In the first round of the Growth Portfolio playoffs we have #11 seeded Berry Plastics Group Inc (BERY) taking on #6 seeded Netflix, Inc (NFLX). Berry is a provider of plastic consumer packaging and engineered materials. Netflix is an internet television network with more than 33 million members in over 40 countries.
The following table depicts the recent earnings reports for each company:
($ in billions)
($ in billions)
Berry is up 49.94% in the past year while Netflix is up 306.16%, and are beating the S&P 500, which has gained 30.62% in the same time frame. This matchup will be played out in a best of seven game series based on the metrics below. For a complete list of all the metrics utilized in the seven game series click here. Not all the metrics will be looked at if a team can win and win early. This wild-card matchup will determine the winner which will go on to play against Visa Inc (V) in the next round of the playoffs for the Growth Portfolio Super Bowl.
Forward P/E is the metric of how many times future earnings you are paying up for a particular stock. The earnings portion of the ratio I utilize is the earnings value for the next twelve months or for the next full fiscal year. I like utilizing the forward P/E ratio as opposed to the trailing twelve-month P/E ratio because it is an indication of where the stock is going to go in the future. I like to get a glimpse of the future, but will take note of where it was coming from in the past. Berry carries a 1-year forward-looking P/E ratio of 16.01 which is fairly priced for the future right now while Netflix's 1-year forward-looking P/E ratio of 90.05 is currently expensively priced. Game One goes to Berry.
This metric is the trailing twelve-month P/E ratio divided by the anticipated growth rate for a specific amount of time. This ratio is used to determine how much an individual is paying with respect to the growth prospects of the company. Traditionally the PEG ratio used by analysts is the five-year estimated growth rate, however I like to use the one-year growth rate. This is because as a capital projects manager that performs strategy planning for the research and development division of a large-cap biotech company I noticed that 100% of people cannot forecast their needs beyond one year. Even within that one year things can change dramatically. I put much more faith in a one-year forecast as opposed to a five-year forecast. The PEG ratio some say provides a better picture of the value of a company when compared to the P/E ratio alone. The 1-year PEG ratio for Berry is currently at 2.39 based on a 1-yr earnings growth of 21.81% while Netflix's 1-yr PEG ratio stands at 2.36 with a 1-yr growth rate of 129.05%. Netflix edges Berry out in Game Two to even the series at one game apiece.
EPS Growth Next Year
This metric is really simple, it is essentially taking the difference of next year's projected earnings and comparing it against the current year's earnings. The higher the value the better prospects the company has. I generally like to see earnings growth rates of greater than 11%. Again, in this situation I like to take a look at the one-year earnings growth projection opposed to the five-year projection based on what I discussed in the PEG section above. Berry has a projected EPS growth rate of 21.81% while Netflix sports a growth rate of 129.05%. Netflix dominates Berry in Game Three to take the lead in the series by a game.
Dividend yield is a no brainer; it must be had in a dividend portfolio. The dividend yield is the amount of annual dividend paid out by a company in any given year divided by the current share price of the stock. In my dividend portfolio I don't discriminate against low yielding stocks as long as they provide excellent fundamental metrics in the form of the forward P/E, the 1-yr PEG and the 1-yr EPS growth rate. Dividends are a way to measure how much cash flow you're getting for each dollar invested in the stock. Obviously, the higher the yield, the better, as long as it is covered by the trailing twelve-month earnings. Unfortunately neither of these companies pays a dividend, so what I will do in this instance is see who generates more in earnings so that they may be able to payout a dividend in the near future. In this scenario, Berry earned $0.46 in the trailing twelve-months while Netflix earned $1.19 thus giving Netflix the victory in Game 4 of the series.
Return on Assets
Return on assets is the metric which shows how profitable a company is relative to its total assets, telling us how efficient a management team is at using its assets to generate earnings. It is best to compare ROA values of companies within the same industry as it is industry dependent, but for the purposes of this tournament I will not be utilizing that rule of thumb. The assets of a company are comprised of both debt and equity. The higher the ROA value, the better, because the company is earning more money on less investment. Berry is showing a 1.1% efficiency rate on their assets while Netflix is showing 1.6% efficiency. With this victory Netflix wrestles the series away from Berry after losing Game One.
Although Netflix ran away with the victory over Berry Plastics, Berry is still a great company with great long-term story. Both companies have excellent short-term and long-term earnings growth potential, hence the reason why they are in my growth portfolio. After beating Berry Plastics, Netflix will advance to the next round of the playoffs and go head to head against the #3 seeded Visa.
Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!