In growth investing, organized methods can help investors find companies with a chance for strong results. One method is described in Louis Navellier's The Little Book That Makes You Rich, which lists eight basic rules for picking high-growth stocks. The method centers on measurable data that show a company is growing and also becoming more efficient and profitable. It highlights favorable earnings adjustments and surprises, faster sales and earnings increases, wider profit margins, good cash flow, and a high return on equity. By searching for these particular factors, investors try to create a collection of companies showing solid operational progress.
A recent search using these "Little Book" ideas has identified PTC Inc. (NASDAQ:PTC), a worldwide software company focused on computer-aided design (CAD) and product lifecycle management (PLM) tools. The company's latest financial results indicate it fits well with Navellier's growth-oriented model.
Solid Earnings Progress and Analyst Trust
A key part of the method is finding companies where Wall Street analysts are becoming more confident, shown by higher earnings estimates and regular earnings beats. PTC shows force in both areas.
- Favorable Earnings Adjustments: The search needs the EPS estimate for the coming quarter to be increased by at least 4% over the past three months. PTC goes beyond this, with analysts raising their next-quarter EPS estimates by about 11.9% in that time. This shows increasing positive feeling about the company's short-term earnings.
- Favorable Earnings Surprises: The method looks for companies that regularly beat estimates. The search selects for at least three positive EPS surprises in the last four reports with an average beat above 10%. PTC matches and exceeds this, having recorded four straight positive surprises with an average beat of 33.5%. This history of beating estimates can lead to more positive estimate changes.
Solid and Quickening Growth Pattern
The "Little Book" method looks for companies where growth is not only happening but is speeding up in both sales and earnings. PTC's recent reports show notable progress.
- Sales Increase: The search requires at least 20% year-over-year and quarter-over-quarter revenue growth. PTC shows a trailing twelve-month revenue growth of 23.6% and a latest quarter-over-quarter sales growth of 21.4%, easily meeting both requirements.
- Earnings Increase: Likewise, the search sets minimum growth rates of 15% for EPS. PTC's performance is stronger, with TTM EPS growth of 73.6% and high quarter-over-quarter EPS growth of 74.5%.
- Earnings Progress: A main separator is quickening growth. The method uses a specific filter to make sure the latest quarterly EPS growth is higher than the growth rate from the same quarter a year before. For PTC, the current Q2Q EPS growth of 74.5% is much greater than the -0.9% reported for the similar quarter last year, indicating solid positive progress.
Bettering Profitability and Financial Condition
Beyond pure growth, the method stresses the quality of that growth, searching for widening profitability and good cash creation.
- Widening Operating Margin: When sales rise, it is a good sign if profitability widens at a quicker pace. The search looks for operating margin growth of at least 2% over the last year. PTC is well above this, showing operating margin growth of 55.1%, pointing to very good operational scale and cost control.
- Good Cash Flow: Free cash flow gives a company financial room. The search requires free cash flow growth of at least 15% year-over-year. PTC shows very good cash creation, with FCF growth of 48.7%.
- High Return on Equity (ROE): ROE checks how well a company creates profits from shareholder equity. The method looks for a minimum ROE of 10%. PTC provides a solid ROE of 21.3%, showing efficient use of investor money.
Fundamental Score and Price Context
A look at PTC's wider fundamental view, as described in its detailed analysis report, backs the findings from the specific search. ChartMill gives PTC a good fundamental score of 7 out of 10. The report notes high marks in profitability and condition, seeing the company's leading profit margins and good financial strength. While growth is predicted to slow from its recent fast speed, analysts still forecast solid future EPS and revenue gains. From a price view, PTC's earnings multiples are generally similar to or somewhat better than both its software industry group and the wider S&P 500, which is significant given its high-growth pattern.
A Beginning for More Study
PTC Inc. offers a notable example of a company that meets a strict, multi-factor growth search based on set investment rules. Its good fit with the "Little Book" factors, from analyst raises and earnings beats to quickening sales, widening margins, and high returns, makes it a stock deserving of more review by growth-focused investors.
This one finding comes from a changing search. Investors wanting to find other companies currently matching these "Little Book" factors can examine and adjust the search themselves using this link: View the Little Book That Makes You Rich Screen.
Disclaimer: This article is for information only and is not financial guidance, a support, or a suggestion to buy, sell, or keep any security. The "Little Book" search is a model based on past rules and may not fit all investors. Always do your own full study and think about your personal financial position and risk comfort before making any investment choices.
