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 persuasive structure. The method centers on eight basic rules meant to find companies with better earnings momentum, faster sales, rising profitability, and good financial condition. By filtering for these particular factors, investors try to find stocks set for major growth before the wider market completely sees their possibility.
A recent filter using this approach has identified PTC Inc. (NASDAQ:PTC), a worldwide software company focused on computer-aided design (CAD) and product lifecycle management (PLM) solutions. The company's latest financial results indicate it matches well with Navellier's principles focused on growth.
How It Matches the "Little Book" Rules
The filter tests stocks against eight main rules. Here is how PTC compares according to the given information:
- Positive Earnings Revisions: Analysts have increased their earnings per share (EPS) estimate for PTC's next quarter by more than 9% in the past three months. This upward change is a key sign in Navellier's method, as it implies analysts are becoming more confident in the company's short-term future based on new favorable data.
- Positive Earnings Surprises: PTC has exceeded EPS estimates in all of the last four quarters, doing so by a large average of over 33%. Steady positive surprises make the market reconsider a company's earning ability and frequently result in upward price movement.
- Increasing Sales Growth: The company shows solid top-line growth, with year-over-year revenue growth of 23.6% and quarter-over-quarter sales growth of 21.4%. Good and speeding sales are the foundation of any growth narrative, showing market need and business expansion potential.
- Expanding Operating Margin: PTC's operating margin has increased by a notable 55% in the last year. This rule is important because it reveals the company is not only growing sales but is doing so with profit, changing revenue into earnings at a better rate.
- Strong Cash Flow: The company's free cash flow rose by almost 49% in the past year. Good and increasing cash flow gives financial room to pay for operations, put money into growth, or give capital back to shareholders without needing outside funding.
- Earnings Growth: PTC shows considerable bottom-line growth, with EPS growing 73.6% year-over-year and 74.5% quarter-over-quarter. This shows the considerable leverage in its business model as sales rise.
- Positive Earnings Momentum: The present quarterly EPS growth (74.5%) is much greater than the growth rate from the same quarter a year before (-0.9%). This speed increase in earnings growth is a key part of Navellier's method, showing momentum is growing.
- High Return on Equity (ROE): With an ROE of 21.3%, PTC produces a good return on shareholder equity. A high and ideally rising ROE shows management is using investor money well to create profits.
Basic Financial Condition and Valuation Overview
Beyond the particular filter rules, a wider view of PTC's finances supports the investment idea. The company gets a good basic rating of 7 out of 10, with special force in profitability and condition.
- Profitability is a clear strength, with top-level margins in its industry. Its operating margin of 39.3% and profit margin of 28.6% place it in the highest group of software companies.
- Financial condition is good. The company has a workable debt amount, with a sound Debt-to-Equity ratio of 0.31. An Altman-Z score of 5.33 shows a small short-term bankruptcy danger.
- Valuation seems fair compared to its growth. While the stock is not very inexpensive, its Price-to-Earnings ratio of 15.5 is under both the industry average and the wider S&P 500, possibly giving a good chance to enter for a company with its growth picture.
For a complete look at these measures, you can see the full basic analysis report for PTC.
Summary
PTC Inc. shows a persuasive example of a company that meets a strict, rules-based growth filter. Its mix of good earnings surprises, speeding sales and profit margins, solid cash flow production, and high returns on equity matches well with the idea of aiming for "better growth stocks" as described by Louis Navellier. While the wider market's short-term direction is neutral, the company's good basic momentum might place it well for investors focused on long-term business results.
It is key to note that filtering is a first step for more study, not a final signal to buy. The "Little Book" method is made to find a group of possible candidates, from which investors should do their own complete examination.
Interested in looking at other companies that match this growth picture? You can locate and adjust the "Little Book" filter yourself here.
Disclaimer: This article is for information only and does not make up financial guidance, a support, or a suggestion to buy, sell, or keep any security. Investing includes risk, including the possible loss of original money. You should do your own research and talk with a qualified financial advisor before making any investment choices.