Growth investing methods seek to find companies that are not only getting larger but are doing so faster, with better profits and sound financial foundations. One organized method for locating these stocks is described in Louis Navellier’s “The Little Book That Makes You Rich,” which lists eight important guidelines for choosing excellent growth stocks. These guidelines center on favorable earnings adjustments and surprises, rising sales, growing margins, good cash flow, earnings expansion, positive earnings momentum, and a high return on equity. A recent filter using these ideas has pointed to HCI Group Inc (NYSE:HCI) as a stock for more detailed review.
Fitting the "Little Book" Guidelines
The filter uses particular, measurable criteria for each of Navellier’s eight guidelines. HCI Group, a Florida property and casualty insurance company, shows notable strength across many of these important growth measures.
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Positive Earnings Revisions & Surprises: A central part of the method is that higher adjustments in analyst forecasts often come before positive stock movement. HCI shows a 6.94% rise in the EPS forecast for the next quarter over the past three months. More notably, the company has reported four straight positive earnings surprises in its last four announcements, with an average surprise of 50.76%. This repeated capacity to beat forecasts can make analysts reconsider their future estimates, a process Navellier notes as a significant force for growth stocks.
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Strong Sales and Earnings Expansion: The method looks for companies where growth is clear and speeding up. HCI reports a 52.34% rise in quarterly sales compared to the same quarter last year, with full-year revenue expansion of 20.10%. The earnings expansion is even more pronounced, with quarterly EPS jumping by 2,561.29% and trailing twelve-month EPS expanding by 175.58%. These numbers meet the guidelines needing major year-over-year and quarter-over-quarter gains in both sales and earnings.
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Growing Profitability and Good Cash Flow: It is not sufficient to only expand sales, a top growth company should become more profitable as it gets bigger. HCI’s operating margin has grown by 39.27% over the last year, showing the company is managing costs well as revenue rises. Also, its free cash flow—important for funding activities and expansion without more debt—has expanded by 34.49% in the last year, meeting the filter’s need for good cash flow production.
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High Return on Equity: The last guideline stresses efficient use of shareholder money. HCI’s return on equity (ROE) is 27.56%, much higher than the filter’s 10% minimum. This shows the company is producing considerable profit from the equity investors have provided, a sign of a well-run growth business.
Fundamental Condition and Valuation Background
Outside the specific filter guidelines, a wider view of HCI’s fundamentals gives needed background. According to ChartMill’s detailed fundamental analysis report, HCI gets an overall score of 6 out of 10. The report notes several positive points that match a growth investor’s goals, including very good profitability measures and margins that are near the best in the insurance sector. The company’s financial stability is also good, with a very small debt-to-free-cash-flow ratio.
Maybe most significant is the stock’s price assessment. Even with its high expansion rates and profitability, HCI sells at a Price-to-Earnings (P/E) ratio of only 6.49, which is viewed as low both compared to the wider S&P 500 and to its industry competitors. This creates a notable situation where a company showing strong expansion traits is not selling at a usual growth-stock high price.
A Stock for More Study
It is important to state that the "Little Book" filter, by plan, centers on recent, short-term fundamental momentum to find developing growth situations. This means it might find companies at a turning point. Investors should know that the fundamental report also mentions some points of attention, including an anticipated small drop in future earnings per share and a past rise in shares available. As with any filter result, this finds a possible chance, not a certain result, and needs more careful investigation.
The filter that found HCI Group is active and can be changed based on market environment or an investor’s particular risk level. For investors wanting to review other companies that currently meet this growth-focused filter, you can see the current results and change the settings here.
Disclaimer: This article is for information only and is not financial advice, a suggestion, or an offer to buy or sell any securities. The "Little Book" filter is a model based on particular guidelines and past results are not a guide for future outcomes. Investors should do their own complete study and think about their personal money situation before making any investment choices.