Looking for a winner in outsourcing? Look no further than circuit-board manufacturer Jabil Circuit
For its third quarter, revenue soared 19% and net income jumped 48% higher year over year. Investors liked the news and sent the stock 10% higher, to a new 52-week high, in early-morning trading Wednesday.
Even though Jabil's stock short-circuited during the 2000 dot-com bomb, long-term investors who held this stock for the past 10 years have seen their investment increase 30 times over. Now that's a multi-bagger of significance!
So, is Jabil ready to keep sparkling?
A very strong balance sheet will help. Over the past 12 months, the company's total debt has remained roughly unchanged at $312.5 million, while cash has increased by $59.7 million to $681 million.
Given its industry environment, the company posted strong operating margins: 3.8% in the latest quarter and 3.5% on a trailing annual basis. In a lower-margin business like circuit boards, it is important not only to grow, but also to grow profitability, and Jabil's margin looks impressive when compared with the trailing annual margin of 3% at Flextronics
All of this good news, though, comes at a price. If the company's GAAP earnings for the fiscal year (which ends in August) reach $1.10 a share, the high end of company guidance, the stock will be trading for 28.6 times forward earnings.
But this is not the bottom of the business cycle. While the company grew earnings by only 4.3% over the past five years, analysts expect earnings to compound at 25% a year for the next five years. So given the company's strong margins and outstanding balance sheet, today's price-to-earnings ratio is very reasonable for a company that really does sparkle in its business niche.
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Fool contributor W.D. Crotty does not own shares in any of the companies mentioned. Click here to see The Motley Fool's disclosure policy.
