A stock's price follows its earnings, which in turn follow its sales. A company needs only to take care of its business for investors to profit in the long run.
With that in mind, examining companies whose revenues and profits are rising -- and which inspire analysts' confidence in continued future growth -- should give us a fertile field in which to discover solid candidates for long-term outperformance.
The roaring 20s
Below are a handful of companies that have enjoyed 20% or more annual growth in sales and earnings over the past three years, and for which analysts forecast total growth of 20% or more over the next two years. We'll then pair up those predictions with the community stock research at Motley Fool CAPS, to get an idea of which companies the 145,000-plus members think have the best chances of beating the market over the long haul.
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Company
|
3-Year Past Revenue Annual Growth %
|
3-Year Past EPS Annual Growth%
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Est. 2-Year Future EPS Growth
|
Est. 2-Year Future Revenue Growth
|
CAPS Rating (out of 5)
|
|
American Dairy (NYSE: ADY )
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41%
|
42%
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116%
|
33%
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****
|
|
China Distance Education (NYSE: DL )
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75%
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159%
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165%
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26%
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**
|
|
Royal Gold (Nasdaq: RGLD )
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39%
|
24%
|
70%
|
41%
|
***
|
|
Vistaprint (Nasdaq: VPRT )
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47%
|
41%
|
22%
|
23%
|
*
|
|
Zhongpin (Nasdaq: HOGS )
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77%
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47%
|
22%
|
31%
|
*****
|
Source: CapitalIQ, a division of Standard & Poor's; Motley Fool CAPS.
Just because an analyst predicts that a company will feature fantastic growth opportunities doesn't mean those predictions will become reality. But their preferred picks do offer an excellent starting place for your own research into extreme buying opportunities, so let's see why the operations of some of these companies may or may not be held in high esteem by investors considering they appear to be sales and profits machines.
Tippling at the speakeasy
Despite reporting superb earnings growth and its stock rising more than 40% over the past year (and nearly doubling its March lows), Zhongpin still trades at discounted multiples. On a trailing basis, the Chinese pork producer is valued at 11 times earnings, while looking ahead it trades at just 8 times profit.
In comparison, other international porkmeisters like Brasil Foods (NYSE: BRFS ) go for 25 times forward estimates, while domestic ham hock Smithfield Foods (NYSE: SFD ) trades at 16 times earnings.
And Zhongpin's potential for growth doesn't stop with a possible multiple expansion. The company just announced it received $3 million cash in subsidies from the Chinese government, which it plans to use in developing a new plant, and there may be more renminbis on the way.
CAPS All-Star member mcollin says Zhongpin's valuation is like getting growth for free.
Growth in revenue and earnings has been steady and I see no reason that this company cannot continue to grow and a good clip for many years. The current P/E Ratio around 11 would be OK if this company never increased earnings in the future, so it's like getting the growth for free. Even if [Zhongpin] grows at exactly the rate of China's GDP growth, today's price will prove to be a bargain.
A collective yuan, er, yawn
Although I may be in the minority, I think the biscuit wheels will soon fall off the Chinese gravy train. The country has been pouring stimulus money into its economy at a torrid pace and everyone is hailing the growth that's been achieved. But the Chinese are not immune from the basic laws of supply and demand that operate everywhere else in the world, and even though Keynesian economics looks like it helps in the short run, the hangover from the massive spending binge could be severe.
Our own easy-credit policies led to huge asset bubbles, and the expansion of credit under way in China will do the same. I don't know where or when the bubble will burst, but surely it must. China refuses to allow the yuan to float against currencies other than the dollar, meaning the yuan remains significantly undervalued, and America's own zero-interest rate environment helps keep exports flowing out of China. It's a cycle that can only end badly.
So is Zhongpin's bacon about to be fried? Let us know in the comments section below or head over to Zhongpin's CAPS page and chew the fat with your fellow investors.
No Great Depression
It pays to start your own research on these stocks on Motley Fool CAPS. Read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made all from a stock's CAPS page. Why not head over to the completely free CAPS service and let us hear what you've got to say about these or any other stocks that you think we should fill up our dance card with?
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