In the world of growth investing, few strategies are as straightforward and time-tested as the one outlined by Louis Navellier in his 2007 work, The Little Book That Makes You Rich. The core of the strategy is a disciplined, eight-rule framework made to find companies showing superior and accelerating financial performance. The rules focus on concrete metrics like positive earnings revisions and surprises, increasing sales and margins, strong cash flow, earnings growth and momentum, and a high return on equity. By systematically screening for these traits, investors try to find businesses that are not just growing, but doing so with improving efficiency and profitability, a mix that has historically been rewarded in the stock market.
One company that recently came from such a screen is Palomar Holdings Inc (NASDAQ:PLMR), a specialty insurer focusing on property and casualty products like earthquake and inland marine coverage. A closer look shows that PLMR seems to fit strongly with several of Navellier’s key ideas, presenting a strong case for growth-focused investors.
Meeting the "Little Book" Criteria
The strength of Navellier's method is in its multi-faceted approach, needing high performance across several financial areas instead of reliance on one metric. Palomar Holdings shows solid performance across many of these important filters:
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Positive Earnings Revisions & Surprises: A key part of the strategy is finding companies where Wall Street analysts are actively raising their expectations, often caused by consistent outperformance. PLMR shows clear strength here. The average EPS estimate for the next quarter has been moved up by 5.88% over the last three months. More notably, the company has delivered a positive earnings surprise in each of the last four quarters, with an average beat of 11.36%. This pattern of beating expectations can make analysts continually re-evaluate their models, possibly pushing future estimate revisions higher.
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Increasing Growth in Sales and Earnings: Pure growth is needed, but speeding growth is the sign of a strong momentum story. Palomar does well on both fronts.
- Sales Growth: Revenue growth over the past year (TTM) is a notable 56.04%, while the most recent quarter saw sales grow 31.82% compared to the same quarter last year.
- Earnings Growth & Momentum: The growth in profitability is even more clear. Year-over-year EPS growth is at 54.81%. Importantly, the company shows clear earnings momentum: EPS growth for the last quarter was 47.37%, which is a large increase from the 36.94% growth recorded in the comparable quarter a year before. This increase is a key signal that growth is not just kept but getting stronger.
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Improving Profitability and Strong Cash Generation: For growth to be high-quality, it must turn into better profitability and cash flow. Navellier’s rules specifically screen for widening operating margins and strong cash flow growth, signs that a company is scaling efficiently. PLMR’s operating margin has widened by 6.14 percentage points over the past year. Also, the company’s free cash flow grew by a notable 35.0% in the same period, giving financial flexibility to fund operations and growth internally.
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High Return on Equity (ROE): The final rule looks for companies that efficiently generate profits from shareholder capital. Palomar’s ROE of 20.91% is not only high but puts it in the top group of its insurance industry peers, suggesting management is using capital well to create value.
Fundamental Health and Valuation Context
Beyond the specific screen criteria, a wider look at Palomar’s fundamental profile, as detailed in its full analysis report, gives more context. The report gives PLMR a solid overall fundamental rating of 6 out of 10, highlighting its exceptional profitability and excellent growth metrics, while noting small concerns regarding financial health largely linked to its return on invested capital. From a valuation point of view, the stock presents a mixed picture. Its Price-to-Earnings (P/E) ratio of 14.84 is reasonable compared to the wider S&P 500 but is at a premium relative to the insurance industry average. However, this premium may be explained by its better growth profile and outstanding profitability margins, which rank in the 90th percentile of its industry.
A Strategy for Further Research
Palomar Holdings Inc. serves as a prime example of the type of company the "Little Book" screen is made to find: one showing strong, accelerating financial trends across revenue, earnings, profitability, and capital efficiency. For investors interested in using this disciplined growth strategy, Palomar represents a strong starting point for deeper investigation.
It is important to remember that a screening result is a start, not an end. The provided parameters are a snapshot in time, and the market environment is always changing. Investors are encouraged to look at the full list of companies currently passing this strict set of growth filters. You can view all current "Little Book" strategy screen results and change the filters based on your own market outlook 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. Readers should conduct their own thorough research and consider their individual financial circumstances and risk tolerance before making any investment decisions.