The principle of growth investing is to invest in companies expected to generate above average growth. My preferred way of screening for strong growth firms consists of searching for firms that are historically profitable and are expected to grow at a rate faster than the industry. Additionally, I require that my growth firms have minimal debt and sport increasing profit margins.
I measure profitability and operational efficiency by using return on invested capital and net margins. I like firms which generate at least an ROIC of 15% and net margin of 20%. Additionally, I prefer companies with a debt to equity ratio of less than 0.33. Finally, as a growth company I require that the projected long term growth rate be a minimum of 15%.
In this article, I will list 10 companies (in alphabetical order) that appeared on my list when I recently ran this screen.
1) Aixtron (AIXG)
AIXG is a German based technology company offering solutions used to build advanced components for electronic and opto-electronic applications based on compound, silicon, or organic semiconductor materials. The company has a market capitalization of $4.35 billion and is expected to grow its earnings at an annual rate of 60% compared to the 20% growth rate of the Semiconductor industry. The company currently has no debt and has a profit margin of 25%.
2) Apple (AAPL)
Apple has been a solid performer over the years and generated a TTM ROIC of about 26%. The company has increased its profit margins from 10% five years to its current margin of 22%. Apple has no debt and is expected to grow its earnings at an annual rate of 16% compared to the projected 21% growth rate of the industry.
3) Baidu (BIDU)
The Google (GOOG) of China has delivered a return of 2,300% during the last 5 years by increasing its earnings at an annual rate of 143%. Going forward, analysts expect the company to grow at an annual rate of 64%. BIDU has a market cap of $40 billion and trades at a P/E of 90 compared to historical average P/E of 83.
4) China Valves Technology (CVVT)
CVVT manufactures and sells over 800 models of low, medium and high-pressure valves to customers in the electricity, petroleum, chemical, water, gas, nuclear power station and metal industries throughout China. This small cap company currently trades near its 52 week low and is projected to grow its net income at an annual rate of 35%. The company has a respectable profit margin of 24% and has posted a trailing twelve month ROIC of 23%.
5) CTC Media (CTCM)
CTCM is an operator of television networks in Russia, Uzbekistan and Kazakhstan. In addition to broadcasting entertainment programming, the company also engages in the production of TV shows. The company is expected to increase its EPS at an annual rate of 60% compared to the 19% growth rate of the Broadcasting and Cable TV industry. The company is debt free and has maintained a net profit margin of 24% during the past 5 years. The company currently has a yield of greater than 5%.
6) First Solar (FSLR)
FSLR is perhaps the most famous company in the solar space with annual revenues in excess of $2.5 billion. The company designs, manufactures and sells solar modules and photovoltaic solar power systems. The company grew its earnings at an annual rate of 144%. Analysts expect the company to grow at an annual rate of 23% compared to the 21% growth of the industry. The company has a low debt to equity ratio of 7% and has generated TTM ROIC of 17%.
7) Google (GOOG)
Google has been in the news lately with US FTC considering an antitrust investigation of Google’s monopoly of the web search industry. Analysts expect the company to keep increasing its EPS at an annual rate of 18% slower than the industry forecasted rate of 21%. Over the last 5 years, the company has increased its profit margins from 24% to 29% and continues to generate solid returns of equity, assets and invested capital.
8) Infosys (INFY)
Infosys is a $42 billion Indian IT services company. INFY has no debt and has $3.5 billion in cash and equivalents. The company hopes to acquire companies in the US which will help the company meet/exceed the projected 3-5 growth rate of 18%. The current ROIC for INFY is 24%.
9) MercadoLibre (MELI)
MercadoLibre is a Latin American host of online commerce and payment platforms. The company is one of the most promising technology companies in Latin America having grown its earnings by 114% during the past 5 years. Going forward, analysts expect this company to increase its EPS at an annual rate of 31%. The company has increased its profit margins from 8% to 26%.
10) Myriad Genetics (MYGN)
MYGN is a biotechnological company concentrating on developing and marketing novel predictive medicine, personalized medicine and prognostic medicine products. The company is expected to grow its earnings at an annual rate of 18%. Like most of its peers, MYGN has no debt and a profit margin 35%.
As always, please do not consider this list as a "buy" list, rather use this list as a starting point for your research. Of the companies listed above, I find AIXG, CTCM, MELI particularly attractive based on fundamentals and growth prospects.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.