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StockCentral :: Community
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Join in on the discussion with other like-minded investors in our community forums. Learn about the fundamental investing methodology and participate in educational workshops in the Investing forums, stay up-to-date on StockCentral news and make suggestions to the StockCentral team in Central Square, and discuss your favorite stock or recent market news in our A-Z ticker-based forums.
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William Thomas
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| 11/16/2006 1:36 PM |
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| I want to begin a discussion on what I have stated as the subject above, or put another way,
Studying Supergrowth Stocks. There are some companies of a class by themselves that I have discovered that fit in this category. Example:
Quality Systems, Inc. (QSII). This is small-cap
company that provides IT & other services to the Healthcare sector. In the last few years a few quality stocks, growing at phenonomal rates (20% annualy, or more) similar to this one, are demonstrating that they can sustain this growth rate and even forecast this rate of growth in their guidance for the future. Some analyst have
estimated next 5 yr. rates up to 38-40%. Atempting to analyze and determine the future fair value of these unusual stocks using NAIC SSG methodology doesn't seem to work very well. Realistic comparisons and projections for that kind of growth over a short history and with nominal PEs about the same as their price and growth rates, defies making comfortable jugments
regarding adding them to your porfolio. What would be you risk/reward ratio for QSII at 40.00? |
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armin fields
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| 12/02/2006 10:30 PM |
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William Thomas asked: << What would be you risk/reward ratio for QSII at 40.00? >>
Before I share my findings, I’d like to know what judgments you decided to use for your SSG as well as what data you used?
Here, I want to just note that there are substantial differences between the StockCentral/Hemscott and the SDS&P/OPS data files, particularly in terms of the Historical Hi & Lo PEs. For example, TK5’s Alt-M, which eliminates the 5 highest PEs and averages the rest, is 4.0 points lower for Hemscott’s Hi PE (23.7 vs 27.7). On the other hand, Hemscott is 5.4 points higher in terms of its Median Hi PE (38.1 vs 32.7). Still another even larger difference is the 10 year ave Hi PE where Hemscott is a whopping 17.9 points higher (65.4 vs 47.5).
Armin Fields
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Armin Fields
check out my SSG blog at
http://arminfields.wordpress.com |
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William Thomas
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| 12/03/2006 5:42 PM |
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| Armin,
The source of data for the QSII stock study I used was SDS&P/OPS. As for judgements, that is the purpose of posting the original message. As you site in your reply, using the tools offered by NAIC with TK2 and SA3 will disqualify this
company at it's present price. With SQII's
PE continuing to expand, and projected PEG ratio
about 1 to 1, a solid revenue stream and no debt;
What is a realistic valuation and risk reward ratio for this and other continuing high growth companies?
Bill T. |
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Joe Craig
Ellicott City, MD
StockCentral Administrator
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| 12/03/2006 8:17 PM |
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Bill,
I appreciate your starting this thread. QSII and (I think) CTSH are two companies that seem to break the mold of what we're taught to look for. Actually, maybe they are what we are taught to look for, only better!
I wonder if we can get some guidance by looking at other companies that may be further along in their corporate life spans, but would have looked like these companies if we look back 5 or 10 years. Do you have any examples? |
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Joe |
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William Thomas
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| 12/05/2006 7:25 PM |
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There are not many comparable companies like SQII and CTSH. Corporate Executive Board EXBD, Portfolio Recovery Assoc. PRAA, Infosystems Technologies LTD INFY are similar. As far as companies that might have parallel past fundamentals that would fit these company profiles; Starbucks SBUX, I think would look about the same between 1997 through 2002. It's EPS growth was 25% + with an ave. PE in 2002 of 40.0 (Ave PE 1997 thru 2002 was 43.0) with little LTD. Then there is Apollo Group APOL that had EPS growth of 30%+ during the same 1997-2002 period, with ave. 2002 PE of 37.5 (ave. PE 1997-2002 was 40.22) and no debt. Investors Financial Services IFIN had 1996-2001 EPS growth of 38.7% with ave. PE 2001 of 49.5 (expanded from 20.5 in 1996), but debt/equity of 2.73 in 2001 would have scared me away. And finally, Career Education Corp. CECO grew 35.5% from 1996 to 2001 with ave 2001 PE of 31.9 and small debt/equity. Most of these are still in favorable positions in my industry leaders list.
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Rajiv Roy
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| 12/05/2006 10:41 PM |
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I must confess that I lean towards these types of stocks for my personal portfolio.
EBAY between 01 and 05 (inclusive) was similar roughly 70% EPS growth (0.03c in '01 to 0.52c in '05). PE was approx 300.
Rajiv
www.stockfundas.com
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Rajiv
www.stockfundas.com
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Joe Craig
Ellicott City, MD
StockCentral Administrator
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| 12/05/2006 11:03 PM |
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Rajiv,
I thought that one of Bill's main points was identifying companies with high growth rates but with relatively low PEG ratios. The companies he mentioned fall into that category.
EBAY, by way of contrast, had a PEG of 4+.
Just a thought ...
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Joe |
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William Thomas
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| 12/07/2006 3:59 PM |
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Joe,
I discovered another stock I think fits this group that might be compared with Bershire Hathaway as it is rather pricy. It is Chicago Mercantile Exchange CME. This specialized Investment firm went public in Dec. 2002, and has 38%+ growth over the last five years after a shaky start. It was put into the S&P 550 Index last August and is forecast to continue it's spectacular growth by a host of analyst. The StockCentral data had only the past three years data so I went to MSN Money to get the financial history for a SSG (see attachment). Notice the unusually high rate of expansion of the PE. Just how high can it go???? MSN has forward P/E at 46.8.
Bill T.
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 Attachment: Chicago Mercantile Exch.pdf
Attachment: Chicago Mercantile Exch.1.pdf
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Rajiv Roy
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William Thomas
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| 12/09/2006 5:47 PM |
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Rajiv,
The object of this discussion centers around whether it is reasonable to use "perferred procedure" for judgement with stocks that exibit extraordinary growth such as the ones I have listed. Do you believe that CME will only have an average high PE of 25+ over the next five years? Or is it more likely to be at least equal to the current PE.
Bill T.
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Rajiv Roy
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| 12/10/2006 11:41 AM |
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Hi Bill,
Two seperate questions you have raised:
a) Use of preferred procedure
b) Whether CME will have an average high PE >25 over the next few years.
a) The Use of preferred procedure for the specific case of CME, is warranted primarily because of the pending merger with CBOT.
- Looked up the Investor presentation on www.cme.com at http://investor.cme.com/downloads/22454cme.ppt
- One red flag is that after the merger the Operating Income % goes from 57 to 52 and the Net Income % goes from 35 to 32. Just that alone puts a lot more more pressure on PE multiple to be correspondingly higher.
- The good news is on the last page $125m in synergy savings. If you now apply the whole $125m to the NI line. (An aggressive treatment, but stay with me), the NI goes from 32% to 39%, which is better than now. So that allows for some PE expansion from the current 25+.
So to answer your question. Yes I would use the Preferred Procedure.
b) This is the harder one. My gut feel says that PE may be slightly higher. Say even 35 as opposed to 30, not sure about 50. However, the EPS because of the claim to be accretive, may be quite understated. I do not have a feel for the post-transaction EPS projections. But the combined High price projection of $1284 , may not be out of line.
My 2 bits.
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Rajiv
www.stockfundas.com
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William Thomas
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| 12/10/2006 5:30 PM |
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Rajiv,
I see the pending merger nothing but a plus, plus; even if there is a slight pause in growth until 2008, the return to 40%+ growth by 2010 is greater with the combined companies. If you agree that the possibility of $1284 high price in 2010, then use 25.8 as the ave high PE, but you will then need to project the EPS growth rate at 50%. With ave high PE of 35 requires EPS growth rate of 30%, which is probably the best judgment for the SSG of all, and the "preferred procedure" still the least likely to occur.
Bill T.
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Rajiv Roy
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| 12/11/2006 9:53 PM |
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Hi Bill,
Thanks for pointing me to CME, I am seriously considering it for my portfolio.
>>With ave high PE of 35 requires EPS growth rate of 30%, which is probably the best judgment for the SSG of all
Agree.
>>"preferred procedure" still the least likely to occur.
Here is my rationale for why one analyzing such a stock around the merger would look at a preferred procedure.
- Clearly historical based techniques such as least squares, etc have limited value.
- The preferred procedure allows over-riding of anyone of the following, which you have to because the info would typically come from pro-forma statements. In this particular instance, I was swagging and did nto find the detialed pro-froma statements 
In stockfundas, the preferred procedure is in the Analysis tab, and is in the section which allows over-riding of High EPS (Preferred Method)
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Rajiv
www.stockfundas.com
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Rajiv Roy
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| 01/12/2007 3:45 PM |
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Bill,
I gotta ask you this. Did you buy this?
Or like I watched increduluosly at it shot up from $500 at time of discussion to $572.
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Rajiv
www.stockfundas.com
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William Thomas
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| 01/12/2007 4:17 PM |
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No Rajiv, but I did buy QSII.
Bill
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Rajiv Roy
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| 01/22/2007 9:53 AM |
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Bill, Your CME got me looking at it. Coincidentally Jim Cramer had talked of the NYX being the #1 stock for 2007. So I started looking at NDAQ as a possibility
As you had mentioned trying to do an SSG on NDAQ with limited data is challenging to say the least. CME and NDAQ are both at a PE of 50. NYX is at a stratospheric PE of 100.
NDAQ seems to be faced with the uncertainity of whether their hostile takeover of the London Stock Exchange will go through or not.
Both NYX and NDAQ have competition. Goldman Sachs, Citi and a number of other financial power houses are banding together to form an alternative exchange to open for business in 2008.
Following are the fundamentals from Fidelity research. CME seems to have better fundamentals. Better margins, much lower debt.
Rajiv
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| Company Name |
NASDAQ STOCK MARKET, INC. (THE) |
CHICAGO MER EXC A |
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| Trade/Add to Watchlist |
Trade
Add to Watch List
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Trade
Add to Watch List
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| # Employees |
917 |
1,321 |
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| Price Performance (Last 4 wk) |
1.2% |
10.1% |
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| Price Performance (Last 3 months) |
-4.6% |
17.8% |
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| Price Performance (Last 52 wk) |
-8.6% |
53.3% |
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| Beta |
0.7 |
1.5 |
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| Earnings/Dividends |
| Current Quarter Consensus Earnings Estimate |
0.24 |
2.96 |
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| Dividend (Most Recent Quarter) |
N/A |
0.63 |
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| Dividend (Trailing 4 Quarters) |
N/A |
2.52 |
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| Dividend Yield (Last 4 Quarters) |
N/A |
0.00% |
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| Dividend Ex-Date |
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12/06/06 |
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| Dividend Growth Rate (1-year Average) |
N/A |
78.07% |
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| Dividend Growth Rate (5-year Average) |
N/A |
N/A |
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| Payout Ratio (Last 4 Quarters) |
N/A |
21.38 |
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| Valuation |
| P/E (Last 4 Quarters) |
52.38 |
53.16 |
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| P/E (Most Recent Quarter) |
39.28 |
48.93 |
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| P/E (5-year Average) |
N/A |
30.78 |
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| Price/Cash Flow (Last 4 Quarters) |
21.24 |
44.32 |
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| Price/Sales (Last 4 Quarters) |
2.35 |
18.53 |
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| Price/Book, TTM |
1.09 |
3.96 |
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| PEG Ratio (Last 4 Quarters) |
2.95 |
2.35 |
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| Growth |
| EPS Growth (Most Recent Quarter) |
37.50% |
32.88% |
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| EPS Growth (Last 4 Quarters) |
106.25% |
31.48% |
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| EPS Growth (Last 5 Years) |
-12.48% |
30.47% |
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| Projected EPS Growth (Next Year vs. This Year) |
105.33% |
26.35% |
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| Projected EPS Growth (Next 5 Years) |
17.78% |
22.61% |
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| Revenue Growth (Last 4 Quarters) |
86.44% |
23.32% |
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| Revenue Growth (Last 5 Years) |
1.11% |
18.91% |
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| Capital Spending Growth (Last 5 Years) |
-33.54% |
23.04% |
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| Book Value per Share Growth (Last 5 Years) |
-18.29% |
30.06% |
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| Cash Flow Growth (Last 4 Quarters) |
0.10% |
0.07% |
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| Cash Flow Growth Rate (Last 5 Years) |
-12.26% |
28.54% |
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| Profitability |
| Profit Margins |
| Gross Margin (Annualized) |
20.53% |
65.61% |
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| Gross Margin (Last 4 Quarters) |
19.71% |
64.55% |
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| EBITD Margin |
19.71% |
64.55% |
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| Operating Margin (Annualized) |
16.97% |
59.15% |
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| Pretax Margin (Annualized) |
12.35% |
59.15% |
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| Pretax Margin (Last 4 Quarters) |
9.28% |
58.03% |
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| Returns |
| Return on Sales (Annualized) |
7.50% |
36.01% |
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| Return on Sales (Last 4 Quarters) |
5.46% |
35.29% |
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| Return on Equity TTM |
10.11% |
30.14% |
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| Return on Assets TTM |
2.83% |
9.96% |
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| Return on Investment TTM |
3.47% |
30.14% |
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| Return on Capital TTM |
2.67% |
-0.07% |
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| Debt |
| Long Term Debt/Equity (Annualized) |
121.03% |
0.00% |
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| Long Term Debt/Equity (Last Fiscal Year) |
750.00% |
0.00% |
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| Total Debt/Assets (Annualized) |
45.34% |
0.00% |
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| Total Debt/Assets (Last Fiscal Year) |
0.58% |
0.00% |
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| Total Debt/Capital (Annualized) |
53.32% |
0.00% |
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| Total Debt/Equity (Last Fiscal Year) |
750.00% |
0.00% |
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| Current Ratio (Last Fiscal Year) |
1.83 |
1.34 |
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| Payout Ratio (Last 4 Quarters) |
N/A |
21.38 |
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| Operating Metrics |
| Income/Employee (Last 4 Quarters) |
$87,535.44 |
$288,437.55 |
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| Revenue/Employee (Last Fiscal Year) |
$1.60 |
$0.82 |
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| Assets Turnover (Annualized) |
0.45% |
0.33% |
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| Asset Turnover (Last 4 Quarters) |
0.52% |
0.28% |
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| Inventory Turnover (Annualized) |
N/A |
N/A |
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| Inventory Turnover (Last Fiscal Year) |
N/A |
N/A |
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| Receivables Turnover (Annualized) |
7.06% |
9.15% |
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| Receivables Turnover (Last 4 Quarters) |
6.45% |
9.19% |
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Rajiv
www.stockfundas.com
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