Everybody wants to make money, big money over the long haul. You put money into a stock and get twice of this amount back in 10 years. That's great and I have often invested in stocks that doubled in a decade easily.
Today I like to come back to return. It's very important to see that the company makes good profits on its annual sales. The higher the margin, net or operational, the better is the market dominance of the firm.
I like companies with high margins; Google and Apple have unbelievably high margins. You might wonder, but they have no direct competition and can charge customers any price they want; there is no alternative and if you need those products or you think you must have them, you must pay the bill.
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Warren Buffett (Trades, Portfolio) is also a great investor who invested in stocks that produce high returns on invested capital. It's the guarantee that the firm makes internal revenues which could be used to pay investors.
I ran a screen that searched for the accompanying criteria:
- Average returns on invested capital > 12% over the last 5 years
- Current return on invested capital > its 5-year average
I sifted further for organizations with a long history of solid sales and profit improvements combined with robust, and enhancing, net revenues that are not profoundly leveraged by debt. I added the accompanying extra criteria:
- Average sales growth > 10% over the last 5 years
- Average EPS growth > 10% over the last 5 years
- Average operating profit margin > 10% over the last 5 years
- Current operating profit margin > its 5-year average
3 companies jumped on top of my screen. Very informative...
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#1 Gentex (NASDAQ:GNTX) has a market capitalization of $4.05 billion. The company employs 3,801 people, generates revenue of $1,171.86 billion and has a net income of $222.93 million. Gentex's earnings before interest, taxes, depreciation and amortization (EBITDA) amounts to $367.64 million. The EBITDA margin is 31.37 percent (the operating margin is 26.00 percent and the net profit margin 19.02 percent).
Financial Analysis: The total debt represents 15.48 percent of Gentex's assets and the total debt in relation to the equity amounts to 20.57 percent. Due to the financial situation, a return on equity of 18.21 percent was realized by Gentex. Twelve trailing months earnings per share reached a value of $1.86. Last fiscal year, Gentex paid $0.56 in the form of dividends to shareholders.
Market Valuation: Here are the price ratios of the company: The P/E ratio is 14.68, the P/S ratio is 3.46 and the P/B ratio is finally 3.04. The dividend yield amounts to 2.31 percent and the beta ratio has a value of 1.10. - See #2 and #3 here: 3 Fairly Priced High-Margin Stocks Warren Buffett Would Like....
In an earlier article about high return creating stocks, I also found Gentex.
