Nothing destroys the financial future of individuals and families more than debt. Debt can eat up your paycheck and destroy your chances of retiring. Too much debt can also drive you into bankruptcy.
Debt has a similar effect on companies as it does individuals. Companies can spend so much money just trying to service their debt loads that they are on the brink of bankruptcy. See Blockbuster, Rite Aid, and Yellow Roadway Worldwide for further proof. These companies are barely able to stay afloat. Debt free companies are in the exact opposite situation. They can apply all of their cash to acquisitions, expansion, and other activities that fuel growth.
Here are 2 great companies that have been able to grow earnings at a double digit clip over the past five years and have no debt.
1. Buffalo Wild Wings (NASDAQ:BWLD)
This wing chain restaurant is one of my favorite small cap companies. The company has nearly $70 million in cash and no debt. Buffalo Wild Wings’ business is easy to understand and its results are easy to compare with competitors. The stock has a phenomenal 30% growth rate over the past five years. The only concern is that margins have been squeezed recently. But what company other than Apple hasn’t seen its margins contract? This stock is a buy at its current price of $40 per share and a strong buy in the $30’s.
2. Lancaster Colony Corp (NASDAQ:LANC)
This is a company that you have probably never heard of. Lancaster Colony has been able to generate profits in anonymity manufacturing specialty products, glassware, and candle. Lancaster has seen its earning grow 13.7% over the past five years. The company has nearly $100 million dollars in cash and no debt. The company has been able to generate an EPS of $4 per share. At $50 a share, the stock is cheaper than competitors on a PEG and P/E ratio. I would feel comfortable buying shares at this price.
The good thing about investing in debt free companies with solid growth rates is that you do not have to worry about a bankruptcy. The biggest fear is that a larger competitor may acquire them before they can reach maturity.
Disclosure: I own shares of Buffalo Wild Wings.