV, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 0.60, 0.12, 0.66, 0.71, and 1.09, 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. AVAV's long-term growth rate of 47.18%, 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. AVAV's Debt/Equity (0.00%) is not considered high relative to its industry (379.13%) 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 AVAV, this criterion has not been met (insider sell transactions are 103, 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: Price/Sales Investor
Based on: Kenneth Fisher |
| Repsol, S.A. (Repsol) is an integrated energy company. The Company's segments include Upstream, Downstream, and Corporation and others. The Upstream segment carries out oil and natural gas exploration and production activities, and manages its project portfolio. The Downstream segment includes covers the supply and trading of crude oil and other products; oil refining and marketing of oil products, and the production and marketing of chemicals. It owns and operates five refineries in Spain (Cartagena, A Coruna, Bilbao, Puertollano and Tarragona) with a combined distillation capacity of approximately 900 thousand barrels of oil per day. The Company operates La Pampilla refinery in Peru, which has an installed capacity of approximately 120 thousand barrels of oil per day. Its Chemicals division produces and commercializes a range of products, and its activities range from basic petrochemicals to derivatives. |
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. REPYY's P/S of 0.52 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. REPYY's Debt/Equity of 35.72% 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. REPYY 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 REPYY At this Point
Is REPYY 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.REPYY's P/S ratio of 0.52 is below .75 which is considered extremely attractive. It passes this methodology's P/S ratio test with flying colors.
LONG-TERM EPS GROWTH RATE: PASS
This methodology looks for companies that have an inflation adjusted EPS growth rate greater than 15%. REPYY's inflation adjusted EPS growth rate of 17.64% 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. REPYY's free cash per share of 1.77 passes this criterion.
THREE YEAR AVERAGE NET PROFIT MARGIN: FAIL
This methodology looks for companies that have an average net profit margin of 5% or greater over a three year period. REPYY, whose three year net profit margin averages 2.19%, fails this evaluation.
|
| Strategy: Price/Sales Investor
Based on: Kenneth Fisher |
| Ulta Beauty, Inc. is a holding company for the Ulta Beauty group of companies. The Company is a beauty retailer. The Company offers cosmetics, fragrance, skin, hair care products and salon services. The Company offers approximately 20,000 products from over 500 beauty brands across all categories, including the Company's own private label. The Company also offers a full-service salon in every store featuring hair, skin and brow services. The Company operates approximately 970 retail stores across over 48 states and the District of Columbia and also distributes its products through its Website, which includes a collection of tips, tutorials and social content. The Company offers makeup products, such as foundation, face powder, concealer, color correcting, face primer, blush, bronzer, contouring, highlighter, setting spray, shampoos, conditioners, hair styling products, hair styling tools and perfumes. The Company also offers makeup brushes and tools, and makeup bags and cases. |
PRICE/SALES RATIO: FAIL
The prospective company should have a low Price/Sales ratio. Non-cyclical companies with Price/Sales ratios greater than 1.5 and less than 3 should not be purchased. ULTA's P/S ratio of 2.95 based on trailing 12 month sales, is above 1.5. If you are currently holding this stock, the P/S ratio is O.K., but if you are thinking about purchasing it, the stock would fail this methodology's first criterion.
TOTAL DEBT/EQUITY RATIO: PASS
Less debt equals less risk according to this methodology. ULTA'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. ULTA 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 ULTA At this Point
Is ULTA 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. ULTA's Price/Sales ratio of 2.95 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%. ULTA's inflation adjusted EPS growth rate of 29.25% 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. ULTA's free cash per share of 5.46 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. ULTA's three year net profit margin, which averages 8.68%, passes this criterion. |
| Strategy: Price/Sales Investor
Based on: Kenneth Fisher |
| D.R. Horton, Inc. is a homebuilding company. The Company has operations in 81 markets in 27 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. |
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. DHI's P/S ratio of 0.79 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. DHI's Debt/Equity of 35.66% 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. DHI 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 DHI At this Point
Is DHI 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, DHI, who has a P/S of 0.79, 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%. DHI's inflation adjusted EPS growth rate of 24.92% 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. DHI's free cash per share of 0.57 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. DHI, whose three year net profit margin averages 7.92%, passes this evaluation.
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| Strategy: Small-Cap Growth Investor
Based on: Motley Fool |
| MSG Networks Inc., formerly The Madison Square Garden Company, is engaged in sports production, and content development and distribution. The Company owns and operates two regional sports and entertainment networks, MSG Network (MSGN) and MSG+, collectively MSG Networks. Its networks are distributed throughout its territory, which includes all of New York State and significant portions of New Jersey and Connecticut, as well as parts of Pennsylvania. The Company delivers live games of the New York Knicks (the Knicks) of the National Basketball Association (NBA); the New York Rangers (the Rangers), New York Islanders (the Islanders), New Jersey Devils (the Devils) and Buffalo Sabres (the Sabres) of the National Hockey League (NHL); the New York Liberty (the Liberty) of the Women's National Basketball Association; the New York Red Bulls (the Red Bulls) of Major League Soccer (MLS), and the Westchester Knicks of the National Basketball Association Developmental League. |
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. MSGN's profit margin of 41.86% 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. MSGN, with a relative strength of 90, 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 MSGN (14.81% for EPS, and 4.45% for Sales) are not good enough to pass.
INSIDER HOLDINGS: FAIL
MSGN's insiders should own at least 10% (they own 3.38%) 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. MSGN's free cash flow of $2.73 per share passes this test.
PROFIT MARGIN CONSISTENCY: PASS
MSGN's profit margin has been consistent or even increasing over the past three years (Current year: 41.46%, Last year: 24.78%, Two years ago: 1.16%), 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 MSGN's case.
CASH AND CASH EQUIVALENTS: PASS
MSGN's level of cash $205.3 million passes this criteria. If a company is a cash generator, like MSGN, it has the ability to pay off debt (if it has any) or acquire other companies. Most importantly, good operations generate cash.
ACCOUNT RECEIVABLE TO SALES: PASS
This methodology wants to make sure that a company's accounts receivable do not get significantly out of line with sales. It's a warning sign if a company's accounts receivable relative to sales increases significantly when compared to the previous year. Up to a 30% increase is allowed, but no more. Accounts Receivable to Sales for MSGN was 18.09% last year, while for this year it is 17.62%. Since the AR to sales is decreasing by -0.47% the stock passes this criterion.
LONG TERM DEBT/EQUITY RATIO: PASS
MSGN's trailing twelve-month Debt/Equity ratio (0.00%) is at a great level according to this methodology because the superior companies that you are looking for don't need to borrow money in order to grow.
"THE FOOL RATIO" (P/E TO GROWTH): PASS
The "Fool Ratio" is an extremely important aspect of this analysis. If the company has attractive fundamentals and its Fool Ratio is 0.5 or less (MSGN's is 0.48), the shares are looked upon favorably. These high quality companies can often wind up as the biggest winners. MSGN passes this test.
The following criteria for MSGN are less important which means you would place less emphasis on them when making your investment decision using this strategy:
AVERAGE SHARES OUTSTANDING: PASS
MSGN has not been significantly increasing the number of shares outstanding within recent years which is a good sign. MSGN currently has 76.0 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. MSGN's sales of $703.7 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
MSGN passes the Daily Dollar Volume (DDV of $11.6 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. MSGN with a price of $25.84 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
MSGN's income tax paid expressed as a percentage of pretax income either this year (-5.96%) or last year (39.31%) 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 |
| UnitedHealth Group Incorporated is a health and well-being company. The Company operates through four segments: UnitedHealthcare, OptumHealth, OptumInsight and OptumRx. It conducts its operations through two business platforms: health benefits operating under UnitedHealthcare and health services operating under Optum. UnitedHealthcare provides healthcare benefits to an array of customers and markets, and includes UnitedHealthcare Employer & Individual, UnitedHealthcare Medicare & Retirement, UnitedHealthcare Community & State, and UnitedHealthcare Global businesses. Optum is a health services business serving the healthcare marketplace, including payers, care providers, employers, governments, life sciences companies and consumers, through its OptumHealth, OptumInsight and OptumRx businesses. OptumInsight provides services, technology and healthcare solutions to participants in the healthcare industry. OptumRx provides retail network contracting, purchasing and clinical solutions. |
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. UNH's P/E is 22.98, based on trailing 12 month earnings, while the current market PE is 16.00. 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. UNH's revenue growth is 13.75%, while it's earnings growth rate is 15.15%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, UNH passes this criterion.
SALES GROWTH RATE: PASS
Another important issue regarding sales growth is that the rate of quarterly sales growth is rising. To evaluate this, the change from this quarter last year to the present quarter (12.4%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (12.1%) of the current year. Sales growth for the prior must be greater than the latter. For UNH 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. UNH's EPS ($3.24) pass this test.
QUARTERLY EARNINGS ONE YEAR AGO: PASS
The EPS for the quarter one year ago must be positive. UNH's EPS for this quarter last year ($2.51) 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. UNH's growth rate of 29.08% 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 UNH is 7.58%. This should be less than the growth rates for the 3 previous quarters, which are 40.23%, 28.70%, and 28.45%. UNH 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, 31.80%, (versus the same three quarters a year earlier) is greater than the growth rate of the current quarter earnings, 29.08%, (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 UNH is 29.1%, and it would therefore fail this test.
EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN THE HISTORICAL GROWTH RATE: PASS
The EPS growth rate for the current quarter, 29.08% must be greater than or equal to the historical growth which is 15.15%. UNH 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. UNH, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 5.50, 5.70, 6.01, 7.25 and 9.50, 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. UNH's long-term growth rate of 15.15%, based on the average of the 3, 4 and 5 year historical eps growth rates, 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 UNH, this criterion has not been met (insider sell transactions are 545, while insiders buying number 334). 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. |
UNIVERSAL INSURANCE HOLDINGS, INC. |
| Strategy: Growth Investor
Based on: Martin Zweig |
| Universal Insurance Holdings, Inc. (UVE) is a private personal residential homeowners insurance company in Florida. The Company performs substantially all aspects of insurance underwriting, policy issuance, general administration, and claims processing and settlement internally. The Company's subsidiaries include Universal Property & Casualty Insurance Company (UPCIC) and American Platinum Property and Casualty Insurance Company (APPCIC). UPCIC writes homeowners insurance policies in states, including Alabama, Delaware, Florida, Georgia, Hawaii, Indiana, Maryland, Massachusetts, Michigan, Minnesota, North Carolina, Pennsylvania, South Carolina and Virginia. APPCIC writes homeowners and commercial residential insurance policies in Florida. The Company has developed a suite of applications that provide underwriting, policy and claim administration services, including billing, policy maintenance, inspections, refunds, commissions and data analysis. |
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. UVE's P/E is 9.47, based on trailing 12 month earnings, while the current market PE is 16.00. 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. UVE's revenue growth is 24.96%, while it's earnings growth rate is 22.50%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, UVE 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 (8.4%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (13.1%) of the current year. Sales growth for the prior must be greater than the latter. For UVE 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. UVE's EPS ($1.04) pass this test.
QUARTERLY EARNINGS ONE YEAR AGO: PASS
The EPS for the quarter one year ago must be positive. UVE'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. UVE's growth rate of 271.43% 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 UVE is 11.25%. This should be less than the growth rates for the 3 previous quarters, which are 213.16%, 30.23%, and 58.54%. UVE 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, 75.24%, (versus the same three quarters a year earlier) is less than the growth rate of the current quarter earnings, 271.43%, (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, 271.43% must be greater than or equal to the historical growth which is 22.50%. UVE 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. UVE, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 1.56, 2.08, 2.97, 2.79, and 3.15, 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. UVE's long-term growth rate of 22.50%, based on the average of the 3, 4 and 5 year historical eps growth rates, 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 UVE, this criterion has not been met (insider sell transactions are 227, while insiders buying number 77). 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. |
Watch List
The top scoring stocks not currently in the Hot List portfolio.
| Ticker |
Company Name |
Industry |
Current
Score |
| TJX |
TJX COMPANIES INC |
Retail (Apparel) |
62% |
| CDW |
CDW CORP |
Software & Programming |
60% |
| TOL |
TOLL BROTHERS INC |
Construction Services |
56% |
| IBM |
INTERNATIONAL BUSINESS MACHINES CORP. |
Computer Services |
53% |
| XOXO |
XO GROUP INC |
Retail (Catalog & Mail Order) |
53% |
| ROST |
ROSS STORES, INC. |
Retail (Apparel) |
50% |
| CVCO |
CAVCO INDUSTRIES, INC. |
Mobile Homes & RVs |
50% |
| HIBB |
HIBBETT SPORTS, INC. |
Retail (Specialty) |
50% |
| SCHN |
SCHNITZER STEEL INDUSTRIES, INC. |
Iron & Steel |
49% |
| SIG |
SIGNET JEWELERS LTD. |
Retail (Specialty) |
49% |
|
