These companies have increased their allocations to capital expenditures substantially over the past five years. This aspect of the business shouldn’t be overlooked as it is very important because it can anticipate the posting of higher sales, which ideally leads to higher earnings after the funds have been used in an efficient and effective manner.
Only expectations for higher levels of demand to satisfy in the years to come can justify massive investments, by means of which the company aims to grow the business.
Thus, investors should consider the following stocks as their bottom lines are expected to improve following years of massive allocation of cash to capital growth. And higher earnings will produce a positive impact on share prices.
Monarch Casino & Resort
The first company to consider is Monarch Casino & Resort Inc. (MCRI, Financial), the owner and operator of the Atlantis Casino Resort Spa located in Reno, Nevada.
The company has grown its capital spending a lot over the past five years, passing from $12.4 million in full-year 2013 to $137.07 million in full-year 2018.
Wall Street analysts forecast that the net earnings of Monarch Casino & Resort will increase by 38.8% in 2020 and 14% every year over the following five years.
The stock has an overweight recommendation rating, which means the share price ($38.46 as of Friday) is expected to outperform. The average target price is $53.50 per share.
The stock has fallen 11% in the past year to trade below the 200-, 100- and 50-day simple moving average lines.
The stock has a market capitalization of $695.44 million, a price-earnings ratio of 21.72 versus the industry median of 16.92, a price-book ratio of 2.1 versus the industry median of 1.3 and a price-sales ratio of 2.89 versus the industry median of 1.43.
Tucows
The second company to consider is Tucows Inc. (TCX, Financial), a provider of network access, domain name registration, email, mobile telephony and other internet services in North America and Germany.
The company has grown its capital spending dramatically over the past five years, purchasing fixed assets for $44.07 million in full-year 2019 versus $711,700 in 2014.
Wall Street sell-side analysts estimate that the net earnings of Tucows will grow by 43.1% next year and 29% every year over the following five years.
The stock has a buy recommendation rating with an average target price of $67.90 per share versus Friday’s closing price of $50.94.
Shares fell 34% over the past year to below the 200-, 100- and 50-day simple moving average lines.
The stock has a market capitalization of $541.05 million, a price-earnings ratio of 35.64 versus the industry median of 23.17, a price-book ratio of 5.8 versus the industry median of 2.73 and a price-sales ratio of 1.62 versus the industry median of 2.03.
Ultra Clean Holdings
The third company to consider is Ultra Clean Holdings Inc. (UCTT, Financial) a Hayward, California-based designer, developer and manufacturer of production tools, modules and subsystems for the semiconductor industries in North America and internationally.
The company has increased its capital spending enormously over the past five years, passing from $5.3 million in full-year 2014 to $26.3 million in 2019.
Wall Street sell-side analysts expect the net earnings of Ultra Clean Holdings will grow by 106.6% in 2020, 10.10% in 2021 and by 20% every year over the following five years.
The stock has an overweight recommendation rating and an average price target of $29.40 per share versus the Friday’s closing price of $20.28.
In the past year, the share price has risen 110% to above the 200-day simple moving average line. It still trades below the 100- and 50-day lines.
The stock has a market capitalization of $807.26 million, a price-book ratio of 1.86 compared to the industry median of 1.74 and a price-sales ratio of 0.77 versus the industry median of 1.6.
Disclosure: I have no positions in any securities mentioned.
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