When quarterly financials are announced, many investors immediately drop to the bottom line to read the earnings per share. An increase in net profits is great, but only if it is generated on the back of increasing revenue will it be sustainable.
Furthermore, while past performance is no guarantee for the future, it does help provide a history of success or failure which investors can analyze. Finally, having analyst approval doesn’t hurt either.
We want to find mid to large cap stocks that have the following:
- 5 years EPS and revenue growth over 25%
- Average analyst recommendation ‘buy’ or better
- Expected EPS growth next 5 years over 25%
Baidu, Inc (BIDU), a Chinese search engine, comes in with a fairly high PE in the low 80s as would be expected with a high growth stock. Despite a current market cap of almost 45 billion, the company continues to aggressively plow forward with a trailing 5 year growth around 100% and forward 5 year expectation over 57%. While the PE is likely to lower over time, this analyst ‘buy’ pick is building steam on growing revenue and an upwards 5 year return on equity trend that is now over 58%. Even though this stock seems to have all the right metrics of a powerful giant, timing the buying and selling will be key.
Salesforce.com (CRM) is another fast growing giant in the market with an incredibly high trailing PE of 259. Despite this, analysts give the stock a ‘buy’ rating. Perhaps they see a greater potential in cloud computing than I give the current company valuation for. While CRM has performed decently by growing its EPS 48% per year over the past 5 years, analysts don’t expect much for the next 5 with only 27.12% per annum anticipated. With a low profit margin of only 4.76% and very high valuations compared to sales, earnings, or book value, one can understand why the short ratio is hovering around 10%. While share prices seem to defy gravity, one can’t help but wonder how far extended valuations can get before fundamentals need to play catch-up.
Green Mountain Coffee Roasters Inc. (GMCR) is the third company to make the cut. It too has a high PE which is equal to BIDU, around 84, but the forward PE is much more reasonable around 25. EPS growth over the past 5 years has exceeded 46%, and the next 5 years are expected to bring in an annualized 33.5% earnings growth. This is quite impressive for a 6.24 billion ‘cup of joe’. The short ratio is very high at 26.2% which can be an ominous warning, or rocket fuel waiting to be lit. The 10 year trend on revenue has been one of accelerating growth, although the same cannot be said for earnings growth. Their debt to equity has crept up of late while their return on equity has dropped off, but analysts continue to give rate this ‘buy’. This boiling hot stock is one to keep your eye on as it breaks new highs.
Other Big Growing Stocks
Some other stocks that meet with analyst approval, high revenue and earnings growth, and being 2 billion market cap or more are the following:
You may also be interested in the article Growth Stocks That Analysts Love. It goes without saying that due diligence on these stocks with high valuations are a necessity as they will need to continue to shock and awe investors with their revenue and growth to prove they are worth the current lofty valuations.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.