For investors looking for a methodical way to find stocks with high growth potential, the approach described in Louis Navellier's "The Little Book That Makes You Rich" presents a notable structure. This plan is based on eight basic rules created to find companies displaying better earnings momentum, faster sales, increasing profitability, and sound financial condition. By filtering for these particular factors, investors try to find stocks set for notable price gains. A recent use of this filter has identified HCI Group Inc (NYSE:HCI), a property and casualty insurer based in Florida, as a stock that merits more detailed review.
A Good Fit for the "Little Book" Rules
An assessment of HCI Group's recent financial results shows a good correspondence with Navellier's main ideas. The company's numbers show the effective mix of growth and operational betterment the plan looks for.
Positive Earnings Revisions and Surprises The initial two rules center on analyst opinion and a company's capacity to beat forecasts. HCI performs well here, with analysts increasing their next-quarter EPS estimates by more than 5.5% in the past three months, a good sign that basic business conditions could be better than first thought. Even more notable, the company has reported a positive earnings surprise in every one of the past four quarterly announcements, with an average beat above 50%. This repeated history of beating forecasts is a characteristic of companies that can lead to positive estimate changes and investor interest.
Strong and Quickening Growth Rules three and six stress expansion in revenue and profit. HCI's growth numbers are outstanding:
- Sales Growth: Revenue jumped 20.1% over the last year, with an even larger 52.3% rise in the latest quarter compared to the same quarter a year before.
- Earnings Growth: EPS growth is notably strong, rising 175.6% year-over-year. The quarterly comparison is more significant, showing growth above 2,500%.
This quickening is important, as Rule Seven specifically searches for positive earnings momentum, where present growth is faster than past results. The given data indicates HCI's present quarterly EPS growth is much better than its result from the same quarter a year earlier, clearly showing strong positive momentum.
Increasing Profitability and Good Cash Creation Rules four and five need a company to not only increase sales, but to do so profitably while creating cash. HCI's operating margin grew by over 39 percentage points in the past year, reaching a notable 48.7%. This growth means the company is enlarging efficiently, turning more revenue into profit. Also, HCI's free cash flow increased by 34.5% over the past year, giving financial room to pay for operations, seek chances, or give capital to shareholders without too much need for outside funding.
High Return on Equity The last rule looks for effective use of shareholder capital, measured by Return on Equity (ROE). HCI's ROE of 27.6% is a prominent number, meaning the company is creating significant profits from the equity put into the business. A high and getting better ROE is frequently a signal of a lasting competitive edge and able management.
Basic Financial Condition and Valuation Setting
Beyond the particular filter rules, a look at HCI's wider basic financial picture gives relevant setting. According to ChartMill's detailed basic analysis report, HCI has a total rating of 6 out of 10. The report points out several positive points that add to the growth filter's results:
- Notable Profitability: The company rates well on profitability measures, with top-level margins and returns on assets and invested capital.
- Good Solvency: HCI keeps a very low debt-to-equity ratio and a sound debt-to-free-cash-flow standing, meaning a healthy balance sheet.
- Appealing Valuation: Even with its strong growth, the stock seems priced low compared to both its industry and the wider market, trading at a Price-to-Earnings ratio of only 6.3.
The report also mentions points for investor attention, including a decreasing dividend pattern and forecasts for a slowing in earnings growth in the next few years. This highlights the value of the "Little Book" plan's focus on present momentum and quickening, as these future considerations are what the filter is made to spot early.
A Beginning for More Investigation
HCI Group Inc offers a notable example of a stock that meets a strict, rules-based growth filter. Its results across earnings revisions, surprise history, sales and profit quickening, margin growth, and return on equity correspond well with the traits Louis Navellier links with better growth stocks.
For investors wanting to examine other companies that satisfy these strict rules, the complete "Little Book" filter is ready for more study. You can look at and adjust the filter for your own investigation via this link.
Disclaimer: This article is for information only and is not financial guidance, a support, or a suggestion to buy, sell, or keep any security. The "Little Book" filter is a model based on past rules and does not promise future results. Investors must do their own complete investigation and think about their personal financial position and risk comfort before making any investment choices.