Amphenol Corp (NYSE:APH) Exemplifies a Methodical Growth Investing Approach

A methodical way to approach growth investing can help investors find companies with solid fundamental momentum. One such method comes from Louis Navellier's "The Little Book That Makes You Rich," which lists eight particular rules for choosing excellent growth stocks. These rules concentrate on earnings revisions, surprises, sales and earnings growth, margin expansion, cash flow generation, and return on equity. When used with a stock screener, this approach can find companies showing several positive fundamental traits at the same time.

Earnings Revisions and Surprises

The approach highlights positive earnings revisions, as upward changes to analyst estimates frequently indicate underlying business strength. Amphenol Corp (NYSE:APH) shows this trait with a 17.5% rise in next-quarter EPS estimates during the last three months. Also, the company has beaten earnings predictions in each of the previous four quarters, with an average surprise of 15.1%. Regular earnings beats frequently cause analysts to adjust future estimates upward, forming a positive cycle that can influence stock performance.

Growth Metrics

Speeding up growth is central to Navellier's method, and Amphenol presents notable expansion in several areas:

• Quarterly revenue growth of 56.5% year-over-year
• Annual revenue growth of 40.5%
• Quarterly EPS growth of 84.1%
• Annual EPS growth of 51.8%

These numbers greatly surpass the method's minimum levels and point to solid business momentum. The company also displays earnings acceleration, with current quarterly EPS growth much higher than the same period from the prior year.

Profitability and Cash Generation

Growing operating margins show better efficiency as sales increase. Amphenol's operating margin rose by 9% over the last year, getting to 23%. The company also produced strong free cash flow growth of 45% each year, offering financial room to support operations and growth projects without too much outside financing.

Return on Equity

The method looks for companies creating high returns on shareholder equity, and Amphenol provides a 27.6% ROE. This shows effective use of investor capital and places the company much higher than the 10% minimum level suggested in the method.

Fundamental Assessment

A full fundamental analysis of Amphenol shows a varied but mostly positive view. The company rates very well on profitability measures, doing better than most industry competitors across return figures and margins. Growth traits are especially solid, with notable past performance and good future outlook. Valuation raises some issues with high P/E ratios, although these might be acceptable given the company's growth path and good profitability. Financial health indicates some small worries about share dilution and debt amounts, but overall stability is sufficient.

Investment Considerations

While Amphenol fits most Little Book rules very well, investors should think about the complete situation. The company's P/E ratio of 49 seems high compared to the wider market, but this could be reasonable considering its growth path and industry position. The electrical components maker works in various markets, including industrial, defense, automotive, and communications, giving some business variety. Present market conditions, with both short and long-term S&P 500 trends good, could be supportive for growth stocks showing these traits.

For investors wanting to use this method more widely, the Little Book screening template can help find other companies meeting these growth rules.

Disclaimer: This analysis is based on fundamental data and published investment methods for informational purposes only. It does not constitute investment advice, recommendation, or endorsement of any security. Investors should do their own research and talk with financial advisors before making investment decisions.