For investors looking for a methodical way to find companies with high growth, the principles in Louis Navellier's "The Little Book That Makes You Rich" provide a strong framework. The method uses eight basic rules meant to find stocks with better earnings quality, faster growth, and sound financial condition. These rules select for good earnings revisions and surprises, rising sales, widening margins, strong cash flow, earnings growth, positive earnings momentum, and a high return on equity. The aim is to locate companies that are not only growing, but also doing so with better efficiency and profit, which can be a significant force for stock price gains.
A recent filter using this method has identified Insulet Corp (NASDAQ:PODD) as a candidate for more review. The medical device company, recognized for its Omnipod tubeless insulin delivery system, seems to display many of the important traits Navellier's method looks for.
Matching the "Little Book" Rules
A check of Insulet's recent financial numbers shows how it fits the main points of the growth-oriented filter:
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Positive Earnings Revisions & Surprises: The method favors upward analyst revisions as an indicator of improving business trend. For PODD, the average EPS estimate for the coming quarter has increased by 9.62% over the past three months. Also, the company has a flawless history of surpassing forecasts, beating EPS estimates in all of the last four quarters by an average of 16.19%. Steady positive surprises can lead analysts to keep raising their future estimates, forming a favorable cycle for the stock.
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Faster Top and Bottom-Line Growth: Navellier notes the need for not only growth, but faster growth. Insulet shows this clearly:
- Sales Growth: Revenue increased 27.12% year-over-year (TTM), with even higher 29.86% growth in the latest quarter versus the same quarter last year.
- Earnings Growth & Momentum: EPS grew 27.65% year-over-year. Importantly, the quarterly EPS growth is speeding up. The latest quarter had EPS rise 37.78% year-over-year, a notable jump from the 26.76% growth seen in the similar quarter a year before. This positive earnings momentum is a main sign of a better business path.
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Widening Profit and Sound Cash Creation: Rising sales are most useful when a company can turn them into greater profits. Insulet's operating margin widened by 12.32% over the last year, showing better cost control and operating leverage. Even more notable is the company's cash flow creation, with free cash flow rising by over 2,854% in the past year. Sound and increasing free cash flow gives financial room to support new development, lower debt, or give capital to shareholders without needing outside funding.
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High Return on Equity (ROE): The last rule looks for good use of shareholder capital. Insulet's ROE of 17.79% shows it is creating good profits compared to the equity put into the business, easily passing the filter's 10% minimum level.
Fundamental Condition and Valuation Setting
Beyond the specific filter rules, a wider view of Insulet's fundamental picture, as shown in its detailed ChartMill report, supports the view of a sound company. The company gets a good overall fundamental rating of 7 out of 10, with special high marks in Growth (9/10) and Profitability (8/10). Its health score is good (7/10), backed by a strong Altman-Z score and acceptable debt levels relative to its high cash flow.
Valuation gives a more mixed picture. While the stock's Price-to-Earnings (P/E) ratio seems high on its own, it is key to see this within its high-growth industry. The valuation score of 5/10 shows this balance: the stock is not low-priced, but its higher cost may be reasonable due to outstanding growth rates and top-level profit margins in the healthcare equipment field. For growth investors using Navellier's method, paying more for clearly better and speeding up fundamentals is frequently part of the plan.
Is PODD Suitable for Growth Investors?
Insulet Corp offers a strong example of a company that meets a strict, rules-based growth filter. Its results fit several "Little Book" rules, from earnings surprises and revisions to fast sales growth, margin widening, and excellent cash flow creation. This indicates the core business is both growing and operating with greater efficiency and trend.
For investors wanting to review other companies that meet this strict growth standard, the filter used for this study is open to the public. You can see and adjust the filter for your own study here.
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 analysis is based on data believed to be reliable, but its accuracy cannot be guaranteed. Investors should conduct their own independent research and consult with a qualified financial advisor before making any investment decisions.
