(1) ROIC(5yr avg) > 15 %
(2) Sales growth(5yr avg) > 15 %
(3) EPS growth(5yr avg) > 15 %
(4) Equity Growth(Y/Y) > 15%
(5) Cash Flow growth(Y/Y) > 15%
Thoughts behind this strategy?
(1) Return on Investment Capital - ROIC is calculated by dividing Net Profits by Investment. The Investment part includes the long term capital owned by the shareholders as well as the long term debt carried by the company. the ROIC ratio indicates how much the company is making on the invested capital. A 15% average rate of return over a 5 year indicates that the Management is doing an excellent job of generating returns on the Shareholders/Stakeholders capital.
(2) EPS Growth Rate - Would you like to invest in company which earning money or losing money? I guess the answer is unequivocally "making money". What better measure could there be other than "EPS Growth Rate". This probably is one of the most important metric that an Investor should look at.
(3) Sales Growth Rate - How does a company make money? By selling products/services that consumers are interested in. Implicitly, we want to invest in companies with strong Sales Growth rate. Also remember that we have to look at Sales Growth for one more reason ... a company can fudge its earnings report by apply cost-cutting measures. But how long can such company survive. How long can it cut costs? It eventually needs to sell. Hence an Intelligent Investor should demand a consistent Sales Growth rate of atleast 15%.
(4) Equity Growth Rate - Equity tells us how valuable the company is at specific point in time. It is sort of "Networth" equivalent. However, as an Investor, we should be more interested in the Equity Growth Rate. It tells us how the company is doing in terms on accumulating money year over year.
(5) Cash Flow - Similar to the Equity Growth, we also want to ensure that the company is generating real hard cash and not fluff.
Where to look for ready made information?
http://www.investor.reuters.wallst.com/stocks/Ratios.asp?rpc=66&ticker=WTM
An example?
For Cash Flow & Equity Growth check out "Financial Statements" from the above link.
This is just beginning of the Investment Research phase. To cap our initial research, we need to look into ... Some of these aspects are subjective and difficult to analyze in general. Some of them are just plain simple. Hence, I would leave those to your imagination ...
* Management
* Product Portfolio
* Future estimated EPS growth (>15%)
* Future estimated P/E (<15)
DISCLAIMER: Information is provided 'as is' and solely for informational purposes, not for trading purposes or advice. As always YMMV.
