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Growth in reported net income is comprised of growth in actual cash flows and growth in accruals, the latter representing estimates made by management. Because accruals are estimates, a smaller percent of accruals is often correlated with higher earnings quality, or a higher persistence of earnings. Therefore a measure of earnings quality is a comparison between operating cash flows and net income.

To that end, we wanted to screen high-growth stocks with a projected Earnings Per Share (EPS) growth over the next five years above 25%. Among this universe, we searched for those that have seen higher growth in quarterly operating cash flow than growth in quarterly net income year-over-year, thus exhibiting profitability with high earnings quality.

We also created an equal weighted index of the stocks mentioned below, and monitored the performance of the list relative to the S&P 500 index over the last month. To access a complete analysis of this list's recent performance, click here.


(Click to enlarge)

Do you think these companies have potential? Use this list as a starting-off point for your own analysis. The list is sorted by difference between growth in quarterly net income and growth in quarterly operating cash flow.

1. Home Inns & Hotels Management Inc. (HMIN): Lodging Industry. Market cap of $1.66B. Projected EPS over next five years at 28.63%. Net Income grew by -51.67% ($33.1M vs. $68.4M y/y), while Operating Cash Flow grew by 27.98% ($80.4M vs. $62.8M y/y) (comparing 3 months ending 2010-12-31 vs. 3 months ending 2009-12-31). The stock is a short squeeze candidate, with a short float at 7.01% (equivalent to 5.36 days of average volume). It's been a rough couple of days for the stock, losing 6.43% over the last week.

2. Cameco Corp. (CCJ): Industrial Metals & Minerals Industry. Market cap of $11.21B. Projected EPS over next five years at 33.17%. Net Income grew by -65.49% ($206.5M vs. $598.5M y/y), while Operating Cash Flow grew by 9.09% ($273.9M vs. $251.1M y/y) (comparing 3 months ending 2010-12-31 vs. 3 months ending 2009-12-31). The stock has gained 22.26% over the last year.

3. Green Mountain Coffee Roasters Inc. (GMCR): Processed & Packaged Goods Industry. Market cap of $10.78B. Projected EPS over next five years at 34.00%. Net Income grew by 171.81% ($65.4M vs. $24.1M y/y), while Operating Cash Flow grew by 233.15% ($83.3M vs. $25.0M y/y) (comparing 13 weeks ending 2011-03-26 vs. 13 weeks ending 2010-03-27). The stock is a short squeeze candidate, with a short float at 20.99% (equivalent to 5.38 days of average volume). The stock has had a couple of great days, gaining 13.32% over the last week.

4. CTC Media, Inc (CTCM): Broadcasting Industry. Market cap of $3.17B. Projected EPS over next five years at 67.60%. Net Income grew by -9.56% ($22.8M vs. $25.2M y/y), while Operating Cash Flow grew by 22.76% ($96.0M vs. $78.2M y/y) (comparing 3 months ending 2011-03-31 vs. 3 months ending 2010-03-31). This is a risky stock that is significantly more volatile than the overall market (beta = 2.29).

5. United Therapeutics Corp. (UTHR): Drug Manufacturer. Market cap of $3.83B. Projected EPS over next five years at 51.64%. Net Income grew by -13.42% ($16.4M vs. $18.9M y/y), while Operating Cash Flow grew by 17.51% ($26.4M vs. $22.5M y/y) (comparing 3 months ending 2011-03-31 vs. 3 months ending 2010-03-31). The stock is a short squeeze candidate, with a short float at 9.93% (equivalent to 8.93 days of average volume). The stock has gained 29.21% over the last year.

6. EOG Resources, Inc. (EOG): Independent Oil & Gas Industry. Market cap of $28.81B. Projected EPS over next five years at 29.68%. Net Income grew by 13.51% ($134.0M vs. $118.0M y/y), while Operating Cash Flow grew by 30.78% ($748.9M vs. $572.7M y/y) (comparing 3 months ending 2011-03-31 vs. 3 months ending 2010-03-31). The stock has gained 7.19% over the last year.

*Net income and operating cash flow data sourced from Google Finance, projected EPS and all other data sourced from Finviz.

Source: 6 High-Growth Stocks With Improving Operating Cash Flow