Seeking Alpha
Long only, value, growth, dividend investing
Profile| Send Message| ()  

Overview

In the past month, I've written a series of articles related to low-priced stocks to buy and low-priced stocks to avoid. These articles each focus on three stocks currently priced at under $10 per share that I believe worthy of buying or avoiding. Using the same format, I am going to write a series of articles on high-priced stocks worth or not worth their current price tags. These articles will focus on stocks currently priced at over $100 per share.

For this article, I will outline and review three stocks I think are worth their high price and should be considered when looking for stocks to add to your portfolio. In determining why I think these stocks are worth their current price, I will be looking at each company's financial performance, current valuation, recent trading activity, earnings and future outlook. Round 1 stocks can be seen here.

Stock No. 1

AutoZone (AZO) is the nation's leading specialty retailer of automotive parts and accessories, with a strong focus on do-it-yourself customers. The company offers a wide variety of products in the following categories: new and remanufactured automotive hard parts, maintenance items, accessories, and non-automotive products. AutoZone, Inc. was founded in 1979 and is based in Memphis, Tennessee.

Financial Performance

Profit Margin (Trailing Twelve Months)10.99%
Return on Assets (Trailing Twelve Months)14.85%
Operating Margin (Trailing Twelve Months)19.25%
Revenue (Trailing Twelve Months)8.82B
Revenue per share (Trailing Twelve Months)241.49
Quarterly Revenue Growth (Year Over Year)4.50%

AZO has a strong history of increased revenue and profit.

2009201020112012
Net Revenues$6,817M$7,363M$8,073M$8,604M
Gross Profit$3,416M$3,712M$4,119M$4,432M

Current Valuation and Recent Trading Activity

AZO is currently trading at $421.42, $30.77 shy of its 52-week high and $79.44 higher than its 52-week low. AutoZone is trading ahead of its 200-day moving average of $409.51, but lower than its 50-day moving average of $433.83.

AZO has a price-to-earnings value of 16.3x and a price-to-sales value of 1.7x, with earnings per share of $25.92.

Earnings

For its last quarter, AZO reported earnings per share of $7.27. The earnings beat expectations and continued the pattern of quarterly beats that AZO has reported for several years. AZO's one year and five year earnings growth rates are both above 20%.

Company Outlook

AutoZone has shown that it can increase earnings in multiple ways. In the past few years, AZO has increased earnings through increased same store sales, through expansion, through improving margins, and through diversification. Back in June, AZO authorized a $750 million share buyback. I believe that AZO's steak of increased earnings will continue into the future and with management's focus on returning shareholder value through its share repurchase program, I feel that AZO is worth its current price and should be considered by long term investors looking to add to their portfolio.

Stock No. 2

Baidu, Inc. (BIDU), formerly Baidu.com, Inc., provides Chinese language Internet search services and a Chinese language search platform for businesses to reach their customers. BIDU was founded in 2000 and is headquartered in Beijing, China.

Financial Performance

Profit Margin (Trailing Twelve Months)40.17%
Return on Assets (Trailing Twelve Months)17.39%
Return on Equity (Trailing Twelve Months)38.91%
Revenue (Trailing Twelve Months)4.17B
Revenue per share (Trailing Twelve Months)11.91
Quarterly Revenue Growth (Year Over Year)38.60%

BIDU has seen very large increases in both revenue and profit over the past several years.

2009201020112012
Net Revenues$652M$1,171M$2,248M$3,580M
Gross Profit$415M$853M$1,644M$2,545M

Current Valuation and Trading Activity

BIDU currently has a price-to-earnings value of 28.8x and a price-to-book value of 9.2x with earnings per share of $4.82.

BIDU is trading at $139.02, $4.10 lower than its 52-week high and $56.04 higher than its 52-week low. BIDU is trading above both its 200-day moving average of $99.69 and its 50-day moving average of $123.62.

Earnings

BIDU has been able to translate its increases in revenue to its bottom line even as it sees increased costs associated with content, traffic acquisition, and bandwidth. For Q2, BIDU reported earnings per share of $1.22. The company has a one year earnings growth rate of 3.44% and a five year earnings growth rate over 70%.

Company Outlook

BIDU is often referred to as China's Google. And just like Google, I believe that BIDU's future is bright. There is no indication that BIDU's history of increased revenues and earnings won't continue in the coming years and with several of BIDU's recent moves (such as its investment in Nuomi platform and its acquisition of 91 Wireless) its operations and customer base should continue expanding, providing plenty of opportunity for long term extended growth.

Stock No. 3

Since Stock #2 is often referred to as China's Google, I figured I might as well make Stock #3 the original.

Google Inc. (GOOG) is a technology company known primarily for its search engine. However, Google offers a wide variety of products and services including: Google Chrome web browser, Google Chrome OS open source operating system, Google Play cloud-based digital entertainment destination, Google Wallet, Google TV, Google Earth, etc. GOOG was founded in 1998 and is headquartered in Mountain View, California.

Financial Performance

Profit Margin (Trailing Twelve Months)20.85%
Return on Assets (Trailing Twelve Months)8.92%
Return on Equity (Trailing Twelve Months)15.24%
Revenue (Trailing Twelve Months)55.80B
Revenue per share (Trailing Twelve Months)169.05
Quarterly Revenue Growth (Year Over Year)19.50%

Google has a strong history of growth across the board the past several years.

2009201020112012
Net Revenues$23,651M$29,321M$37,905M$50,175M
Gross Profit$14,806M$18,904M$24,717M$29,541M
Total Assets$40,497M$57,851M$72,574M$93,798M
Cash Equivalents EOY$10,198M$13,630M$9,983M$14,778M
Total Shareholder's Equity$36,004M$46,241M$58,145M$71,715M

Google is on pace to see similar increases this year as well.

Current Valuation and Trading Activity

GOOG has a price-to-earnings value of 25.4x and a price-to-book value of 3.7x.

GOOG is currently trading at $866.39, $61.61 lower than its 52-week high and $230.39 higher than its 52-week low. It is trading above its 200-day moving average of $851.31 but below its 50-day moving average of $892.53.

Earnings

Last quarter, Google reported earnings per share of $7.75, $1.29 below estimate and lower than the same period last year. Even with the disappointing Q2 earnings, GOOG maintains a one year earnings growth rate of 14.52% and a five year earnings growth rate of 20.60%.

Company Outlook

Google is the definition of an innovative company as it continues to expand its business and create new sources of revenue. Everyone already knows about Google Glass, but it is just one of several possible sources of new revenue for Google. Other possible sources in the future include:

Google's share price has dropped over the past month and a half, from a high of $928 on July 15th to its current price of $866.39. I think this drop has presented a nice buying opportunity for long term investors. I think Google will continue to innovate and increase revenue and earnings for years to come. At its current price I think it's a solid buy as a long term investment.

Conclusion

Each of the three stocks reviewed above (AZO, BIDU, and GOOG) have seen multiple years of increased revenues and earnings. I feel that all three companies have made strategic decisions to help ensure that this trend continues. I think that all three companies are fairly priced and based on their track record of success combined with recent management decisions, I feel that each company will continue to remain successful. I think all three companies are worth take a look at for any long term investor looking to add to their portfolio. As always, I recommend that any investor do their own research before making any investment decisions.

Source: 3 Stocks Worth Their High Price: Round 2