If I haven't mentioned it already, I'm really big on keeping watchlists. Watchlists give me the ability to track many stocks at the same time while allowing me to control the parameters of what I want to follow. Without them, I would literally be lost.
With that being said, this weekend's task was to find companies that have exhibited exceptional revenue and earnings growth over the past three years. But it wasn't enough just to find earnings and revenue growth -- I wanted to take it one step further.
Companies sometimes fuel their expansion and growth periods by levering themselves to the brim. While I understand that not all debt is bad debt, I also feel that the majority of debt winds up becoming bad debt! Countless companies have expanded beyond their means over the years, sometimes doubling or tripling revenue only to find a few years later that they can't meet their debt obligations.
Therefore, my primary parameter was to find cash-rich, debt-free companies. Here are the other parameters I considered:
- Revenue growth rate past three years > 25%
- EPS growth rate past three years > 25%
- Market capitalization > $1 billion
In order to weed out the special growth stories, I went straight for sales and EPS growth of 25% or greater. To minimize volatility and special situations (i.e., the one-hit wonders) I installed a minimum market value of $1 billion.
The result was eight companies that have combined rapid growth with immaculate balance sheets over the past three years.
|
Company |
Market Value |
Revenue Growth Rate |
EPS Growth Rate |
|---|---|---|---|
|
Acme Packet |
$2.58 billion | 34.0% | 55.9% |
|
Aixtron |
$1.45 billion | 40.0% | 88.3% |
|
Apple |
$357.4 billion | 49.6% | 72.2% |
|
Bridgepoint Education |
$1.13 billion | 73.9% | 271.1% |
|
Cirrus Logic |
$1.08 billion | 27.1% | 336.1% |
| Erie Indemnity | $3.72 billion | 70.7% | 28.0% |
|
lululemon athletica |
$5.87 billion | 30.5% | 48.2% |
|
SXC Health Solutions |
$3.09 billion | 61.2% | 52.6% |
Source: Motley Fool CAPS screener, market value in billions.
One thing that jumped out was the dominance of mid-cap companies. Mid caps are still in the sweet spot of their growth period, but have a strong enough customer base to give investors confidence in their revenue stream.
Another aspect that didn't shock me quite as much was the dominance of technology companies. Apple arguably started a technology revolution last decade with the iPod and iPhone, and Cirrus Logic, as well as many other parts suppliers, have gladly been swept along for the ride.
It's also worth mentioning that there are plenty of Motley Fool favorites on this list. Apple, Cirrus Logic, lululemon athletica, and Bridgepoint Education are all Motley Fool Rising Star buys.
But we need to remember that past performance is no guarantee of future results, and not every company on this list will be a buy. Aixtron, for example, has fallen on rough times of late, with many of its LED orders being delayed until next year. lululemon athletica, though growing quickly and proving me wrong thus far, is a company I've spoken out against on a few occasions.
In the end, screens and watchlists serve as great starting tools for further research. These eight companies would be a great start for anyone who has yet to create their own watchlist and would make great additions to those already enjoying the benefits of keeping a watchlist. Feel free to add some or all of the companies below to your watchlist and please share your thoughts about the prospects of these companies in the comments section below.
- Add Acme Packet to your watchlist.
- Add Aixtron to your watchlist.
- Add Apple to your watchlist.
- Add Bridgepoint Education to your watchlist.
- Add Cirrus Logic to your watchlist.
- Add Erie Indemnity to your watchlist.
- Add lululemon athletica to your watchlist.
- Add SXC Health Solutions to your watchlist.
