Now that 2020 has come to a close, we can finally take a look back and say for certain that yes, the U.S. stock market showed a significant overall increase throughout the course of the year, despite the troubles of the underlying economy. It is indeed as financial analysts have proclaimed for many decades - "the economy and the markets have nothing to do with one another."
Below is a chart of the historical ratio of total market cap compared to gross domestic product, which is often called the "Buffett Indicator" as Warren Buffett (Trades, Portfolio) has called it the single best indicator of overall market valuation. As the chart shows, the total market cap stands at 182.9% of GDP and 135.5% of GDP plus the value of the assets that the Federal Reserve has pumped into the stock market to support prices.
In this kind of environment, it may seem like the stock market couldn't offer better returns than those found in market-tracking indexes such as the S&P 500 or the Nasdaq, or the mega-cap names among them that have achieved the highest price growth. The S&P 500 returned approximately 18.40% in 2020, while the Nasdaq achieved an astonishing 43% growth. Apple (AAPL, Financial) saw its stock grow 80% for the year, with Amazon (AMZN, Financial) up 76%.
However, the best results and highest returns don't always come from the S&P 500 or other major stock indexes. In fact, while the overall earnings per share of the S&P 500 is estimated to have decreased approximately 25% year over year over the trailing 12 months, there are more than a few lesser-known companies that reported gains in earnings per share over the same period, while at the same time beating the index in terms of higher total returns.
We will take a look at three small-to-mid-cap companies that outperformed the S&P 500 averages significantly in terms of both earnings per share and total returns over the past 12 months according to the GuruFocus All-in-One Screener, a Premium feature. These stocks have also grown their earnings per share over the past three-year and five-year periods and score relatively high in terms of financial strength and profitability.
XPEL
XPEL Inc. (XPEL, Financial) is a company that develops and manufactures automotive protection products such as window tint, anti-microbial film and protective film for the painted surfaces of automobiles. It also provides design access program for dealers, DIY kits and other adjacent products.
The company is headquartered in San Antonio, Texas and traded on the Toronto Stock Exchange's Venture Exchange before listing on the Nasdaq in mid-2019. Among the company's strong points are its niche focus on providing the highest-quality automotive aftermarket products and its worldwide distribution network.
On Jan. 4, shares of XPEL traded around $50.37 apiece for a market cap of $1.39 billion and a price-earnings ratio of 82.59. Over the past year, the stock has achieved total returns of 251.95% while increasing its earnings per share by 48.80%. The stock has a three-year earnings growth rate of 82.40% and a five-year earnings growth rate of 39.60%.
GuruFocus gives the company a financial strength rating of 8 out of 10 and a profitability rating of 8 out of 10. The interest coverage ratio of 111.17 and Altman Z-Score of 32.82 indicate a fortress-like financial situation, while the operating margin of 14.03% and net margin of 11.22% are beating 89% of competitors.
Ameresco
Ameresco Inc. (AMRC, Financial) is a renewable energy company that provides a range of ESPC-funded services, including energy efficiency, infrastructure upgrades, energy security and resilience, asset sustainability and renewable energy solutions, to businesses and organizations in North America and Europe.
Based in Framingham, Massachusetts, the company is a recognized leader in an industry that is still relatively small but growing in its target markets. The company's services include tackling the host of logistical and cost issues that come with transitioning from fossil fuels to renewable energy, as well as the construction, distribution and storage of new renewable energy sources.
On Jan. 4, shares of Ameresco traded around $50.91 apiece for a market cap of $2.44 billion and a price-earnings ratio of 46.7. Over the past year, the stock has achieved total returns of 198.51% while increasing its earnings per share by 53.50%. The stock has a three-year earnings growth rate of 52.90% and a five-year earnings growth rate of 74.40%.
GuruFocus gives the company a financial strength rating of 4 out of 10 and a profitability rating of 6 out of 10. Although the Altman Z-Score of 2.48 indicates the company is not likely in danger of bankruptcy, the cash-debt ratio of 0.12 is on the low end of the spectrum. The return on invested capital of 6.27% is higher than the weighted average cost of capital of 3.96%, indicating the company is creating value.
Trex
Trex Co. Inc. (TREX, Financial), or Trex Decking, manufactures lumber-alternative outdoor constructions such as decking and railings from recycled materials. Its constructions are approximately 95% recycled material consisting of things like reclaimed wood, sawdust and recycled plastic material.
Based in Winchester, Virginia, the high-performance composite decking brand offers a more durable and more eco-friendly alternative to outdoor products made from new lumber. Depending on where you live, it might also be cheaper.
On Jan. 4, shares of Trex traded around $82.34 apiece for a market cap of $9.53 billion and a price-earnings ratio of 56.99. Over the past year, the stock has achieved total returns of 86.29% while increasing its earnings per share by 25.70%. The stock has a three-year earnings growth rate of 29% and a five-year earnings growth rate of 34.70%.
GuruFocus gives the company a financial strength rating of 6 out of 10 and a profitability rating of 9 out of 10. The Piotroski F-Score of 5 out of 9 and Altman Z-Score of 37.3 indicate the company's balance sheet strength is hard to beat. The return on capital of 55.53% and return on assets of 26.36% are outperforming 88% of other companies in the industry.
Disclosure: Author owns no shares in any of the stocks mentioned. The mention of stocks in this article does not at any point constitute an investment recommendation. Investors should always conduct their own careful research and/or consult registered investment advisors before taking action in the stock market.
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