Investors looking for a methodical way to find high-growth stocks have often used the system described by Louis Navellier in his book, The Little Book That Makes You Rich. The approach rests on eight basic rules meant to find companies showing better growth traits, from good earnings revisions and surprises to wider margins and high returns on equity. By concentrating on these numerical measures, the method tries to find businesses in the first phases of rising profitability, a sign of good growth investing.
A recent filter using this approach has identified COMFORT SYSTEMS USA INC (NYSE:FIX), a nationwide company providing mechanical and electrical contracting services. The firm seems to fit the strict standards of Navellier's system, indicating it may have the financial speed and operational quality that growth investors look for.
Fitting the "Little Book" Standards
A detailed look at FIX's recent financial results shows good agreement with the main ideas of the approach. The given data shows the company is not only expanding, but doing so with greater efficiency and good momentum from Wall Street.
- Good Earnings Revisions & Surprises: The approach values analyst opinion and a company's capacity to beat estimates highly. FIX displays a 14.7% increase to the next quarter's EPS estimate over the past three months. Also, it has reported a positive earnings surprise in all of the last four quarters, with an average beat of 32.6%. These numbers point to fundamental business force that is regularly beating cautious predictions, an important marker for the approach.
- Strong Sales and Earnings Growth: Increasing top-line growth is a main filter. FIX reports a 29.5% rise in revenue over the last year (TTM) and a notable 41.7% growth in the latest quarter compared to the year-ago period. More importantly, earnings growth is even stronger, with EPS jumping 97.8% year-over-year and 129.1% quarter-over-quarter. This difference between revenue and profit growth often points to operating leverage, another good indicator.
- Widening Profitability and Strong Cash Flow: The "Little Book" approach looks for companies that are becoming more profitable as they expand. FIX's operating margin has widened by 35.8% over the past year. At the same time, its free cash flow—a key measure of financial condition and flexibility—increased by 39.8%. This pairing of widening margins and good cash creation is central to the approach's focus on lasting, high-quality growth.
- Positive Earnings Momentum and High ROE: The filter specifically searches for speeding earnings growth. For FIX, the current quarterly EPS growth of 129.1% greatly exceeds the 60.4% growth from the similar quarter a year ago, confirming strong positive momentum. Lastly, the company has a Return on Equity (ROE) of 41.8%, well above the approach's lowest limit of 10%. A high ROE shows management is efficiently creating profits from shareholder money, a foundation of the system.
Fundamental Condition and Valuation Setting
Beyond the specific filter standards, an inspection of FIX's wider fundamental picture, as covered in its detailed analysis report, gives more setting. The company receives a high total fundamental score of 8 out of 10, with special force in profitability and financial condition. Its margins and returns on capital are some of the top in the Construction & Engineering industry. The balance sheet is sound, with low debt and high solvency scores.
The main area for thought is valuation. The stock sells at high earnings multiples, both on its own and compared to the wider market. This is a common trait of high-growth companies found by such filters. The fundamental report states that this high valuation could be reasonable given the company's excellent profitability and growth picture, but it stays a factor for investors to balance against the growth path.
A Beginning for More Study
The match of COMFORT SYSTEMS USA with the "Little Book" filtering parameters makes it a notable candidate for growth-focused investors. It shows the strong combination of speeding sales, fast-rising earnings, widening margins, and better capital returns that the approach aims to use.
This one stock is a result of a wider filtering process. Investors wanting to find other companies that currently pass this strict set of growth filters can examine the live filter themselves. You can see and adjust the full "Little Book" filter to find more possible ideas here.
Disclaimer: This article is for information only and is not financial advice, a suggestion, or an offer or request 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 separate study and talk with a qualified financial advisor before making any investment choices.
