Investors looking for a methodical way to find high-growth stocks frequently use established methods. One framework is presented in Louis Navellier's The Little Book That Makes You Rich, which summarizes growth investing in eight basic rules. These rules center on earnings revisions, sales and earnings growth, increasing profitability, solid cash flow, and high returns on equity. The aim is to find companies showing not only present strength, but quickening operational and financial momentum. A recent filter based on these ideas has identified an interesting candidate in the mining sector: New Gold Inc (NYSEARCA:NGD).
Meeting the "Little Book" Criteria
New Gold's recent financial results show a clear match with many of Navellier's important growth filters. The company's measurements point to effective operational performance and financial gain.
- Positive Earnings Revisions & Surprises: Analyst outlook is getting better, with the average EPS estimate for the next quarter moved higher by 8.7% in the past three months. More notably, the company has exceeded analyst predictions in all of the last four quarterly reports, with an average earnings surprise above 47%. Steady positive surprises mark companies doing better than internal and external forecasts, a central idea of the strategy.
- High Sales and Earnings Growth: The company is in a phase of fast growth. Revenue rose 44.2% year-over-year, and quarterly sales increased an even more notable 83.5% from the same quarter last year. This sales speed is seen in profits: Earnings Per Share (EPS) grew 309.1% over the past year, with the latest quarter showing a 212.5% rise. This shows the company's capacity to turn higher sales directly into net profits.
- Increasing Profitability and Solid Cash Flow: A vital rule searches for growing operating margins, which indicates a company is increasing sales more effectively. New Gold's operating margin has grown significantly, rising by 195% over the past year. Also, the company's free cash flow—important for financing growth and benefiting shareholders—has increased by a remarkable 389% in the last twelve months. This points to sound financial condition and internal funding ability.
- High Return on Equity: The strategy looks for companies that produce high profits from shareholder investments. New Gold's Return on Equity (ROE) of 20.1% is seen as good, putting it above most of its industry competitors and indicating productive use of investor money.
Fundamental Rating and Valuation Context
An examination of New Gold's wider fundamental profile, as shown in its detailed analysis report, shows a varied but hopeful picture. The company receives an overall fundamental rating of 6 out of 10. Its biggest strengths are in Profitability and Growth, where it gets scores of 7 and 8. The company has very good returns on assets, equity, and invested capital, together with high gross and operating margins.
The Valuation score is also a good 7. While the trailing Price-to-Earnings (P/E) ratio seems high, the forward P/E ratio of 7.97 indicates the stock is valued very low compared to its anticipated short-term earnings growth. The low PEG ratio, which includes that growth, further strengthens the opinion that the present valuation may not completely account for the company's momentum.
Points of caution are seen in the Financial Health score of 3, mainly because of low short-term liquidity ratios (Current and Quick Ratio). This is a typical feature in industries requiring large capital like mining and is an item for investors to watch.
A Candidate for Growth-Focused Investors
For investors using a strategy like Navellier's, New Gold offers an interesting case. It is not only a company displaying gain, but one showing quickening growth across several important financial areas—sales, earnings, margins, and cash flow. This quickening is exactly what growth filters try to find early. The company's high ROE and habit of regularly exceeding earnings estimates give more support to its operational strength.
It is necessary to see this within the setting of the wider market, where the long-term direction for the S&P 500 is now down. In such a setting, finding single companies with solid, company-specific growth reasons becomes even more important.
Find More Potential Candidates
New Gold Inc came from a specific filter based on the ideas of The Little Book That Makes You Rich. Investors wanting to examine other companies that now satisfy these strict growth rules can view and adjust the filter themselves.
Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation, or an offer or solicitation to buy or sell any securities. The information presented is based on data provided and should not be the sole basis for any investment decision. Investors should conduct their own due diligence and consult with a qualified financial advisor before making any investment.