5 Stocks That Just Won't Quit

In my weekly Fool column "Get Ready for the Fall," I run Nasdaq.com's 52-week highs list through the "wisdom of crowds" meter we call Motley Fool CAPS. The result: a list of stocks that have flown so high, investors are starting to get nervous about that whole "gravity" thing. But while many stocks will indeed plunge back to Earth, some seem immune to gravity, steadily riding a rising megatrend to ever-greater heights.

Today, we'll move beyond stocks that have hit 52-week highs, and identify companies now surpassing five solid years of outperformance. Which of these will thrash the market averages for another half-decade? Here are this week's leading contenders:

Companies are selected from the "New 5-Year Lows" list published on MSN Money on Thursday. CAPS ratings from Motley Fool CAPS. Bull factor is percentage of outperform calls in CAPS.

"Everybody loves a winner"
Not necessarily. In fact, Fools seem to be getting just a wee bit antsy over the kinds of stocks that are benefitting from this recent rally ... and the prices we're being asked to pay for them.

And can you blame them? I mean seriously, folks -- we're well into our second year of recession now, yet the stocks plowing inexorably forward aren't at all the ones you might expect. It's not discount shopping bastion Wal-Mart Stores (NYSE:WMT), or "people will buy Pampers in any economy" Procter & Gamble (NYSE:PG) that are claiming the five-year high trophies these days. Instead, who do we get? A bunch of stocks nobody's ever heard of! (No offense intended.)

Most amazing, though, is the one stock on this list garnering top marks, and a perfect 100% approval rating on CAPS. Turns out, while a lot of people love ePlus, nobody seems to know why.

ePlus? eMinus? Your guess is as good as mine
At this point in the column, I ordinarily give you a glimpse into what our CAPS members are thinking -- the logic behind the outperform/underperform ratings. There's just one problem:

No one's written anything about ePlus.

Oh, ratings we've got aplenty. More than two dozen members have rated the stock, and every Fool Jack of 'em thinks the stock's a buy -- from April of last year all the way through this morning. But without specific pitches explaining the whys and wherefores, I'm afraid we'll have to do most of the digging on this one ourselves. Onward ...

Let's start with the basics
Who is ePlus? Based in Herndon, Va., ePlus bills itself as: "a leading provider of technology solutions ... delivering world-class IT products from top manufacturers, professional services, flexible lease financing, proprietary software, and patented business methods." In English, this means the company sells and leases computer equipment and software, and provides consulting services on what to buy, and how to set it up and use it. ePlus cooperates with partners such as Microsoft (NASDAQ:MSFT), Cisco (NASDAQ:CSCO), and VMware (NYSE:VMW) in providing its services, and so depends to an extent on the popularity of these firms' own wares.

Buy the numbers?
It may sound like a fairly generic business model, but so far ePlus seems to be making the most of it, as sales more than doubled over the last five years.

On the minus side, profits are starting to slip, declining in each of the last two years. Worse still, ePlus's cash flow statement shows the company burning through a total of more than $180 million in free cash flow over the past 5.75 years (its fiscal year ends on March 31, but they haven't yet reported the most recent fourth-quarter results). After briefly achieving free cash flow breakeven for the year ended March 31, 2008, the company promptly returned to its cash-burning ways over the past three quarters, sending $5 million of free cash flow up in smoke.

What all this adds up to, valuation-wise, is a company with an 8.1 P/E and a history of growing its sales at 18% per year on average over the last five years. Future growth rates are anybody's guess, because ePlus gets literally no analyst coverage. But if the company manages to grow its current level of profits at anything near the rate it's posted sales growth historically, then the stock looks cheap to me -- which may explain the company's five-star CAPS rating on CAPS.

Time to chime in
Problem is, that's a big "if," and I personally do not think ePlus will achieve anything of the sort.

Why not? Once upon a time, Newton explained that an object in motion tends to continue in motion. In my experience, tiny companies with a history of burning cash rarely "see the light" and suddenly evolve into successful businesses churning out free cash flow by the bucketful. Until I see something that tells me ePlus has discovered a way to transform stellar sales growth into at least respectable profits of the rustling kind, my prediction is that ePlus will continue to burn cash -- and not do well as a stock.

But if you disagree -- welcome! Here at Motley Fool CAPS, we welcome contrary points of view -- and with not a single pitch yet penned in defense of ePlus, the field is wide open for you to make your case in the company's favor. Ready to take the challenge? Then here's your chance.

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