One way for a company to grow over time is through smart investments, acquisitions, or heavy investment in R & D. Having cash on hand allows that to happen. Today we focus on services stocks with strong cash reserves, backed by track records of profitability. We think you'll find the list our screen produced rather interesting.
The Current ratio is a liquidity ratio used to determine a company's financial health. The metric illustrates how easily a firm can pay back its short obligations all at once through current assets. A company that has a current ratio of one or less is generally a liquidity red flag. Now this doesn't mean the company will go bankrupt tomorrow, but it also doesn't bode well for the company, and may indicate that it could have an issue paying back upcoming obligations.
The Quick ratio measures a company's ability to use its cash or assets to extinguish its current liabilities immediately. Quick assets include assets that presumably can be converted to cash at close to their book values. A company with a Quick Ratio of less than 1 cannot currently pay back its current liabilities. The quick ratio is more conservative than the Current Ratio because it excludes inventory from current assets, since some companies have difficulty turning their inventory into cash. If short-term obligations need to be paid off immediately, sometimes the current ratio would overestimate a company's short-term financial strength. In general, the higher the ratio, the greater the company's liquidity (i.e., the better able to meet current obligations using liquid assets).
Return on Assets [ROA] illustrates how much a company is generating in earnings from its assets alone. This metric gives investors a picture of how profitable the company is relative to the assets in current possession. As well, it lets investors see how efficient and effective management is at generating earnings from the company's assets. While most management teams can probably make money by throwing money at an issue very few can make very large profits with little investment.
The Operating Profit Margin is a profitability ratio that measures the effectiveness of the company's operating efficiency. This metric allows investors to see how much profit is left after all variable costs are covered. If the company's margin is increasing over time this means that it's earning more per dollar of sales. Finding trends in the Operating Profit Margin helps investors identify companies that are improving profitability over time and managing the economic landscape better than competitors.
We first looked for services stocks. Next, we then screened for businesses with a large amount of cash on hand (Current Ratio>2)(Quick Ratio>2). We then screened for businesses with strong profitability (ROA > 10%)(1-year operating margin>15%). We did not screen out any market caps.
Do you think these stocks have a positive future in store? Use our screened list as a starting point for your own analysis.
1) Ituran Location & Control Ltd. (ITRN)
Ituran Location & Control Ltd. has a Current Ratio of 2.66, a Quick Ratio of 2.32, a Return on Assets of 15.62%, and a Operating Profit Margin of 21.53%. The short interest was 0.04% as of 06/11/2012. Ituran Location and Control Ltd. provides location-based services and wireless communications products in Israel, Brazil, Argentina, and the United States. It offers stolen vehicle recovery services, including locating, tracking, and recovering stolen vehicles; and fleet management services, which enable corporate customers to track and manage vehicles in real time. The company also provides various value-added services comprising personal advanced locator services that enable consumers to protect valuable merchandise and equipment, as well as to track individuals; concierge services; and 24-hour on-demand navigation guidance, information, and assistance that include traffic reports and help with directions, as well as information on the location of gas stations, car repair shops, post offices, and hospitals.
2) Buckle Inc. (BKE)
Buckle Inc. has a Current Ratio of 3.69, a Quick Ratio of 2.62, a Return on Assets of 29.26%, and a Operating Profit Margin of 22.36%. The short interest was 29.27% as of 06/11/2012. The Buckle, Inc. operates as a retailer of casual apparel, footwear, and accessories for young men and women in the continental United States. The company markets a selection of brand name casual apparel, including denims, other casual bottoms, tops, sportswear, outerwear, accessories, and footwear. It operates stores under the Buckle and The Buckle names primarily in regional shopping malls and lifestyle centers.
3) Myriad Genetics Inc. (MYGN)
Myriad Genetics Inc. has a Current Ratio of 11.30, a Quick Ratio of 11.02, a Return on Assets of 17.36%, and a Operating Profit Margin of 37.16%. The short interest was 4.92% as of 06/11/2012. Myriad Genetics, Inc., a molecular diagnostic company, focuses on the development and marketing of novel predictive medicine, personalized medicine, and prognostic medicine tests primarily in the United States. The company markets BRACAnalys medicine test for the treatment of hereditary breast and ovarian cancer; COLARIS molecular test for hereditary colorectal and uterine cancer; COLARIS AP medicine test for the treatment of hereditary colorectal cancer; and MELARIS medicine test to treat hereditary melanoma. It also offers OnDose, a personalized medicine test for colon cancer; PANEXIA, a predictive medicine test for pancreatic cancer; PREZEON, a personalized and prognostic medicine test for cancer; Prolaris, a prognostic medicine test for prostate cancer; and TheraGuide 5-FU, a personalized medicine test for drug toxicity.
4) EZCORP, Inc. (EZPW)
|Industry:||Specialty Retail, Other|
EZCORP, Inc. has a Current Ratio of 3.61, a Quick Ratio of 2.78, a Return on Assets of 16.44%, and a Operating Profit Margin of 21.24%. The short interest was 4.60% as of 06/11/2012. EZCORP, Inc. provides specialty consumer financial services. The company offers pawn loans that are non-recourse loans collateralized by tangible personal property, including jewelry, consumer electronics, tools, sporting goods, and musical instruments, as well as sells merchandise consisting of second-hand collateral forfeited from its pawn lending activities or purchased from customers, and new or refurbished merchandise from third party vendors. It also provides a range of financial services, such as signature loans consisting of payday loans, installment loans, and lines of credit; and auto title loans, which include single payment auto title loans, and auto title lines of credit.
5) Mitcham Industries Inc. (MIND)
|Industry:||Rental & Leasing Services|
Mitcham Industries Inc. has a Current Ratio of 4.55, a Quick Ratio of 4.08, a Return on Assets of 14.49%, and a Operating Profit Margin of 30.78%. The short interest was 5.90% as of 06/11/2012. Mitcham Industries, Inc., through its subsidiaries, engages in the leasing, sale, and service of geophysical and other equipment to the seismic industry worldwide. The company operates in two segments, Equipment Leasing and Seamap. The Equipment Leasing segment leases seismic equipment for short-term leasing primarily to seismic data acquisition contractors and oil field service providers.
*Company profiles were sourced from Finviz. Financial data was sourced from Finviz and Yahoo Finance.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.