Many investors overlook the services sector considering the risk involved. However, if you carefully analyze the sector, there are many hidden gems that are a dream come true for investors. In this article, I will discuss five stocks that have been able to achieve constant growth despite the economic woes. I have chosen these five stocks because they have strong growth prospects, a low level of risk and solid fundamentals, making them ideal candidates for investment.
O'Reilly Automotive (NASDAQ:ORLY): ORLY recently reported an increase of 35% in their fourth-quarter earnings. The reported earnings were $121 million compared to the figure of $98 million reported last year's period.
The sales grew by 6% to around $1.4 billion and the EPS target for this year is around $4.3 - $4.4. The market capitalization of the company is around $10.7 billion and the stock is trading at nearly $ 84.The price of the stock is 56% more than the 52-week low of last March.
Furthermore, the stock has a PE growth ratio of almost 1 — this indicates that the stock is fairly valued. The one-year return on the stock is 44%, and it is apparent that it's not just the car lovers that are interested in the stock of ORLY Wall Street has been extremely keen in the potential of this stock.
ORLY is a growing company that has a lot of potential. Analysts are in unison over the bright prospects of the stock and this makes it a definite BUY, in my opinion.
Scripps Networks Interactive (NYSE:SNI)
Scripps Networks Interactive experienced a growth of 3.4% in its earnings. Net income increased from around $131 million to $135 million. The revenue increased by around 10% to nearly $554 million.
SNI is a global company that has been awarded a neutral rating by Merrill Lynch. Their shares are currently trading around $44 and it is expected that the price will reach the target of over $49.
The company has a strong outlook, provides high return on capital and has a high trading range that justifies its valuation premium. This makes it an extremely bright prospect
Copa Holdings (NYSE:CPA): Copa Holdings stock is going strong despite the fact that they missed their EPS target. The net income of the company rose by 11% and the adjusted EPS increased by 3%, slightly less than the expectations of Wall Street.
The revenue of the company increased by 23%; however, at the same time, their operating expenses also rose by 26% because of rising fuel and labor costs.
In the last four quarter, the company achieved an EPS gain in the range of 26% to 52%. Wall Street is expecting 6% growth in EPS which is impressive but downplayed by the fact that the company had EPS growth of 27% in 2011 and 21% in 2010.
The company has considerable economic moat by entrenching themselves as the "most convenient service providers" in uncompetitive markets in developing markets. This means that they have the first mover advantage and thus have erected considerable barriers to entry for other potential entrants.
However, a risk that is a cause of concern for analyst is the fact that Copa is controlled by a company that is run by numerous Copa executives and their families. This means that there can be a conflict of interest between the shareholders and the management.
This involves some risk with the stock otherwise it is a good BUY.
Kona Grill (KONA): It seems that the time to shine for Kona Grill has finally come. They recorded their first ever profit since 2004 and reported adjusted earnings of 12 cents per share, beating expectations by 11 cents.
The total sale for the company was $23.1 million — increased by 9.2%. The operating profit margin increased by 570 basis points (BPS) to 19.1%. Also, the company is improving its expenditures, and thus the operating cost is decreasing and contributing to the increase in total revenue.
It is expected that the company will achieve an increase of around 4% in sales and net income per share is expected to be around 1-2 cents. The company operates in a highly competitive industry and the way that they've managed to achieve sustainable growth is extremely impressive. The company is expected to further expand over the year as it continues to tap into new and existing markets.
Kona Grill is an excellent choice as a short-term BUY.
Aaron's (NYSE:AAN): Aaron is the leading rent-to-own operator in the U.S. and has firmly established itself on the low-cost strategy.
They registered EPS for the last quarter of 2011 of 43 cents, an increase of nearly 13.2% from the earlier EPS of 38 cents. The adjusted EPS for 2011 amounted to around $1.8, an increase of 22% from prior earnings of $1.4.
Aaron's revenue in 2011 increased by 8% to 2 billions and surpassed their previous year's revenue of $1.9 billion. The company opened up several new stores in the year and also acquired stores from other franchises. On the other hand, they embarked on a cost-saving strategy and closed down numerous stores that were not performing up to the mark. The company is moving in a positive direction and is expected to grow considerably as a result.
The management is targeting a new store growth rate of around 5% - 7% in 2012. In the first quarter of 2012, the company is expected to report total revenue of around $570.0 million and earnings per share of 58 cents to 62 cents. In the fiscal year 2012, the company is expected to achieve total revenue of $2.2 billion and EPS in the range of $1.88 - $2.04 per share.
Considering the huge potential of the company, I strongly urge you to BUY their stock.
About the author:
I practice Judaism and my faith is very important to me. I visit family in Israel once a year, but I am educated and work in the United States where I hold an MBA and a bachelor’s in English. I am a patient man, enjoy wine but am not a connoisseur, and I listen more than I speak.