The idea of this stock scan is quite simple. We want to find stocks that are considered "strong buys" according to analysts covering them, proven EPS growth over the past five years and strong anticipated growth over the next five years. While you might imagine these three simple points would turn up hundreds of stocks, only seven made the list on the major exchanges.
Screening Criteria for Growth Stocks
- EPS growth past 5 years > 25%
- EPS growth next 5 years > 25%
- Analyst recommendation = Strong Buy
The "Strong Buy" Growth Stock List
- (ZOLL) – ZOLL Medical Corp.
- (SUMR) – Summer Infant, Inc.
- (CAST) – ChinaCast Education Corp.
- (VIT) – VanceInfo Technologies Inc.
- (FLL) – Full House Resorts Inc.
- (PC) – Panasonic Corporation
- (OYOG) – OYO Geospace Corp.
The question is, do analysts have it right and if these seven growth stocks have strong upside potential? (You might also be interested in eight Highly Unusual Growth Stocks.)
Some Useful Ratios and Figures
- A high short ratio indicates that many investors feel the stock has downside potential. ZOLL is short 7.96%, while SUMR is short 5.28%. I consider anything below this point to be fairly negligible. One reason for the high short ratio on ZOLL could be that in five months the price rose from $26 to $45. The stock is currently toying with a new high trading just below $45.30 resistance. SUMR short interest is not high enough to warrant much worry yet.
- PEG is a useful indicator of putting the price to earnings ratio into relevance with anticipated growth. One is viewed as neutral with figures below that being viewed as having greater upside potential in relation to current share price. VIT (1.96), PC (1.62), ZOLL (1.23), OYOG (0.82), SUMR (0.64), CAST (0.59), and FLL (0.39).
- Stocks trading low based on share price to revenue are SUMR (0.65) and PC (0.26).
- FLL is trading just over four times its free cash flow.
- Stocks with the highest five year EPS growth rates? PC (54.9%), ZOLL (27.67%), OYOG (37%), FLL (30%), CAST (30%), VIT (27.59%), and SUMR (25.5%).
- All stocks have a long-term debt to equity ratio and liability to equity ratio of less than one, which is good. The highest are PC with a LT Debt/Equity of 0.32 and SUMR with a ratio of 0.63.
- PC pays a dividend of 0.88% which isn’t much.
- FLL has insider ownership of 37.8%, while SUMR has a ratio of 23.45%. High insider ownership often creates investor confidence as the management has a vested interest in shareholder value.
- Keep in mind that VIT is from China and CAST from Hong Kong. Some investors are wary of oversea stocks, and this negative sentiment could create an increase in volatility.
- The smallest to biggest on the list are FLL with a cap of 77 million, SUMR 118 million, CAST 343 million, OYOG 631 million, ZOLL 946 million, VIT 1.58 billion, and PC 27 billion.
- PC is getting close to $12.50 support which could be a good buy opportunity.
- ZOLL is making a run at new highs past $45.30.
- OYOG recently broke out past $100, and if this becomes a new support this could make a good entry base.
- FLL has retreated sharply from $5.00 highs and is trading slightly above $3.75 support.
- CAST is trading directly at $7.00 support. A downside move to $6.50 would hit an upwards sloping trendline, or it may bounce off current resistance.
- VIT is in a consolidation pattern.
- SUMR has been trading up over the past couple of months off $6.50 support as it nears the $8.00 top of a trading channel.
You might also want to consider cycles where growth or value outpeforms. To find out which we are in right now, read here. Is there something important fundamentally we should know about these stocks? Are you an investor wanting to share your own view? Please give a comment while the rest of us do our due diligence beyond the initial stock scan.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.