A "buy and hold" approach is more successful when applied for predictable business.
Predictable businesses are characterized by a regular stream of growing revenue per share and Ebitda per share, which is usually associated with a strong long-term performance, according to findings from a 10-year study that GuruFocus conducted for the period from 1998 to 2008.
Thus, value investors may be interested in the following three companies, as they have high GuruFocus business predictability ratings.
Norwegian Cruise Line Holdings Ltd
The first company that makes the cut is Norwegian Cruise Line Holdings Ltd (NCLH, Financial), a Miami-based cruise line operator.
Norwegian Cruise Line Holdings Ltd.'s business has the highest business predictability rating of 5 out of 5 stars. The company saw the revenue per share increase by 14.4%, the Ebitda per share increase by 17.8% and the stock price increase by 1.1% on average every year over the past five full fiscal years. The positive trend in these three items is much longer established as shown by the below chart.
The share price was $17.93 as of Sept. 9. GuruFocus assigned a financial strength rating of 3 out of 10 and a profitability rating of 8 out of 10 to the company.
The stock doesn't appear to be expensive as the price-book ratio is 1.06 compared to the industry median of 1.4 and the price-sales ratio is 0.83 versus the industry median of 1.54.
Wall Street recommends a hold rating for the stock with an average target price of $16.71 per share.
United Rentals Inc
The second company that qualifies is United Rentals Inc (URI, Financial), a Stamford, Connecticut-based rental company that on lease terms supplies general and specialty equipment and products to construction and industrial companies.
United Rentals Inc's business has a high score of 4 stars out of 5 for the business predictability rank. The company saw the revenue per share increase by 17.2%, the Ebitda per share increase by 16.2% and the stock price grow by 12.1% per year on average over the past five full fiscal years. These items are up-trending with reference to a longer period of 10 years, as the below chart illustrates.
The share price is $175.89 as of Sept. 9. GuruFocus assigned a financial strength rating of 3 out of 10 and a profitability rating of 8 out of 10 to the company.
The stock seems not expensive, as the price-earnings ratio of 11.86 stands below the industry median of 18.57 and the share price currently trades significantly below the higher limit of the 52-week range of $58.85 to $186.78.
Wall Street recommends an overweight rating for the stock with an average target price of $185.07 per share.
Dycom Industries Inc
The third company that meets the criteria is Dycom Industries Inc (DY, Financial), a Palm Beach Gardens, Florida-based provider of specialty contracting services for telecommunication operators in the United States.
Dycom Industries Inc's business has a high score of 4 out of 5 stars for the business predictability. The company saw the revenue per share increase by 16.2%, the Ebitda per share increase by 12.6% and the stock price going up by 4% per year on average over the past five full fiscal years. These three metrics have gone up since 2010, as the below chart exhibits.
The share price was $56.60 as of Sept. 9. GuruFocus assigned a financial strength rating of 5 out of 10 and a profitability rating of 7 out of 10 to the company.
The stock doesn't look cheap as the price-earnings ratio is 106.79 versus the industry median of 13.36, the price-book ratio is 2.06 compared to the industry median of 0.99 and the price-sales ratio of 0.55 stands below the industry median of 0.6.
Disclosure: I have no position in any security mentioned.
Read more here:
- A Trio of Capital-Intensive Stocks for the Value Investor
- This Trio Trades Below the Peter Lynch Earnings Line
- A Trio of Stocks Whose Return on Equity Ratios Beat Their Industries
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