For investors looking for a methodical way to find stocks with high growth, the principles in Louis Navellier's "The Little Book That Makes You Rich" provide a persuasive structure. The method centers on eight main rules meant to find companies showing better earnings momentum, faster sales, increasing profitability, and sound financial condition. By filtering for these particular fundamental factors, investors try to locate stocks with the possibility for major price gains. A recent filter using this approach has identified HCI Group Inc (NYSE:HCI) as a candidate for more detailed review.
A Good Fit for the "Little Book" Rules
HCI Group, a Florida property and casualty insurer, shows a good fit with many of Navellier's central growth rules. The company's latest financial results display the type of powerful momentum and operational quality the method aims to find.
- Positive Earnings Revisions & Surprises: A key part of the method is finding companies where analyst forecasts are increasing. HCI fits this, with the average EPS estimate for the next quarter raised by about 13% in the past three months. Also, the company has reported a positive earnings surprise in all of the last four quarters, with an average beat above 50%. Steady outperformance makes analysts adjust their models, which can be a significant force for the stock.
- Outstanding Sales and Earnings Growth: The method requires solid and speeding growth. HCI's figures here are notable. Revenue increased more than 20% year-over-year, while sales in the latest quarter jumped by over 52% compared to the year-ago period. More notable is the earnings growth, EPS rose by over 175% year-over-year, with quarterly EPS growth above 2,500%. This shows not only revenue growth, but very successful turning of sales into profits.
- Increasing Profitability and Sound Cash Flow: Navellier notes that sales growth should come with better margins, a signal of operational efficiency. HCI's operating margin grew by a notable 39% in the past year. Also, the company produced sound free cash flow, with FCF growth of about 34% year-over-year. This allows financial options for spending, purchases, or shareholder benefits.
- High Return on Equity: The last rule looks for a high return on equity (ROE), which shows how well a company creates profits from shareholder money. HCI's ROE of 27.6% is much higher than the method's lowest limit of 10% and places in the best group of its industry, showing very efficient use of capital.
Fundamental Condition and Valuation Setting
Beyond the specific filter rules, a wider view of HCI's fundamentals gives important setting. According to ChartMill's review, the company gets a good total fundamental score of 6 out of 10. Its leading trait is profitability, where it scores a 7, having industry-best measures in Return on Equity, Operating Margin, and Profit Margin. The growth score is also good at 7, reflecting the strong past growth trends mentioned before.
The valuation situation is especially interesting. Even with its good growth and profitability, HCI trades at a Price-to-Earnings (P/E) ratio of only 7.1, which is seen as very low both compared to the wider S&P 500 and its own industry. This implies the market may not be completely valuing the company's latest results or may have questions about continuation. It is important to see that analyst estimates indicate a possible reduction in EPS growth in the next few years, which might explain the lower multiple. The financial condition score of 4 shows some small issues, mainly connected to a past of share dilution, although its solvency ratios, including a very low debt-to-equity ratio, remain sound. You can see the complete, detailed fundamental review for HCI Group here.
Summary and Next Steps
HCI Group offers a persuasive example of a stock that meets a strict, growth-focused filter based on Louis Navellier's method. Its powerful earnings and sales momentum, increasing margins, and high returns on capital match well with the method's aim of finding "better growth stocks." The present valuation seems to give a sensible starting point considering the company's excellent profitability, although investors must balance the notable past growth against more moderate future earnings estimates and watch the company's financial condition measures.
For investors wanting to find other companies that match this orderly growth investing method, the filter used to find HCI is open to the public. You can view and adjust the "Little Book That Makes You Rich" filtering template to do your own review here.
Disclaimer: This article is for informational and educational purposes only and does not constitute investment advice, a recommendation, or an offer or solicitation to buy or sell any securities. The information presented should not be the sole basis for making any investment decision. Investors should conduct their own independent research and consult with a qualified financial advisor before making any investment. Past performance is not indicative of future results.
