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 140,000-plus members think have the best chances of beating the market over the long haul.
|
Company |
3-Year Past Revenue Annual Growth |
3-Year Past EPS Annual Growth |
Est. 2-Year Future EPS Growth |
Est. 2-Year Future Revenue Growth |
CAPS Rating |
|---|---|---|---|---|---|
|
Ctrip.com (NASDAQ:CTRP) |
37% |
33% |
27% |
33% |
**** |
|
Fuqi International (NASDAQ:FUQI) |
74% |
60% |
31% |
37% |
**** |
|
Gilead Sciences (NASDAQ:GILD) |
33% |
48% |
24% |
21% |
***** |
|
Neutral Tandem (NASDAQ:TNDM) |
50% |
54% |
44% |
30% |
**** |
|
priceline.com (NASDAQ:PCLN) |
27% |
88% |
31% |
22% |
* |
Source: Capital IQ (a division of Standard & Poor's) and Motley Fool CAPS. EPS = earnings per share.
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 one of these companies may or may not be held in high esteem by investors.
Tippling at the speakeasy
Online travel agent priceline.com has been nothing short of phenomenal during this recession, and I'm glad I resisted the urge at the outset to short the stock. My thesis was that travel would be crushed as the economy sank, leaving priceline.com, Expedia (NASDAQ:EXPE), and Orbitz Worldwide (NYSE:OWW) scrambling for customers.
What I didn't count on was that those who were going to fly anyway would seek out the best possible prices and hit up the online agents to do so. Moreover, because airlines and hotels were hurt by the recession, they had plenty of inventory to throw priceline.com's way. Revenue this past quarter soared 30%, generating a 44% increase in profit.
However, while I'm not confident enough to short the Motley Fool Stock Advisor recommendation now either -- remembering the admonition that markets can be irrational longer than I can remain solvent -- I think priceline.com may have topped out.
The crystal ball was working …
The company benefited from a unique set of circumstances. Management read the mood of consumers correctly earlier than its rivals and eliminated fees for bookings while the recession allowed the company to go up against weaker comps from the year-ago period. And then you had the excess inventory from suppliers who were slashing prices, allowing priceline.com to pass those discounts along to consumers. That was a perfect confluence of events that has made the online booking site a marvel.
… but it looks like a snow globe now
If the economy is really turning (I suggest that's a big if), those factors may soon evaporate. Orbitz and Expedia have also eliminated fees, so priceline.com has no pricing advantage, and over the next year it will be facing some stronger comps. Airlines have cut capacity, resulting in fewer seats available and hotels may be encouraged to raise room rates during the recovery.
CAPS member davbeirney was similarly impressed by priceline.com's performance, but a truculent recessionary environment doesn't leave him encouraged:
I cant lie. I was impressed by the earnings power that this company has. Even though there was a significant increase in bookings, I would not want to buy into a stock that has had a huge run already. Not to mention the hotel and booking industry as a whole. People are losing jobs, and consumers are spending less. How high can investors be willing to pay such a premium for a this stock while they know this info is staring them right in the face
Once bitten, twice shy (to quote a favorite Great White song from the '80s), so I'd be reluctant to short priceline.com's stock. In priceline.com's favor, it generates 60% of its revenue internationally, and with the Fed suggesting it won't raise interest rates, the dollar remains weak. That will benefit the travel site when it translates its foreign earnings into dollars.
However, I will still head over to priceline.com's CAPS page and rate it to underperform the broader market averages. Join me there to share your views, or use the comments section below to tell me my thesis is set to crash and burn.
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. It's completely free.
