There's no foolproof way to know the future for TTM Technologies (Nasdaq: TTMI) or any other company. However, certain clues may help you see potential stumbles before they happen -- and before your stock craters as a result. Rest assured: Even if you're not monitoring these metrics, short-sellers are.

A cloudy crystal ball
I often use accounts receivable (AR) and days sales outstanding (DSO) to judge a company's current health and future prospects. These are important steps in separating the pretenders from the market's best stocks. Alone, AR (the amount of money the company owes) and DSO (days worth of sales owed to the company) don't tell you much. However, by considering the trends in AR and DSO, you can sometimes get a window into the future.

AR that grows more quickly than revenue can suggest a desperate company that's trying to boost sales by giving its customers overly generous payment terms. So can ballooning DSO. Or they can indicate that the company sprinted to book a load of sales at the end of the quarter, much like used-car dealers do on the 29th of the month. (Sometimes, companies do both.)

Why might an upstanding company like TTM Technologies do this? For the same reason any other company might: to make the numbers. Investors don't like revenue shortfalls, and employees don't like reporting them to their superiors.

Is TTM Technologies sending any warning signs? Take a look at the chart below, which plots revenue growth against AR growth and illustrates DSO.


Source: Capital IQ, a division of Standard & Poor's. Data is current as of last fully reported fiscal quarter. FQ = fiscal quarter.

The standard way to calculate DSO uses average accounts receivable. I prefer to look at end-of-quarter (EOQ) receivables, but I've plotted both above.

Watching the trends
When that red line (AR growth) crosses above the green line (revenue growth), I know I need to consult the filings. Similarly, a spike in the blue bars (DSO) indicates a trend worth worrying about. As another reality check, it's reasonable to consider what a normal DSO figure might look like in this space.

Company

LFQ Revenue

DSO

 TTM Technologies

$310

52

 Flextronics International (Nasdaq: FLEX)

$6,566

38

 Sanmina-SCI (Nasdaq: SANM)

$1,625

49

 DDI (Nasdaq: DDIC)

$68

60

Source: Capital IQ, a division of Standard & Poor's. DSO calculated from average AR. Data is current as of last fully reported fiscal quarter. LFQ = last fiscal quarter. Dollar figures in millions.

Differences in business models can generate variations in DSO, so don't consider this the final word -- just a way to add some context to the numbers. But let's get back to our original question: Will TTM Technologies miss its numbers in the next quarter or two?

I wouldn't be surprised if it had trouble on the top line during the next quarter or two. For the last fully reported fiscal quarter, TTM's year-over-year revenue grew by 114.7%, and its AR grew by 152.8%. Those are yellow flags, but since TTM recently completed a massive acquisition of Meadville, year-over-year comparisons could be difficult in the coming quarters.

End-of-quarter DSO increased by 17.7% over the prior-year quarter and rose by 21.2% versus the prior quarter. That demands a good explanation. Still, I'm no fortuneteller, and these are just numbers. Investors who are putting their money on the line always need to dig into the filings for the root causes and draw their own conclusions.

What now?
I use this kind of analysis to figure out which investments I need to watch more closely as I hunt the market's best returns. However, some investors actively seek out companies on the wrong side of AR trends in order to sell them short and profit when they eventually fall. Which way would you play this one? Let us know in the comments below.

Interested in reading more about TTM Technologies? Add it to My Watchlist, which will find all of our Foolish analysis on this stock.

Seth Jayson had no position in any company mentioned here at the time of publication. You can view his stock holdings. He is a co-advisor of Motley Fool Hidden Gems, which provides new small-cap ideas every month, backed by a real-money portfolio. TTM Technologies is a Motley Fool Stock Advisor choice. Try any of our Foolish newsletter services free for 30 days. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. The Motley Fool has a disclosure policy.