On March 30, the “Good Companies” screener identified eight “golden egg” companies with strong growth potential for spring 2018. Four of the companies have a financial strength rank of at least 6: Abaxis Inc. (ABAX, Financial), The Home Depot Inc. (HD, Financial), Jack Henry & Associates Inc. (JKHY, Financial) and The Middleby Corp. (MIDD, Financial).
Difference between “high-quality” companies and “good” companies
While the “high-quality” and “good companies” screeners share common filters, the latter screener is more selective as it contains filters like the following:
- 10-year median return on capital of at least 14%.
- 10-year median operating margin at least 16%.
- 10-year CAGR of sales between 8% and 20%.
- 10-year CAGR of earnings between 10% and 20%.
These filters exclude the fast growers, including Biogen Inc. (BIIB, Financial) and Ulta Beauty Inc. (ULTA, Financial), from the list of good companies.
Abaxis
California-based Abaxis develops, manufactures and markets portable blood analysis systems used in various human and veterinary patient care centers. Despite a poor Piotroski F-score of 4, Abaxis still has a financial strength rank of 9, driven by robust interest coverage and Altman Z-scores.
Abaxis’ profitability ranks 7 out of 10 primarily due to profit margins outperforming over 80% of global competitors. GuruFocus ranks the company’s business predictability four stars out of five; however, the predictability rank is on watch as revenues have decelerated over the past 12 months.
Home Depot
Atlanta-based Home Depot said in its March 22 annual report that earnings per share were $7.29 for the 12 months ending Jan. 28, up 13% from the prior year. The company has three positive investing signs, including expanding operating margins and consistent revenue and earnings growth.
Home Depot’s profitability ranks 8 out of 10 as the company’s margins and returns are near a 10-year high and outperform over 86% of global competitors, which include Lowe’s Companies Inc. (LOW, Financial).
Jack Henry & Associates
As discussed in a previous article, Jack Henry & Associates has a five-star predictability rank due to strong and consistent revenue and earnings growth. According to the chart below, the company’s revenue and earnings bar consistently increase year over year, suggesting a “five-star quality” company.
Middleby
Illinois-based Middleby provides equipment for various foodservices, including preparation and packaging. The company’s profitability ranks 8 out of 10, driven by expanding profit margins and a business predictability rank of 4.5 stars. Middleby’s operating margin of 17.57% outperforms 88% of global competitors.
See also
The list of good companies also contains AutoZone Inc. (AZO, Financial), Canadian National Railway Co. (CNI, Financial), IDEXX Laboratories Inc. (IDEX, Financial) and Nathan’s Famous Inc. (NATH, Financial). However, these four companies have modest to weak financial strength: GuruFocus ranks AutoZone and Nathan’s financial strength a 4, suggesting some financial distress. Canadian National Railway and IDEXX have a modest financial strength rank of 5.
Premium members have full access to our All-in-one Screener, which allows you to screen for good companies based on an investing strategy. You can either use one of our predefined screeners or create your own screener.
Disclosure: No positions.