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" offer a useful framework. The plan centers on eight basic rules meant to find stocks with better earnings momentum, faster sales, and rising profitability. By selecting for companies that show positive earnings revisions and surprises, solid sales and earnings growth, widening margins, strong cash flow, and a high return on equity, the approach tries to find businesses in a strong growth stage before most of the market completely sees their possibility.
A recent filter using these rules has identified Toast Inc-Class A (NYSE:TOST), a company providing a cloud-based platform for the restaurant industry. The company's latest financial results show a clear match with many of Navellier's important growth filters.
Match with Growth Rules
A detailed look at Toast's fundamentals shows why it meets the "Little Book" filter. The company is not only growing, it is displaying the exact signs of speeding up, high-standard growth that the plan looks for.
- Positive Earnings Revisions & Surprises: Analysts have increased their earnings per share (EPS) estimate for the next quarter by 5.43% over the last three months, an upward revision that points to rising confidence in short-term results. Also, Toast has a flawless history of beating estimates, reporting positive EPS surprises in all of its last four quarterly earnings, with an average beat of 12.63%.
- Solid Sales and Earnings Growth: The company shows the strong top-line increase important for a growth stock. Revenue increased 24.05% over the last year and 22.05% in the latest quarter compared to the year-before period. More notably, its bottom-line growth is very high, with EPS rising 1900% year-over-year and 220% quarter-over-quarter.
- Widening Profitability and Cash Flow: Toast is effectively turning its sales growth into higher profitability. Its operating margin has widened by a notable 308% over the past year, showing major operating leverage. At the same time, its free cash flow—a key sign of financial health and flexibility—increased by 98.7%.
- Earnings Momentum and High ROE: The plan stresses speeding up momentum. Toast's current quarterly EPS growth of 220% is much higher than the 171% growth it reported for the same quarter a year ago, confirming upward earnings momentum. Lastly, the company produces a good return on equity (ROE) of 16.1%, above the filter's 10% limit and showing efficient use of shareholder money.
Fundamental Rating Summary
ChartMill's fundamental analysis report gives Toast an overall rating of 6 out of 10. This score shows a varied but hopeful profile that matches a growth investment idea. The company's financial health is very good, featuring a very solid balance sheet with no debt and good liquidity. Its growth measures are a clear strength, with outstanding past growth in both revenue and earnings, and good growth forecasts for the future.
The main notes of caution are in profitability and valuation. While profitability ratios like Return on Assets and Return on Invested Capital are solid, its operating margin, though getting better, still trails many industry competitors. The valuation is seen as high based on standard measures like Price/Earnings and Price/Forward Earnings ratios, which is common for high-growth companies. The report ends by saying Toast is "very considerable for growth investing," a view that fits with the "Little Book" filter's goal of finding active growth stocks. A full breakdown is in the full fundamental analysis report.
Market Setting and Investment Note
It is important to note that this growth-oriented filter works separately from near-term market movements. While the present market shows a split with a negative long-term trend for the S&P 500 next to a positive short-term trend, the "Little Book" plan is fundamentally driven, looking for companies with solid internal momentum that could do well across different periods. For investors, the high valuation of a stock like Toast highlights the importance of the plan's rules. The measures about margin widening, earnings speed-up, and positive revisions are meant to give assurance that the company's growth can keep supporting its higher price over time.
Toast acts as a real-world example of how Navellier's filtering rules can find companies showing strong fundamental momentum. Investors wanting to look at other companies that currently meet this growth-oriented filter can view the complete and updated results 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 research and consult with a qualified financial advisor before making any investment decisions.
