Growth investing strategies often look for companies that are not only growing but also seeing their financial performance speed up. One method for finding these stocks is described in Louis Navellier's The Little Book That Makes You Rich, which lists eight basic rules for choosing leading growth stocks. These rules center on earnings revisions, surprises, sales and earnings growth, margin expansion, cash flow, and return on equity. A recent filter using these ideas has found PTC INC (NASDAQ:PTC) as a company that fits this strict group of conditions.
Fitting the "Little Book" Conditions
The filter uses Navellier's eight rules as specific checks. PTC's latest financial reports display good agreement with these growth-oriented measurements.
- Positive Earnings Revisions: Analysts have increased their earnings per share (EPS) estimate for PTC's next quarter by more than 13% in the past three months. This upward change is an important sign, meaning analysts have more belief in the company's short-term future based on new good information.
- Positive Earnings Surprises: PTC has a flawless history of surpassing analyst predictions lately, exceeding EPS estimates in every one of the past four quarters. The average surprise was a large 33.5%, showing the company regularly performs better than market predictions.
- Increasing Sales Growth: The company shows solid top-line increase. Year-over-year revenue growth is at 23.6%, while quarterly sales grew 21.4% compared to the same time last year. This gain in revenue is a basic need for any growth stock.
- Expanding Operating Margin: Profitability is getting better notably. PTC's operating margin has grown by more than 55% in the last year. This shows the company is not only increasing sales but is doing so effectively, turning more revenue into operating profit.
- Strong Cash Flow: The essential need of a growth company, free cash flow, is rising strongly. PTC's free cash flow went up by 48.7% over the past year, giving good resources to fund operations, spend on new projects, or give money back to shareholders without too much need for outside funding.
- Earnings Growth: Bottom-line growth is very strong. PTC's EPS grew 73.6% year-over-year, and quarterly EPS jumped 74.5% compared to the year before. This forceful earnings growth is a main reason for stock price gains.
- Positive Earnings Momentum: The earnings growth rate is speeding up. The latest quarterly EPS growth of 74.5% is a sharp rise from the 0.9% drop reported for the same quarter a year earlier. This good momentum is a characteristic of companies starting a high-growth period.
- High Return on Equity (ROE): PTC produces a very good return on shareholder equity, now at 21.3%. This means management is very good at using invested money to create profits, meeting the last rule for leading growth selection.
Basic Financial Condition and Valuation
Outside the specific filter conditions, a wider basic financial review of PTC supports the investment idea. According to a complete fundamental report, PTC gets an overall score of 7 out of 10. The company scores very well on profitability (9/10), with notable margins and returns on assets and invested capital that place in the best group of its software industry competitors. Financial condition is also sound (7/10), helped by a workable debt level and good free cash flow production.
Valuation shows a varied view. While the stock is not valued highly compared to the wider market or its industry using standard Price-to-Earnings and Price-to-Free-Cash-Flow ratios, its high past growth rate creates a high standard for future results. The review states that the expected growth rate, while still positive, is likely to slow from its recent fast speed.
The Investment Setting
For investors using a strategy like Navellier's, PTC shows a strong case. The company is performing well on every part of the growth list: analysts are increasing estimates, the company is surpassing them regularly, and both sales and profits are growing at a speeding rate with expanding margins. This mix of basic strengths is exactly what the method aims to find early in a company's growth path.
It is important to state that such filters are a beginning for more study. The present market situation, with both short and long-term directions for the S&P 500 in poor areas, recommends a careful method. High-growth stocks can show more movement during wider market declines, even if their own company-specific basics stay strong.
Looking for More
PTC was found using a set filter based on The Little Book That Makes You Rich method. Investors wanting to find other companies that now meet these particular growth conditions can see the full filter results here.
Disclaimer: This article is for information only and is not financial advice, a suggestion, or an offer or request to buy or sell any securities. The information shown is from given data and should not be the only reason for an investment choice. Investors should do their own complete study and talk with a qualified financial advisor before making any investment decisions. Past results do not show future outcomes.