Interested in gaining exposure to services companies? Interested in companies with high liquidity? Do you look for companies with low debt? Are you after companies that have manageable long term debt? For ideas on how to evaluate this, we ran a screen.
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).
The Debt/Equity Ratio illustrates how aggressively a company is financing its growth via debt. The more debt financing that is used in a capital structure, the more volatile earnings can become due to the additional interest expense. Should a company's potentially enhanced earnings fail to exceed the cost associated with debt financing over time, this can lead the company toward substantial trouble.
The Long Term Debt/Equity Ratio is a variation of the traditional debt-to-equity ratio; this value computes the proportion of a company's long-term debt compared to its available capital. By using this ratio, investors can identify the amount of leverage utilized by a specific company and compare it to others to help analyze the company's risk exposure. Generally, companies that finance a greater portion of their capital via debt are considered riskier than those with lower leverage ratios.
We first looked for services stocks. From here, we then looked for companies that have strong liquidity (Current Ratio>2)(Quick Ratio>2). We then looked for companies that have maintained a sound capital structure (D/E Ratio<.3). We next screened for businesses that operate with little to no long term debt (Long Term D/E Ratio<.3). We did not screen out any market caps.
Do you think these stocks should be trading higher? Use our list to help with your own analysis.
1) Arden Group Inc. (NASDAQ:ARDNA)
Arden Group Inc. has a Current Ratio of 2.93 and Quick Ratio of 2.32 and Debt/Equity Ratio of 0.01 and Long Term Debt/Equity Ratio of 0.01. The short interest was 2.95% as of 05/16/2012. Arden Group, Inc., through its subsidiaries, operates supermarkets in southern California. Its stores offer grocery products, such as dry groceries, produce, meat, seafood, bakery, dairy, wine and liquor, floral, sushi, vitamins, and health and beauty aids; and perishable goods. The company also provides specialty items, including imported foods, unusual delicatessen items, and organic and natural food products.
2) American Science & Engineering Inc. (NASDAQ:ASEI)
|Industry:||Security & Protection Services|
American Science & Engineering Inc. has a Current Ratio of 4.92 and Quick Ratio of 4.18 and Debt/Equity Ratio of 0.02 and Long Term Debt/Equity Ratio of 0.02. The short interest was 4.22% as of 05/16/2012. American Science and Engineering, Inc., together with its subsidiaries, develops, manufactures, markets, and sells X-ray inspection and other detection products for detection and security screening solutions in the United States and internationally. It offers cargo inspection systems comprising non-intrusive inspection products, which are primarily used for the screening of trucks, cars, cargo containers, pallets, and air cargo at border crossings, seaports, military bases, airports, and cargo and transportation hubs. The cargo inspection systems include OmniView gantry system, a cargo and vehicle inspection system; Z Portal system, a drive-through inspection system for scanning cargo and vehicles; Z Gantry system, a Z Backscatter inspection system for scanning cars, vans, trucks, and their cargo; Sentry Portal system, a drive through transmission X-ray inspection system; and MobileSearch High-Energy, a mobile inspection system for scanning trucks, cargo containers, and vehicles.
3) American Eagle Outfitters, Inc. (NYSE:AEO)
American Eagle Outfitters, Inc. has a Current Ratio of 3.18 and Quick Ratio of 2.24 and Debt/Equity Ratio of 0.00 and Long Term Debt/Equity Ratio of 0.00. The short interest was 6.34% as of 05/16/2012. American Eagle Outfitters, Inc., together with its subsidiaries, operates as an apparel and accessories retailer in the United States and Canada. It operates a network of retail stores that offer denims, sweaters, graphic T-shirts, fleece, outerwear, and accessories for 15 to 25-year old men and women under the American Eagle Outfitters brand name; a collection of Dormwear, intimates, and personal care products for girls under the aerie brand name; and clothing and accessories for kids aged between 2 to 14 under the 77kids brand name. As of January 28, 2012, the company operated 911 American Eagle Outfitters stores, 158 aerie stand-alone stores, and 21 77kids stores; and 21 franchised stores through its franchise partners in 10 countries.
4) Caribou Coffee Company, Inc. (NASDAQ:CBOU)
Caribou Coffee Company, Inc. has a Current Ratio of 3.00 and Quick Ratio of 2.06 and Debt/Equity Ratio of 0.00 and Long Term Debt/Equity Ratio of 0.00. The short interest was 13.06% as of 05/16/2012. Caribou Coffee Company, Inc. owns and operates coffeehouses. The company operates in three segments: Retail, Commercial, and Franchise. The Retail segment offers premium coffee and espresso-based beverages, food, specialty teas, whole bean coffee, branded merchandise, and related products.
*Company profiles were sourced from Finviz. Financial data was sourced from Finviz and Google Finance.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.