Growth investing methods often look for companies showing better financial momentum and operational strength. One organized method, made known by Louis Navellier in his book "The Little Book That Makes You Rich," lists eight clear rules for picking these stocks. These rules center on upward earnings revisions and surprises, faster sales and earnings increases, widening profitability, solid cash flow, and a high return on equity. The process tries to find firms not only increasing in size, but doing so with rising efficiency and momentum that can lead to higher stock prices.
A recent filter using this "Little Book" method has found Amphenol Corporation - Class A (NYSE:APH) as a possible choice. As a worldwide leader in designing and making electrical, electronic, and fiber optic connectors and sensors, Amphenol's recent financial results seem to match Navellier's growth-centered rules closely.
Matching the "Little Book" Rules
Amphenol's present financial measures show good agreement with the main parts of the growth filtering method. The given data shows the company is performing well across many of Navellier's eight rules.
- Upward Earnings Revisions & Surprises: Analysts have increased their EPS estimate for Amphenol's next quarter by more than 12% in the past three months, an important positive sign. Also, the company has exceeded EPS estimates in each of the past four quarters, with an average surprise of 15.07%. Steady positive surprises can lead analysts to raise future estimates, a pattern the method aims to use.
- Solid Sales and Earnings Increases: The company is showing strong top and bottom-line growth. Revenue increased 51.71% year-over-year and almost 50% quarter-over-quarter. Even more notable is the EPS increase, which jumped 76.72% over the past year and 76.36% in the latest quarter. This shows the "rising sales growth" and "earnings growth" the process needs.
- Widening Profitability and Solid Cash Flow: Amphenol is not only growing sales, it is becoming more profitable. Its operating margin grew by more than 21% in the past year, showing it is managing costs well as revenue grows. The company also produced very strong free cash flow, with growth above 103% year-over-year, giving financial room and money for future expansion.
- Positive Earnings Momentum and High ROE: The method searches for speeding earnings, and Amphenol provides this. The current quarterly EPS growth of 76.36% is much higher than the 34.15% growth from the same quarter a year before. Lastly, the company has a high Return on Equity of 31.84%, well above the method's lowest limit and showing good use of shareholder money.
Fundamental Condition and Valuation Setting
Outside the specific filter rules, a wider fundamental review of Amphenol shows a company with clear positives and some points to note. According to ChartMill's full fundamental report, Amphenol gets a 7 out of 10 total.
The company's main positive is its very good profitability, which receives a near-top rating of 9. It is best in its industry in important measures like Return on Equity, Return on Invested Capital, and Operating Margin, with these margins showing steady gain over recent years.
Its growth picture is also strong, scoring a 9. The report agrees with the powerful past growth in both revenue and EPS and states that analysts think this solid growth will continue, though at a somewhat slower rate, over the next few years.
The financial condition score of 6 shows a varied view. While the company has good liquidity ratios and a healthy Altman-Z score pointing to low bankruptcy risk, it has a fairly high debt-to-equity ratio next to industry friends, a detail for investors to watch.
On valuation, the score is a middle 4. Amphenol sells at a higher price than the wider S&P 500 on a P/E basis, which is seen as costly. However, this higher price seems partly reasonable given its excellent profitability and growth path, and its valuation is a bit lower next to its own industry friends.
A Choice for Growth-Centered Methods
Amphenol Corporation offers a strong example of a company now meeting a strict, rules-based growth filter. Its results across earnings revisions, sales and profit increases, margin growth, and return measures agree with the idea of finding firms with fundamental momentum. While the valuation is not low and debt is above normal, its excellent profitability and growth may support the higher price for investors using a growth-focused method.
For investors wanting to review other companies that meet the "Little Book" rules, the filter used for this study is open to the public. You can view and change the filter here to see the complete list of results and modify the settings based on your own investment view.
Disclaimer: This article is for information only and is not financial advice, a suggestion, or an offer to buy or sell any securities. The study is based on data thought to be dependable, but its correctness cannot be assured. Investors should do their own research and talk with a qualified financial advisor before making any investment choices.