Growth investing strategies often look for companies in the early stages of increasing financial performance, where strong momentum in sales and earnings can lead to significant stock price gains. One methodical way to find such candidates is described in Louis Navellier's "The Little Book That Makes You Rich," which lists eight fundamental rules meant to find superior growth stocks. These rules concentrate on positive earnings revisions and surprises, increasing sales and margins, strong cash flow, speeding earnings growth, and high returns on equity. A recent filter using this method has identified Hippo Holdings Inc (NYSE:HIPO) as a stock that deserves more attention from growth-focused investors.
Meeting the "Little Book" Criteria
The filter uses Navellier's eight rules as screens, and Hippo Holdings shows a strong profile against several of these important growth measures. The company's recent financial results display clear strength in areas the strategy emphasizes.
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Positive Earnings Revisions & Surprises: A central part of the method is finding where analyst expectations are increasing, often caused by steady outperformance. Hippo does well here, with the average EPS estimate for the next quarter adjusted upward by a notable 3503.6% over the last three months. Also, the company has surpassed EPS estimates in three of the last four quarters, with an average surprise of 215.38%. This pattern of beating and then raising expectations is a clear sign of positive momentum looked for by growth investors.
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Strong Sales and Earnings Growth: The strategy requires companies that are not only growing, but growing at a faster rate. Hippo's numbers are notable:
- Revenue increased 34.48% year-over-year and 26.28% quarter-over-quarter.
- Even more notable is the earnings momentum. EPS grew 165.70% over the past year, but the most recent quarter shows a faster pace, with quarterly EPS growth rising to 662.69% compared to 70.09% in the year-ago period. This sharp earnings increase is a direct fit for Navellier's "Positive Earnings Momentum" rule.
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Increasing Profitability and Strong Cash Flow: Growth is most valuable when it becomes more profitable. Hippo's operating margin increase of 79.19% over the past year shows the company is scaling effectively. Also, its free cash flow grew by 90.31%, indicating the business is producing the cash required to support its own expansion—a key sign of financial health and durability for a growth company.
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High Return on Equity: The final rule stresses efficient use of shareholder capital. Hippo's Return on Equity (ROE) of 22.75% is well above the filter's 10% minimum and places in the high range of its insurance industry group, showing an ability to create significant profits from its equity base.
Fundamental Health and Valuation Context
While the "Little Book" filter concentrates on growth momentum, a wider fundamental analysis gives important background. According to ChartMill's detailed fundamental report, Hippo Holdings gets an overall rating of 4 out of 10. The analysis shows a mixed view: the company's growth measures are very strong, but this is weighed against questions about its profitability history and financial health.
The report states that despite a good current profit margin, Hippo has reported negative net income in recent years. Its Altman-Z score also indicates some financial risk. On valuation, the view is complex. The stock seems fairly priced on a trailing P/E basis compared to the industry and the wider market, but forward P/E ratios are high, mirroring high growth expectations already included in the price.
A Candidate for Growth-Focused Portfolios
For investors using a strategy like Navellier's, Hippo Holdings Inc stands as a clear candidate. It shows the strong mix of upward earnings revisions, major sales growth, and—most importantly—sharp and speeding earnings growth that the method aims to find. The company's high ROE and better cash flow also match the profile of a possibly superior growth stock.
It is important to recall that such high-growth filters are made to find momentum and possibility, not certain successes. The high forward valuation and past profitability questions noted in the full fundamental analysis highlight the need for complete research and an awareness of the connected risks. This filter is a beginning for more study, not a final conclusion.
Interested in exploring other stocks that pass this growth-focused filter? You can find the full, updated list of qualifying companies by viewing the "Little Book" screen on ChartMill.
Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation to buy or sell any security, or an endorsement of any investment strategy. The "Little Book" screen and the analysis of Hippo Holdings are presented as examples. Investors should conduct their own research and consider their individual financial situation and risk tolerance before making any investment decisions.
