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Arie Goren, Portfolio123 (475 clicks)
Long only, value, research analyst, dividend investing
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I have searched for profitable companies with very strong growth prospects. Those stocks would have to show a low debt and a very low PEG ratio. I also looked for companies which have their enterprise value well below their market cap.

Enterprise value is calculated as market cap plus debt, minority interest and preferred shares, minus total cash and cash equivalents. Since the enterprise value can serve as the theoretical takeover price of the company, when its value is well below the market cap it is possible to consider the company's stock in a deep discount.

I have elaborated a screening method which shows stock candidates following these lines. Nonetheless, the screening method should only serve as a basis for further research.

The screen's formula requires all stocks to comply with all following demands:

  1. Average annual sales growth for the past 5 years is greater than 25%.
  2. Average annual earnings growth for the past 5 years is greater than 20%.
  3. Average annual earnings growth estimates for the next 5 years is greater than 20%.
  4. The PEG Ratio is less or equal than 0.80.
  5. Total debt to equity is less than 0.50.
  6. The Enterprise Value is less than the Market Cap of the company.

After running this screen on January 08, 2013, before the market open, the following three stocks came out:

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Allegiant Travel Company (ALGT)

Allegiant Travel Company, through its subsidiaries, operates as a leisure travel company in the United States.

Allegiant Travel Company has a very low debt (total debt to equity is only 0.36) and a low forward P/E of 14.27; the PEG ratio is very low at 0.65. ALGT records strong growth on all key parameters; the average annual earnings growth for the past 5 years was very high at 37.88%, the average annual sales growth for the past 5 years was also very high at 26.20% and the average annual earnings growth estimates for the next 5 years is very high at 30.65%. The stock price is 4.50% above its 20-day simple moving average, 7.29% above its 50-day simple moving average and 18.85% above its 200-day simple moving average, which indicates short-term, mid-term and long-term uptrend.

On January 30, Allegiant will report its latest quarterly financial results. ALGT is expected to post a profit of $0.79 a share (here), a 41% rise from the company's actual earnings for the same quarter a year ago. The reported results will probably affect the stock price in the short term.

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Chart: finviz.com

Cubist Pharmaceuticals Inc. (CBST)

Cubist Pharmaceuticals, Inc., a biopharmaceutical company, focuses on the research, development, and commercialization of pharmaceutical products that address unmet medical needs in the acute care environment.

Cubist Pharmaceuticals has a very low debt (total debt to equity is only 0.42) and a very low PEG ratio of 0.66. CBST records strong growth on all key parameters; the average annual earnings growth for the past 5 years was very high at 21.15%, the average annual sales growth for the past 5 years was also very high at 31.09% and the average annual earnings growth estimates for the next 5 years is very high at 39.10%. The company is trading 11.87% below its 52-week high and has 18.5% upside potential based on the consensus mean target price of $52.09. The stock price is 3.65% above its 20-day simple moving average, 4.86% above its 50-day simple moving average and 2.68% above its 200-day simple moving average, which indicates short-term, mid-term and long-term uptrend.

On January 07, 2013 Cubist Pharmaceuticals announced unaudited fourth quarter and full-year 2012 revenues (here). Revenue rose 16 percent to $245.9 million in the fourth quarter on greater sales of its antibiotic Cubicin. Cubist said U.S. sales of the drug climbed 14 percent and international sales also edged higher. Cubist gets most of its revenue from Cubicin, a treatment for skin infections like the MRSA "superbug" and blood infections. The result was about equal to Wall Street estimates. FactSet reports that analysts expected the company to report $246.2 million in revenue on average.

The compelling valuation metrics, the strong growth prospects, the 18.5% upside potential based on the consensus mean target price of $52.09 and the fact that the stock is in an uptrend are all factors that make CBST stock quite attractive.

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Chart: finviz.com

Grand Canyon Education, Inc. (LOPE)

Grand Canyon Education, Inc. provides postsecondary education services in the United States and Canada.

Grand Canyon Education has a very low debt (total debt to equity is only 0.13) and a very low forward P/E of 13.90; the PEG ratio is also very low at 0.80. LOPE records strong growth on all key parameters; the average annual earnings growth for the past 5 years was extremely high at 257.09%, the average annual sales growth for the past 5 years was also very high at 42.70% and the average annual earnings growth estimates for the next 5 years is very high at 20.83%. The company is trading 5.48% below its 52-week high and has 16.4% upside potential based on the consensus mean target price of $27.50. Analysts recommend the stock-- among the twelve analysts covering the stock, seven analysts rate it as a strong buy, four analysts rate it as a buy and only one analyst rates it as a hold. On November 01, 2012, Grand Canyon Education reported its 3Q financial results (here), which beat EPS expectations by $0.08 and beat expectations on revenue.

Quarterly Highlights:

  • Net revenue increased 22.6% to $133.6 million for the third quarter of 2012, compared to $108.9 million for the third quarter of 2011.
  • Operating income for the third quarter of 2012 was $31.2 million, an increase of 51.0% as compared to $20.7 million for the same period in 2011. The operating margin for the third quarter of 2012 was 23.4%, compared to 19.0% for the same period in 2011.
  • Net income increased 43.5% to $18.5 million for the third quarter of 2012, compared to $12.9 million for the same period in 2011.
  • Diluted net income per share was $0.41 for the third quarter of 2012, compared to $0.29 for the same period in 2011.

All these factors -- the low multiples, the strong growth prospects, the strong analyst's recommendation and the very good 3Q financial results -- make LOPE stock quite attractive.

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Chart: finviz.com

 

Source: 3 High Growth Stocks At A Big Discount And With A Very Low PEG