By Dee Gill
For investors who want in on the growth game but prefer less melodrama in their portfolios, YCharts suggests creating another genre: sane growth. In our estimation, a sane growth portfolio would be packed with companies that manage decent sales gains but maintain a few safety valves typically missing in popular growth stocks: like reasonable share price valuations and earnings commensurate with revenues. In fact, right now looks like an especially good time to invest in sanity over popularity.
Go to YCharts for Part One of growth stocks, which explains the list in more detail.
With the mission of reducing risk, YCharts looked around for growing companies with sane data. We set the YCharts Stock Screener to find companies that reported sales growth of at least 10% over the past 12 months and at least that rate of retained earnings growth. We insisted on an historic price to sales ratio of less than 1.5. To weed out companies with weak balance sheets, we looked only at companies that received at 7 or higher from YCharts Pro for fundamentals. As an added safety, we considered only companies with market caps of at least $2.5 billion.
UNITED NATURAL FOODS (NASDAQ:UNFI)
Nutty granola grocer Whole Foods Market (NASDAQ:WFM) has been one of the best performing stocks for several years running now, but its share price valuations put it out of our defined realm of sanity for conservative investors. United Natural Foods, one of its key suppliers, offers a way into that growth at a lower price. Like Whole Foods, UNFI has already made a lot of shareholders very happy, as seen in this stock chart.
(click images to enlarge)
The company supplies organic and specialty foods and products (vitamins and soaps, for example) to grocers that include Whole Foods, Safeway (NYSE:SWY) and a number of independent businesses. Revenues are up some 83% in the past five years, and earnings are not far behind. Analysts forecast 15% revenue growth this year.
UNFI's relatively small size -- annual revenues of about $5 billion -- makes investors optimistic about its growth prospects. Whole Foods accounts for about one-third of UNFI's revenues, and Whole Foods continues to grow. Analysts forecast 15% revenue growth at UNFI this year, and only a slightly lower rate the following year. Earnings are expected to rise slightly faster.
While UNFI shares look quite cheap on a price-sales comparison (about 0.5), its PE ratio is a startling 35. Still, that's a considerable discount to the grocers in this business.
Dee Gill is an editor for the YCharts Pro Investor Service which includes professional stock charts, stock ratings and portfolio strategies.