If you want to have a higher chance of finding companies that are in good shape from a financial standpoint, you may want to consider stocks with trailing 12-month Ebitda margins that are topping the S&P 500's 15.25% as of the time of writing.
The Ebitda margin, which is calculated as earnings before interest, taxes, depreciation and amortization divided by total revenue, is a good indicator of a company's financial health as it doesn't consider the effect of unique decisions and tax laws when appraising the performance of a company. These decisions refer to the recognition of amortization and depreciation, which may differ significantly, even among companies that operate in the same industry.
The three companies listed below meet these criteria. Wall Street sell-side analysts have also issued positive recommendation ratings for them.
American Tower
The first company that makes the cut is American Tower Corp. (AMT, Financial), a Boston-based specialty real estate investment trust holding a portfolio of more than 180,000 communications sites.
American Tower’s Ebitda margin is 63.5%, resulting from Ebitda of $5.733 billion and revenue of $9.034 billion for the trailing 12 months ended in June 2021.
The closing share price of $248.40 on Monday was up 6.53% compared to year-ago levels. The company has a market capitalization of $112.69 billion and a 52-week range of $197.50 to $303.72.
The stock grants a forward dividend yield of 2.26%. The company last paid a quarterly dividend of $1.39 per share on Jan. 14.
On Wall Street, the stock has a median recommendation rating of overweight and an average target price of $304.67 per share.
TransDigm Group
The second company qualifies is TransDigm Group Inc. (TDG, Financial), a Cleveland, Ohio-based producer of aircraft components in the United States and internationally.
TransDigm Group's Ebitda margin is 42.23%, resulting from Ebitda of $2.03 billion and revenue of $4.799 billion for the trailing 12 months ended September 2021.
Monday's closing share price of $621.27 was up 12.01% compared to year-ago levels for a market capitalization of $33.54 billion and a 52-week range of $517.37 to $688.03.
The company is not paying dividends currently.
On Wall Street, the stock has a median recommendation rating of overweight and an average target price of $743.71 per share.
Monolithic Power Systems
The third stock that meets the criteria is Monolithic Power Systems Inc. (MPWR, Financial), a Kirkland, Washington-based semiconductor company serving several markets in the U.S. and globally, including communications and consumer applications markets as well as automotive, computing, storage and industrial.
Monolithic Power Systems' Ebitda margin is 23.33%, resulting from Ebitda of $258 million and revenue of $1.104 billion for the trailing 12 months ended in September 2021.
The closing share price of $402.02 on Monday was down 2.6% compared to year-ago levels for a market capitalization of $17.39 billion and a 52-week range of $301.51 to $580.
The stock grants a forward dividend yield of 0.63%. The company issued a quarterly dividend of 60 cents per common share on Jan. 14, 2022.
On Wall Street, the stock has a median recommendation rating of overweight and an average target price of $592.88 per share.