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Robert Abbott
Robert Abbott
Articles (880)  | Author's Website |

5 Fast-Growing Super-Achievers

Alibaba, Patrick Industries, Netflix, Ubiquiti and Five North have generated strong long-term revenue and Ebitda results

There's growth, and then there's super-growth. Using the GuruFocus Fast Growers screener, we can find stocks that have a history of strong growth. This screener measures growth through the five-year revenue per share growth rate, the five-year Ebitda per share growth rate, the 10-year revenue per share growth rate and the 10-year Ebitda per share growth rate.

According to these screening criteria, the below stocks were the fastest growers on the market as of Nov. 9:

Fast Growers screener

Alibaba

China's equivalent to Amazon.com (NASDAQ:AMZN), roughly speaking, has become a giant since it went public in 2014. Co-founded by Jack Ma in 1999, Alibaba Group Holding Ltd (NYSE:BABA) now has a market cap of just under $800 billion and could soon become a trillion-dollar company.

As the table above shows, its five-year revenue per share growth rate has been exceptional, as has been its five-year Ebitda per share growth rate.

Alibaba generates revenue and Ebitda through four operating segments: core commerce, cloud computing, digital media and entertainment and innovation initiatives.

Growth is driven by many factors, not least among them:

  • A shift to online shopping, especially since the Coronavirus pandemic
  • The growing Chinese middle class and expanding disposable incomes
  • Economies of scale
  • The application of capital to fast-growing technologies

As fellow GuruFocus contributor Ben Reynolds wrote last year, "The company continues to grow much more quickly than the Chinese economy as it takes full advantage of its growing suite of products and services that appeal to a wide variety of Chinese consumers and businesses alike."

It also boasts one of the strongest sets of fundamentals among all publicly-traded companies: GuruFocus rates its financial strength 8 out of 10 and its profitability 9 out of 10.

Alibaba does not pay a dividend and its share buyback ratio over the past three years has been negative. The GuruFocus Value chart finds it to be fairly-valued. It was held by 36 gurus at the end of the second quarter.

Patrick Industries

A small-cap stock, Patrick Industries Inc (NASDAQ:PATK) has a market cap of $1.28 billion. Its manufacturing segment, responsible for 70% of sales, sells laminated and vinyl products, including furniture, shelving and countertops. Its distribution segment, with 30% of sales, sells mainly prefinished wall and ceiling panels to the recreational vehicle and manufactured housing industries.

The Elkhart, Indiana-based company's 10-year revenue per share growth rate was 27.6% and its 10-year Ebitda per share growth rate was 42.30%. The five and 10-year revenue growth rates are about the same, while the 10-year Ebitda growth rate was roughly 11 points higher than the five-year rate; this suggests the company has become less efficient in the past five years.

What drives its growth? In its 10-K for 2019, the company reported:

"The Company's strategic and capital allocation strategy is to optimally manage and utilize its resources and leverage its platform of operating brands to continue to grow and reinvest in its business."

Tactically, Patrick Industries lists these initiatives:

  • Strategic acquisitions,
  • Geographic expansion
  • Expansion into new product lines
  • Investment in infrastructure and capital expenditures

It has taken on a lot of debt in recent years, which helps account for the 5 out of 10 rating for financial strength. It also has some of the best margins in the vehicles and parts industry, leading to an 8 out of 10 rating for profitability.

Its dividend yield is 1.85%, and over the past three years it has had a negative share buyback ratio. The GuruFocus Value chart finds the stock to be fairly valued, while the PEG ratio, at 0.58, suggests the stock is undervalued. Patrick Industries is held by two gurus, Chuck Royce (Trades, Portfolio) of Royce & Associates and Jim Simons (Trades, Portfolio) of Renaissance Technologies.

Netflix

No introduction is needed for the world-famous streaming service giant Netflix (NASDAQ:NFLX).

Over the past five and 10 years, it has grown its revenue per share by 29.20% and 25.20% respectively, and its Ebitda per share by 30.10% and 39.40%, respectively. Like Patrick Industries, Netflix has been less efficient over the past five years.

It explained its growth in the risk section of its most recent 10-K as follows:

"Our ability to continue to attract members will depend in part on our ability to consistently provide our members with compelling content choices, effectively market our service, as well as provide a quality experience for selecting and viewing TV series and movies. Furthermore, the relative service levels, content offerings, pricing and related features of competitors to our service may adversely impact our ability to attract and retain memberships."

Whatever its model, Netflix has been wildly successful, as shown in this comparative chart in the 10-K:

Netflix comparative returns

Because of its increasing debt load, it earns only a 5 out of 10 rating for financial strength. On the other hand, the rating for profitability is very good at 9 out of 10.

It pays no dividend and has not increased its earnings per share with buybacks. The GuruFocus Value chart lists Netflix as being fairly-valued, while the PEG ratio shows overvaluation at 2.76. Twenty-two of the gurus followed by GuruFocus had positions in the stock as of June 30.

Ubiquiti

Based in New York City, Ubiquiti Inc. (NYSE:UI) described itself this way in its 10-K for 2020:

"We develop technology platforms for high-capacity distributed Internet access, unified information technology, and consumer electronics for professional, home and personal use. We categorize our solutions into three main categories: high performance networking technology for service providers, enterprises and consumers. We target the service provider and enterprise markets through our highly engaged community of service providers, distributors, value added resellers, systems integrators and corporate IT professionals, which we refer to as the Ubiquiti Community. We target consumers through digital marketing, retail chains and, to a lesser extent, the Ubiquiti Community."

Its revenue per share has grown at a rate of 25.10% in the past five years and 23.50% in the past 10 years. Ebitda growth averaged 27.80% per year over the last five years and 34.40% per year over the last 10 years. In this case, Ebitda and profitability slipped in the past half-decade.

Ubiquiti is a tech company and is driven by research and development. In fact, the company reported, "the majority of our human capital resources consist of entrepreneurial and de-centralized research and development ("R&D") personnel." Specifically, 714 of its 1,021 employees work in R&D.

It does not employ a sales force, relying instead on online reviews, its distributors and its user communities. The latter can connect directly with R&D, marketing and support teams.

Because it has a strong R&D operation, the company has a portfolio of patents and proprietary technologies. It combines these with low-cost hardware to build lower-priced solutions for its customers. These solutions become integrated with the hardware and software of its customers, thus ensuring it loses few customers.

Its debt has grown in recent years, so it receives only a 5 out of 10 rating for financial strength. Its profitability, though, is as good as it gets, a rare 10 out of 10, spurred partially by a return on equity (ROE) of more than 52%.

It pays a dividend of 0.5%, which is unexpected for a growth-focused tech company. Share buybacks are also on the management menu, as the share buyback ratio over the past three years was 7.4. This should push up earnings per share significantly if it keeps going. According to the GuruFocus Value chart, Ubiquiti's share price is significantly overvalued. The PEG ratio is 1.54, which suggests a much lower level of overvaluation. Seven of the gurus followed by GuruFocus have positions in the stock.

Five Below

Based in Philadelphia, Five Below Inc (NASDAQ:FIVE) is defying the trend away from brick and mortar businesses. It operated more than 900 stores in the U.S. at the end of 2019. They cater to teen and preteen consumers, with a wide assortment of merchandise mostly priced at or below $6.00.

Leisure products, including sporting goods, toys and electronics, were the biggest sellers, making up 50% of last year's sales. It also offers merchandise in the fashion and home categories as well as the party and snack goods categories. It had stores in 36 U.S. states and four distribution centers at the end of 2019.

As it has grown over the past decade, it has increased its revenue consistently:

Five Below revenue chart

It has also grown its Ebitda consistently:

Five Below Ebitda growth chart

What's behind these growth numbers? This information from the 10-K for 2019 gives us several clues:

"We believe we are transforming the shopping experience of our target demographic with a differentiated merchandising strategy and high-energy retail concept, which allows our customers to "Let Go and Have Fun." Based on our management's experience and industry knowledge, we believe our customer-centric, experience-first, innovative approach to retail has led to a fiercely loyal customer base and has fostered universal appeal across a variety of age groups beyond our target demographic."

In other words, a unique shopping experience targeted to its core market of preteens and teens provides its advantage. It also involves "trend-right" merchandise, a clear value proposition, a differentiated shopping experience, a powerful store model and a team of passionate managers.

After taking on new debt this year, the company receives a financial strength rating of 6 out of 10 from the GuruFocus system. Its profitability rating is high at 9 out of 10.

Five Below does not issue dividends and its share buyback ratio for the past three years is negative. It is modestly overvalued according to the GuruFocus Value chart. The PEG ratio is in the same territory at 3.25. Among the gurus, four owned the stock at the end of the second quarter.

Conclusion

Alibaba, Patrick Industries, Netflix, Ubiquiti and Five Below are fast-growing stocks that have rewarded their shareholders, even though most do not pay dividends or buy back their shares. They are growth companies with high profitability.

Profitability opens many doors for corporations with ambitious plans. It means more funding for new lines of business, expansion of existing lines and strategic acquisitions. Subject to each investor's own due diligence, I think these may be attractive candidates.

Overall, though, they would best fit into the plans of growth investors. Value investors won't find underpriced, debt-free names here, at least not for now. Income investors also will want to look elsewhere for more mature companies that have established competitive dividends.

Disclosure: I do not own shares in any of the companies named in this article.

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About the author:

Robert Abbott
Robert F. Abbott has been investing his family’s accounts since 1995 and in 2010 added options -- mainly covered calls and collars with long stocks.

He is a freelance writer, and his projects include a website that provides information for new and intermediate-level mutual fund investors (whatisamutualfund.com).

As a writer and publisher, Abbott also explores how the middle class has come to own big business through pension funds and mutual funds, what management guru Peter Drucker called the "unseen revolution."

Visit Robert Abbott's Website


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