In the Growth Portfolio Super Bowl we have #1 seeded Gilead Sciences Inc. (GILD) taking on #10 seeded Polaris Industries Inc. (PII). Polaris designs, engineers and manufactures off-road vehicles including all-terrain vehicles and side-by-side vehicles for recreational and utility use, snowmobiles, and on-road vehicles including motorcycles and small electric vehicles. Gilead is a research-based biopharmaceutical company that discovers, develops and commercializes medicines.
The following table depicts the recent earnings reports for each company:
($ in billions)
($ in billions)
Gilead is up 98.74% in the past year while Polaris is up 41.69% excluding dividends, and are beating the S&P 500, which has gained 18.53% 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. Though Gilead marched into the tournament as the #1 seed, Polaris has been mashing through three rounds of the playoffs without a single loss. This matchup will determine the winner of the first ever 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. Gilead carries a 1-year forward-looking P/E ratio of 23.74 which is fairly priced for the future right now while Polaris' 1-year forward-looking P/E ratio of 19.83 is also currently fairly priced. Game One goes to Polaris.
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 Gilead is currently at 0.77 based on a 1-yr earnings growth of 65.93% while Polaris' 1-yr PEG ratio stands at 1.1 with a 1-yr growth rate of 23.53%. Gilead beats Polaris in Game Two to even the series and hand Polaris its first loss of the tournament.
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. Gilead has a projected EPS growth rate of 65.93% while Polaris sports a growth rate of 23.53%. Gilead manages to win Game Three and snatches a one game lead in the series.
Dividend yield is a no brainer; it must be had in a 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 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 Gilead does not pay a dividend while Polaris just carries a dividend yield of 1.27%. Polaris is able to win Game Four and ties the series at two games apiece.
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. Gilead is showing a 13.8% efficiency rate on their assets while Polaris is showing 21.9% efficiency. With this victory Polaris pulls within a game of winning the Super Bowl.
Return on Equity
Return on equity is an important financial metric for purposes of comparing the profitability, which is generated with the money shareholders have invested in the company to that of other companies in the same industry. It is best to compare ROE 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. Equity is determined as the net income for the full fiscal year before dividends paid to common stock holders but after dividends to preferred stock, but does not include preferred shares. The higher the ROE value, the better. Gilead proves their efficiency of managing their shareholders equity to be 29.4% while Polaris sports a value of 45.1%. By winning this game Polaris defeats Gilead for the first ever Growth Portfolio Super Bowl!
Although Gilead lost against Polaris, Gilead is still a great company with a 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 Gilead, Polaris becomes the first Growth Portfolio Super Bowl Champion.
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!