Investors love stocks that consistently beat the Street without getting ahead of their fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with robust and improving financial metrics that support strong price growth. Does CalAmp Corp. (CAMP 2.75%) fit the bill? Let's take a look at what its recent results tell us about its potential for future gains.
What we're looking for
The graphs you're about to see tell CalAmp's story, and we'll be grading the quality of that story in several ways:
- Growth: Are profits, margins, and free cash flow all increasing?
- Valuation: Is share price growing in line with earnings per share?
- Opportunities: Is return on equity increasing while debt to equity declines?
- Dividends: Are dividends consistently growing in a sustainable way?
What the numbers tell you
Now, let's take a look at CalAmp's key statistics:
CAMP Total Return Price data by YCharts
|
Passing Criteria |
3-Year* Change |
Grade |
|---|---|---|
|
Revenue growth > 30% |
87.3% |
Pass |
|
Improving profit margin |
549.5% |
Pass |
|
Free cash flow growth > Net income growth |
1,221% vs. 941.2% |
Pass |
|
Improving EPS |
824.5% |
Pass |
|
Stock growth (+ 15%) < EPS growth |
1,110% vs. 824.5% |
Fail |
Source: YCharts. * Period begins at end of Q3 (Nov.) 2010.
CAMP Return on Equity (TTM) data by YCharts
|
Passing Criteria |
3-Year* Change |
Grade |
|---|---|---|
|
Improving return on equity |
235.4% |
Pass |
|
Declining debt to equity |
(97.4%) |
Pass |
Source: YCharts. * Period begins at end of Q3 (Nov.) 2010.
How we got here and where we're going
CalAmp puts together an outstanding performance, missing out on a perfect score only because its stock growth has surpassed the (very impressive) gains in its earnings per share during our three-year tracking period. CalAmp's fundamentals have all been on the rise during the past few quarters, thanks to its well-diversified product portfolio, and a competitive position in the telecom industry. This is great news for CalAmp shareholders, but does that mean CalAmp will keep outperforming in the future? Let's dig a little deeper to find out what 2014 might hold.
In its latest earnings, CalAmp beat Wall Street's estimates on both top and bottom lines, lending more fuel to a stock surge that has added more than 270% in new value since the beginning of 2013, thanks to increased telecom and networking expenditures throughout the U.S. tech sector. However, CalAmp's soft guidance for the upcoming quarter reflects signs of slowing growth, which could eventually tamp down share growth, as well. Fool contributor Rick Munarriz points out that CalAmp should be able to jump back on track as long as tech companies don't scale back capital expenditure on core CalAmp offerings.
Rick Munarriz also notes that CalAmp's also performing well in an ongoing overseas expansion. In addition, the company should benefit from a recent acquisition of Radio Satellite Inregrators, which is expected to contribute substantial new revenues to its wireless datacom division in 2014. CalAmp's public safety solutions, combined with RSI's software-as-a-service (SaaS) offerings and domestic customer network, could strengthen the combined company's competitive position and growth prospects with state and local governments. However, the company has been facing cutthroat price competition from Motorola Solutions (MSI 0.06%), a longtime leader in public-safety communications products, which could hinder CalAmp's growth if the much larger Motorola puts renewed effort into its government sales pitch.
CalAmp recently joined hands with General Dynamics Broadband, which would allow it to pair its Fusion-LTE broadband routers with GD Broadband's LTE communications systems. The company will also integrate its Motorized Asset Management service with the FleetOutlook suite of mobile resource management services, and is working with Magellan to combine its Fleet Location Messaging Unit with the latter's RoadMate Commercial fleet navigation device. These new partnerships offer CalAmp the opportunity to significantly expand its reach into new and existing business segments over the next few quarters, but it remains to be seen whether they will actually become major catalysts for CalAmp's continued top- and bottom-line growth.
Putting the pieces together
Today, CalAmp has many of the qualities that make up a great stock; but no stock is truly perfect. Digging deeper can help you uncover the answers you need to make a great buy -- or to stay away from a stock that's going nowhere.
