Like many others, I use stock filters to try to identify value stocks on near-term earnings multiples of around or below 10, growth stocks on reasonable PEG ratios of one or less and companies where insiders are placing large purchase orders after a long periods of inaction or selling.
Filters are not perfect. They throw up a large number of companies that you wouldn’t want to touch. Fortunately, the amount of information that is now freely available makes it possible to quickly work the list down to a small number of more interesting names. Additionally, I was a company analyst for over 15 years, and I enjoy researching companies.
With growth stocks I look for consistent growth over the past three to five years, good growth in consensus EPS forecasts for the next two to five years and a decent valuation multiple. One other thing I like to see is good disclosure by management. It makes my life as an analyst much easier but it also shows that management are aware that they are running the business for the stockholders and have the decency to keep them informed as to what they are doing. Too many times I read (paraphrasing), “Profits increased because sales increased or costs fell.” Well done to that management team, but tell me something I don’t know and, more importantly, if this situation is going to continue.
Five fast growing companies that recently reported interesting earnings are;
Nu Skin Enterprises Inc. (NYSE:NUS)
- Annual EPS growth of 11.4% forecast for five years
- PE 11.91
Founded in 1984, Nu Skin Enterprises Inc. (NYSE:NUS), is a direct selling company that distributes anti-aging products. The company operates across the Americas, Asia Pacific, Europe, Africa and the Middle East with more than 946,000 active distributors worldwide.
The company’s growth plan targets Asia and Latin America, and Nu Skin has been boosting its distribution networks in these regions, a strategy supported by Chinese revenue growth of 28% in the fourth quarter.
However, every region has been reporting strong growth and Truman Hunt, president and chief executive officer, commented, "We expect 2013 will be another record year with healthy trends in all of our regions." Ritch Wood, chief financial officer, forecast EPS of $3.77 to $3.92 for the year. Consensus EPS forecasts even higher growth with a forward PE of below 10. If management can maintain the expected growth rates then the valuation will look very cheap.
World Acceptance Corporation
- Forecast EPS growth of 21%
- PE of 10.5
World Acceptance Corporation is one of the largest small-loan consumer finance companies operating in 13 states as well as Mexico. The company offers loans to individuals who have limited access to other sources of consumer credit. (Summary Financials and Analysis)
Growth has been excellent over the last 10 years and EPS has increased from $1.28 in 2003 to $6.59 in March 2012. Demand shows no signs of slowing for pay day loans and high switching costs for its customers means consensus earnings are forecast to grow annually by 11% over the next five years. But this stock still trades on a forward PE multiple of less than 10.
MarketAxess enables market participants to trade corporate bonds and other types of fixed-income instruments using its patented trading technology. Over 1,000 investor and broker-dealer firms are active users of the MarketAxess trading platform, accessing investment-grade corporate bonds, European bonds, high yield and emerging markets bonds.
Growth has been strong over recent years as MarketAxess’ patented platform has successfully made inroads into the $800 billion-per-day U.S. fixed-income market.
Several Opportunities are driven by large banks exiting the market due to increasing regulatory requirements. Additionally MarketAxess is expanding internationally in Europe and elsewhere. Consequently, consensus earnings forecasts are being revised upwards and rapid growth is expected to continue.
Alliance Data Systems Corporation (NYSE:ADS)
- Forecast 2013 EPS growth 49%
- PE 23.1
One stock that might interest investors with a higher risk tolerance is Alliance Data Systems, North America's largest provider of marketing and loyalty solutions.
The company is trading on a forward PE of just over 15 but with huge potential growth from a joint venture in Brazil with access to Banco do Brazil’s 50 million customers, increasing client’s marketing budgets and generally positive economic trends, management forecast core EPS will increase to $9.65 in 2013. Consensus analyst EPS forecasts are higher. (Summary Financials and Analysis).
1-800-FLOWERS.COM Inc. (NASDAQ:FLWS)
- Consensus EPS forecast to increase 38% by 2014
- PE 22
1-800-FLOWERS.COM Inc. is the world's leading florist and gift shop. For more than 30 years it has been delivering gifts, including fresh flowers and a selection of plants, gift baskets, gourmet foods, confections, balloons and furry animals.
The company has been developing merchandising initiatives that have helped drive increased average order value and gross profit margins. It has forged strategic partnerships with Starbucks, Crabtree & Evelyn, Yankee Candle, Lenox, Junior's Cheesecakes, Norman Love and Waterford. If management can continue to develop these initiatives it should continue to grow revenues. Forecast consensus EPS continue to grow strongly.
For daily updates on value stocks, growth stocks and significant insider activity, please visit my website SurgingEarnings.com
Risk Disclaimer: This article does not constitute a recommendation to buy or sell. Investing in stocks or other securities and derivatives is a high risk activity and not suitable for everyone. It is advised that individuals should consult with their investment adviser prior to making any investment decisions. The above report includes information from third party web sites and the author cannot guarantee its accuracy, completeness or timeliness. It is strongly advised that all readers complete their own thorough research and analysis.
Disclosure: The author holds no positions in any of the above stocks and has no intention to initiate any in the next 72 hours.