A methodical process for finding high-growth stocks frequently uses filters for particular, measurable financial traits. One organized technique is described in Louis Navellier’s The Little Book That Makes You Rich, which lists eight basic principles for choosing excellent growth stocks. These principles concentrate on earnings momentum, sales increases, profit margin growth, and high returns on capital, seeking to identify companies with quickening business results before the wider market completely recognizes them.
Lately, a filter constructed from these eight principles identified Hippo Holdings Inc (NYSE:HIPO), a company in home protection and insurance technology. An examination of its financial data explains why it may have satisfied this strict filter.
Satisfying the "Little Book" Principles
The technique’s effectiveness comes from its use of several factors, demanding solid performance in multiple parts of a company’s activities. Hippo’s latest results indicate agreement with many of these important principles:
- Positive Earnings Revisions & Surprises: Analysts have greatly increased their short-term forecasts, with the average estimate for next quarter’s EPS adjusted higher by 248% in the past three months. Also, the company has exceeded consensus EPS estimates in three of the past four quarters, with an average surprise of 215%. These are clear signs that the company is regularly doing better than cautious forecasts, a central idea of Navellier’s technique.
- Strong Sales and Earnings Increases: Quickening revenue growth is a main filter. Hippo displays a trailing twelve-month revenue increase of 34.5% and a recent quarter-over-quarter sales rise of 26.3%. More notably, its earnings increase is very large, with a 166% year-over-year EPS rise and a remarkable 663% growth in the latest quarter compared to the year-ago period. This shows the significant operating leverage the company might be reaching.
- Growing Profitability and Good Cash Flow: The filter searches for proof that sales growth is turning into larger profit margins. Hippo’s operating margin has grown by about 79% in the last year. At the same time, its free cash flow—an important measure of financial condition and adaptability—increased by over 90% in the same span. This pairing implies the business is growing with good efficiency.
- High Return on Equity (ROE): A minimum ROE of 10% is needed to confirm management is producing sufficient profits from shareholder equity. Hippo greatly surpasses this, with a present ROE of 22.75%, putting it in the high rank of its industry group and showing very efficient use of capital.
Fundamental Condition and Valuation Background
Outside the specific filter principles, a wider fundamental review gives background. According to ChartMill’s detailed report, Hippo gets a varied but encouraging total score of 4 out of 10. The review points out the company’s outstanding growth measures and fair valuation as main positive points. Its Price-to-Earnings (P/E) ratio of 8.54 is viewed as low compared to both the wider S&P 500 and many industry peers.
Still, the report also mentions points of attention, mainly about steady past profitability and some balance sheet condition measures, including a low Altman-Z score. This highlights an important idea for investors: while growth filters can find possible candidates, they are beginning steps for more examination. The "Little Book" technique is naturally focused on the future, aiming at companies during a positive operational change, which often includes managing past losses or spending to achieve continued profitability.
A Beginning for More Examination
Hippo Holdings represents the kind of company a growth-focused filter like Navellier’s tries to locate: one displaying strong momentum in earnings, sales, and operational effectiveness. Its success with the filter is founded on specific, getting better financial measures that indicate fundamental business health.
For investors wanting to investigate other companies that presently satisfy these "Little Book" principles, the prepared filter is ready to use and adjust. You can view and run the filter for yourself here.
Disclaimer: This article is for informational purposes only and does not constitute financial advice, an endorsement, or a recommendation to buy, sell, or hold any security. Investing involves risk, including the potential loss of principal. Always conduct your own thorough research and consider your individual financial situation and risk tolerance before making any investment decisions.
