So what are some good Magic Formula® companies to consider investing in right now?
The way we're going to answer this question is to do some quick research and apply these 5 tips for filtering out the best Magic stocks from the rest.
To save some you time, and to "feed a man (or woman) a fish", here are 5 names that more or less meet all of those criteria for a "good" Magic Formula stock.United Therapeutics (UTHR)
United Therapeutics is a specialty pharmaceutical company that focuses on a single niche: pulmonary arterial hypertension, or PAH, treatments. The firm dominates this space with 3 drugs - Remodulin, Tyvaso, and Adcirca. Better dosage, administration, and stability characteristics have earned UTHR a leading position in the field. The company has delivered robust revenue growth, almost 30% annually since 2008, while rapidly expanding margins through that period as well. UTHR is also in great financial shape, sporting a current ratio near 2 and a debt/equity ratio at a minuscule 0.06. The stock has been a winner over the past several years, and a recent pullback could represent an attractive entry point for prospective new buyers.Francesca's (FRAN)
Catching a retail concept early in its growth stage is a good way to win in the market, and Francesca's is just that, and selling at a bargain valuation to boot (11% earnings yield). FRAN has the growth we are looking for, with a 3 year compound annual revenue growth rate (OTCPK:CAGR) of 35%. It is very financially healthy, with a current ratio over 4 and a quick ratio over 2 (remarkable for a retailer). Operating margins, at over 24%, are some of the best you'll ever see for a retailer. With the company only halfway to its store target, and opening 60 or more new locations a year, significant growth potential remains.USANA Health Sciences (USNA)
USANA is a multi-level marketing (NYSE:MLM) company that sells vitamins, supplements, shakes, snack bars, skin and health care products. USANA has delivered significant, steady growth, with a 3-year revenue CAGR of about 11%. Operating margins have expanded over that same time period, from under 12% in 2009 to over 16% today. Financial health is a non-issue, as the company carries zero debt and sports liquidity ratios well over the minimum targets. Like the rest of the MLM space, USANA was brought down by Nu Skin's (NYSE:NUS) recent troubles in China. While China is a significant contributor to USANA (38% of sales), the company hasn't been relying solely on that geography for growth. The subsequent pullback in the stock price could present a buying opportunity.American Public Education (APEI)
American Public Education offers online-only courses to military and public service (police, fire, etc.) members. Avoiding the now 3 year slump for paid education companies, APEI has managed to grow revenues at a 3 year CAGR of over 25%, while maintaining operating margins above 22% - impressive. As with all of these names, financial health is not a problem, as APEI carries no debt and sports very safe current and quick ratios over 2.7. The earnings yield of 11.6% represents true value for this kind of quality. This is one to look into for any value investor.Questcor Pharmaceuticals (QCOR)
If there was a Magic Formula "Hall of Fame", Questcor would be an inductee. At its first appearance in the screen, in May of 2008, the stock traded at about $4.70. Today it is over $65. Questcor has grown revenues at a mind boggling 3-year CAGR of 79%, and actually managed to expand margins from an already high 47% in 2009 to 56% today. At the same time, Questcor has managed a conservative balance sheet with virtually no debt and current/quick ratios well over 2.0. Investors have been doubting that the company's single, un-patented, overpriced drug - Acthar - can continue to grow so profitably without competition eating it up. But with most recent quarter revenue growth at a robust 68%, the company is showing few signs of slowing. An earnings yield of over 10% makes this still a bargain vs. the market.