As a supplement to the printed edition of IAS, we provide an Excel spreadsheet each month with data on all companies currently tracked by the newsletter. Using this file, it's easy enough to sort the companies to find those with the fastest projected EPS growth (or lowest P/E Ratio, highest projected total return, or highest yield, etc.).
Here are the five companies currently followed by our analysts that have the greatest expected earnings per share growth over the next five years. Each of these companies is expected to grow EPS at an average annual rate of at least 20% in the coming five years. As would be expected, three of the five companies are small-cap stocks; the best oppportunities for growth usually come from smaller companies.
|P/E as %
||Higher One Holdings
All of these companies have seen average annual EPS growth in excess of 20% in their histories. However, because of the tendency for growth to slow as companies get bigger, our analysts are hesitant to project future growth anywhere above 18%. It's simply unrealistic to expect that companies can sustain EPS growth at such high levels for any period of time. You won't find us hunting down momentum stocks or immature companies in the aggressive growth stage of a company's life cycle--when we want some excitement, we'll ride the roller coaster at the amusement park. There's no need for adrenalin-fueled head rushes in a stock portfolio.
Our analysts come up with their own judgments about a company's future growth prospects by reviewing analyst consensus EPS and Sales estimates, tuning in to hear company guidance, checking out a company's historical track record of growth, and conducting a deep analysis of a company's financial statements and margins.
Even though the primary focus of IAS is on discovering high-quality growth stocks, fewer than 7% of stocks currently covered are projected to grow EPS at 20%. One stock is projected to grow EPS at 8%, the lowest expectation of any stock in the current IAS universe. The remaining 71 companies are projected to grow between 10% and 18%. For stocks at the lower end of the growth range, total return is expected to include an expansion of the P/E Ratio (which comes from buying undervalued stocks) and/or the yield from dividends (the highest current yield from any stock in the April 2012 issue is 3.5%).
As with all of our recommendations, subscribers are asked to complete their own due diligence before making any purchase to determine the suitability of a stock for their personal portfolio. Please note that of the above five companies, only one of the stocks is recommended for purchase at current valuation levels. As you can note by the "P/E as % of Growth" column, several of these stocks are richly valued relative to their P/E Ratios.