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ARW Stock Study (9-16-24)

Posted by on October 31, 2024 at 06:13 | Last modified: September 18, 2024 08:16

I recently did a stock study on Arrow Electronics, Inc. (ARW) with a closing price of $124.35. The previous study is here.

M* writes:

     > Arrow Electronics Inc. is a provider of products, services, and
     > solutions to industrial and commercial users of electronic
     > components and enterprise computing solutions. It has one of the
     > world’s broadest portfolios of product offerings available from
     > electronic components and enterprise computing solutions suppliers,
     > coupled with a range of services, solutions, and software, the
     > company helps industrial and commercial customers introduce
     > products, reduce their time to market, and enhance their overall
     > competitiveness. The company has two business segments, the
     > components business and the enterprise computing solutions.

Over the last 10 years, this large-size company grows sales and EPS at annualized rates of 5.4% and 17.8%, respectively (’19 excluded from the full analysis due to negative EPS). Lines are somewhat up, cyclical, and parallel with YOY EPS decline in ’17 and sales+EPS declines in ’20 and ’23. Five- and 10-year EPS R^2 are 0.36 and 0.88, respectively, and Value Line gives an Earnings Predictability score of 60.

Over the past decade, PTPM leads peer and industry averages while ranging from 2.6% in ’17 and ’20 to 5.1% in ’22 with a last-5-year mean of 3.9%. ROE leads peer and industry averages while increasing from 11.3% (’14) to 15.5% (’23) with a last-5-year mean of 17.9%. Debt-to-Capital is higher than peer and industry averages while ranging from 30.7% in ’20 to 40.5% in ’22 with a last-5-year mean of 36.0%.

Quick Ratio is 0.98 and Interest Coverage 3.4 per M*. Value Line gives a B++ grade for Financial Strength.

With regard to sales growth:

I am discounting the long-term estimate to zero due to unanimous projection of short-term contraction.

With regard to EPS growth:

My forecast of flat growth is around middle of the range with two of three long-term estimates being negative (mean: +2.9%). I will use ’23 EPS of $15.84/share as high EPS (initial value) and 2024 Q2 EPS of $10.61 (annualized) as low EPS.

My Forecast High P/E is 9.0. Over the past decade, high P/E ranges from 6.3 in ’22 to 18.9 in ’17 with a last-5-year mean of 9.5 and a last-5-year-mean average P/E of 7.6. I am near bottom of the high P/E range (only ’22 is less).

My Forecast Low P/E is 6.0. Over the past decade, low P/E ranges from 4.1 in ’22 to 15.3 in ’17 with a last-5-year mean of 5.6. I am forecasting near bottom of the range [only ’22 and ’20 (5.3) are less].

My Low Stock Price Forecast (LSPF) is $98.00. Default based on low EPS from above seems unreasonably low at 48.8% (41.3%) less than the previous close (52-week high). My arbitrary forecast is 21.1% and 9.7% less, respectively.

These inputs land ARW in the HOLD zone with a U/D ratio of 0.7. Total Annualized Return (TAR) is 2.8%.

PAR (using Forecast Average—not High—P/E) is -0.9%, which is a SELL for any size company. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on the total annualized return (TAR) of 2.8% instead but even that is less than the current yield on T-bills.

To assess MOS, I would normally start with Member Sentiment but only four other studies have been done in the past 90 days. This is too small a sample for comparison and an indication of “nothing to see here.”

MOS is robust because my inputs are near or below respective analyst/historical ranges. My high EPS of $15.84/share is much lower than Value Line’s $30.00. Value Line also projects a higher future average annual P/E (8.0 versus my 7.5).

I think the picture painted here is one of a low-quality company. Visual inspection is weak (cyclical). Estimates for sales and EPS growth are minimal. Interest Coverage is low. Especially for a large-size company, long-term estimates are lacking (only three data sources). Default LSPF is in need of an override.

Value Line offers one caveat: “Arrow Electronics may be at the nadir of its business cycle.” If true, then things will get better going forward—at least to allow for a more complete SSG.

Per U/D, ARW is a BUY < $109. BI TAR criterion is met ~ $71/share based on forecast high price ~ $143 (no dividend).

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PCTY Stock Study (9-5-24)

Posted by on October 28, 2024 at 06:49 | Last modified: September 5, 2024 11:38

I recently did a stock study on Paylocity Holding Corp. (PCTY) with a closing price of $160.51.

M* writes:

     > Paylocity is a provider of payroll and human capital
     > management, or HCM, solutions servicing small- to midsize
     > clients in the United States. The company was founded in
     > 1997 and targets businesses with 10 to 5,000 employees and
     > services about 39,000 clients as of fiscal 2024. Alongside
     > core payroll services, Paylocity offers HCM solutions such
     > as time and attendance and recruiting software, as well
     > workplace collaboration and communication tools.

Since 2018 (’15-’17 excluded from full analysis due to respective EPS of -$0.28/share, -$0.08/share, and $0.12/share that would otherwise inflate historical growth rate), this medium-size company grows sales and earnings at annualized rates of 24.8% and 29.1%, respectively. Lines are up, straight, and parallel with no historical data audit flags. Interestingly, Value Line only gives an Earnings Predictability score of 45.

Since 2018 (FY ends 6/31), PTPM leads peer and industry averages by climbing from 4.4% to 19.8% (’24) with a last-5-year mean of 12.8%. ROE leads peer and industry averages while ranging from 15.1% in ’21 to 18.3% in ’24 with a last-5-year mean of 16.8%. Debt-to-Capital is much lower than peer and industry averages despite increasing from 1.0% (’18) to 5.0% (’24) with a last-5-year mean of 13.8%.

Current and Quick Ratios are 1.13 and 0.13, respectively, per M* who assigns an “Exemplary” rating for Capital Allocation and “Narrow” Economic Moat. The difference surprises me for what should be an asset-light company. While 0.13 would be alarmingly low, Value Line gives an A grade for Financial Strength. As a check on M*, gurufocus.com reports 1.13 for both June ’24 current and quick ratios.

With regard to sales growth:

My 8.0% annualized forecast is below the range.

With regard to EPS growth:

I cannot explain the discontinuity between CFRA’s ’24 and ’25/’26 ACE. No recent/ongoing acquisitions are mentioned.

My 9.0%/year forecast is below the long-term-estimate range (mean of five: 14.6%). Initial value is 2024 EPS of $3.63/share.

My Forecast High P/E is 44.0. Since 2018, high P/E ranges from 63.5 in ’24 to 195 in ’22 with a last-5-year mean of 135 and a last-5-year-mean average P/E of 103. Most of these numbers are high enough for me to regard as NMF. I am just below the current P/E of 44.1.

My Forecast Low P/E is 32.0. Since 2018, low P/E ranges from 36.1 in ’24 to 94.4 in ’22 with a last-5-year mean of 70.4. Again, most of these numbers are high enough for me to regard as NMF. I am forecasting below the range and near the top of my comfort zone.

My Low Stock Price Forecast (LSPF) of $116.20 is default based on initial value given above. This is 27.6% less than the previous close and 10.5% less than the 52-week low.

These inputs land PCTY in the HOLD zone with a U/D ratio of 1.9. Total Annualized Return (TAR) is 8.5%.

PAR (using Forecast Average—not High—P/E) is less than I seek for a medium-size company at 5.8%. If a healthy margin of safety (MOS) anchors the study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on only 54 studies (my study and 21 outliers excluded) over the past 90 days, averages (lesser of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 13.3%, 13.9%, 46.0, and 33.7, respectively. I am lower across the board. Value Line [strangely] offers no future average annual P/E.

MS high / low EPS are $6.66 / $3.44 versus my $5.59 / $3.63 (per share). My high EPS is less due to a lower growth rate. Value Line’s $5.60 is less than both [would be somewhat shocking except the latter is ’28 while we are projecting to ’29].

MS LSPF of $118.20 implies Forecast Low P/E of 34.4: greater than the above-stated 33.7. MS LSPF is 2.0% greater than the default $3.44/share * 33.7 = $115.93 resulting in more aggressive zoning. MS LSPF is also 1.7% greater than mine.

With regard to valuation, PEG is 2.8 and 4.5 per Zacks and my projected P/E, respectively: both overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] is slightly low at 0.89 when I use the lowest low/high P/E’s of the last 5 years to calculate the denominator (anything else is NMF and results in the metric being [deceptively] lower).

MOS is robust because my inputs are near or below respective analyst/historical ranges and MS averages. This is further supported by an MS TAR (17.5%) that is 900 basis points greater than mine.

Per U/D, PCTY is a BUY < $148. BI TAR criterion is met at $123/share based on forecast high price of $246 (no dividend).

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MYRG Stock Study (9-4-24)

Posted by on October 24, 2024 at 06:42 | Last modified: September 4, 2024 11:16

I recently did a stock study on MYR Group, Inc. (MYRG) with a closing price of $94.19. The previous study is here.

M* writes:

     > MYR Group Inc is a U.S.-based holding company that provides
     > specialty electrical construction services through its
     > subsidiaries. The company operates through two segments.
     > The transmission and distribution segment provides designing,
     > engineering, procurement, construction, upgrade, maintenance,
     > and repair services on transmission and distribution network
     > and substation facilities. The commercial and industrial
     > segment provides services such as the design, installation,
     > maintenance, and repair of commercial and industrial wiring,
     > installation of traffic networks, and the installation of
     > bridges. MYR Group generates the majority of its sales from
     > the United States and Canada.

Over the last 10 years, this medium-size company has grown sales and EPS at annualized rates of 16.4% and 19.9%. Lines are mostly up, straight, and parallel except for EPS declines in ’15, ’16, and ’22. Five- and 10-year EPS R^2 are 0.83 and 0.84, respectively, and Value Line gives an Earnings Predictability score of 80.

Over the past decade, PTPM trails peer and industry averages while falling from from 6.1% (’14) to 3.4% (’23) with a last-5-year mean of 3.6%. ROE leads peer and industry averages while increasing from 11.3% (’14) to 14.4% (’23) with a last-5-year mean of 14.3%. Debt-to-Capital is much lower than peer and industry averages despite increasing from 0% (’14) to 10.2% (’23) with a last-5-year mean of 14.3%.

Quick Ratio is 1.3 and Interest Coverage is 13.2 per M* who assigns a “Narrow” (quantitative) economic moat. Value Line grades the company B++ for Financial Strength.

With regard to sales growth:

My 3.0% per year forecast discounts the long-term estimate based on lower short-term growth projections.

With regard to EPS growth:

My 9.0% per year forecast is below the long-term-estimate range (mean of three: 16.7%). Initial value is ’23 EPS of $5.40/share rather than TTM EPS of $2.92.

My Forecast High P/E is 17.0. Over the past decade, high P/E ranges from 16.8 in ’14 to 34.2 in ’17 with a last-5-year mean of 22.2 and last-5-year-mean average P/E of 18.0 (excluding 2020 low P/E of 4.7). I am near bottom of the range [only ’14 and ’19 (16.9) are less].

My Forecast Low P/E is 13.0. Over the past decade, low P/E ranges from 11.2 in ’21 to 18.0 in ’17 (excluding 4.7 in ’20) with a last-5-year mean of 13.8 (excluding ’20). I am forecasting near bottom of the range [only ’21 and ’19 (11.9) are less].

My Low Stock Price Forecast (LSPF) of $70.20 is default based on initial value given above. This is 25.5% (24.1%) less than the previous close (52-week low).

These inputs land MYRG in the HOLD zone with a U/D ratio of 2.0. Total Annualized Return (TAR) is 8.4%.

PAR (using Forecast Average—not High—P/E) of 5.8% is less than I seek in a medium-size company. If a healthy margin of safety (MOS) anchors the study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on only 16 studies (my study and 7 other outliers excluded) over the past 90 days, averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 12.0%, 15.1%, 22.2, and 12.0, respectively. I am lower on all but the latter (13.0). Value Line’s projected average annual P/E of 18.0 is higher than MS (17.1) and higher than mine (15.0).

MS high / low EPS are $8.12 / $4.88 versus my $8.31 / $5.40 (per share). MS range is lower due to a lower initial value. Value Line’s $13.55 high EPS soars above both.

MS LSPF of $73.10 implies a 15.0 Forecast Low P/E: greater than the above-stated 12.0. MS LSPF is 24.8% greater than than the default $4.88/share * 12.0 = $58.56, which results in more aggressive zoning. MS LSPF is also 4.1% greater than mine.

With regard to valuation, PEG is 3.3 per my projected P/E. Relative Value [(current P/E) / 5-year-mean average P/E] is also quite high at 1.79. Both are influenced by a sudden drop in TTM EPS.

MOS is robust because my inputs are near or below respective analyst/historical ranges. MS sample size is too small for a valid comparison, but anecdotally MS TAR of 9.2% is 0.8%/year greater than mine.

Per U/D, MYRG is a BUY under $88. BI TAR criterion is met ~ $71/share based on forecast high price ~ $142 (no dividend).

A 90-day free trial to BetterInvesting® may be secured here (also see link under “Pages” section at top right of this page).

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GNTX Stock Study (9-3-24)

Posted by on October 23, 2024 at 06:53 | Last modified: September 3, 2024 14:39

I recently did a stock study on Gentex Corp. (GNTX) with a closing price of $31.33.

M* writes:

     > Gentex was founded in 1974 to produce smoke-detection equipment.
     > The company sold its first glare-control interior mirror in 1982 and its
     > first model using electrochromic technology in 1987. Automotive
     > revenue is about 98% of total revenue. The company is constantly
     > developing new applications for the technology to remain on top.
     > Sales in 2023 totaled about $2.3 billion with 50.6 million mirrors
     > shipped. The unit mix breaks out as 63% interior and 37% exterior,
     > [vs.] 31% exterior in 2019… company is based in Zeeland, Michigan.

Over the last 10 years, this medium-size company grows sales and earnings at annualized rates of 3.8% and 5.3%, respectively. Lines are mostly up, straight, and parallel except for sales/EPS decline in ’20 and an additional EPS decline in ’22. Five- and 10-year EPS R^2 are 0.05 and 0.62, respectively. Although the former is concerning, Value Line gives an Earnings Predictability score of 75.

Over the past decade, PTPM leads peer and industry averages despite falling from 30.2% (’14) to 22.0% (’23) with a last-5-year mean of 23.3%. ROE leads peer and industry averages while ranging from 15.7% in ’22 to 22.8% in ’18 with a last-5-year mean of 18.6%. Debt-to-Capital is less than peers and the industry by falling from 14.5% (’14) to 0% in ’18 and beyond.

Quick Ratio is 1.9 per M* who assigns a “Standard” rating for Capital Allocation and a “Narrow” Economic Moat. Value Line [only?] gives a B++ grade for Financial Strength.

With regard to sales growth:

My 5.0% forecast is near bottom of the range.

With regard to EPS growth:

My 9.0% per year forecast is below the long-term-estimate range (mean of five: 14.7%). Initial value is 2024 Q2 EPS of $1.79/share (annualized) instead of ’23 EPS of $1.84.

My Forecast High P/E is 16.0. Over the past decade, high P/E ranges from 15.7 in ’17 and ’18 to 26.9 in ’22 with a last-5-year mean of 22.6 and a last-5-year-mean average P/E of 19.0. I am near bottom of the range (only ’17 and ’18 are less).

My Forecast Low P/E is 11.0. Over the past decade, low P/E ranges from 10.9 in ’16 to 20.3 in ’21 with a last-5-year mean of 15.4. I am forecasting near bottom of the range (only ’16 is less).

My Low Stock Price Forecast (LSPF) is $23.00. Default ($19.70) based on initial value from above seems unreasonably low at 37.1% (29.4%) less than the previous close (52-week low). My forecast is 26.6% and 17.6% less, respectively, and less than the 2022 Low Price.

Over the past decade, Payout Ratio (PR) ranges from 20.4% in ’18 to 40.0% in ’21 with a last-5-year mean of 32.5%. I am forecasting below the range at 20.0%.

These inputs land GNTK in the HOLD zone with a U/D ratio of 1.7. Total Annualized Return (TAR) is 8.3%.

PAR (using Forecast Average—not High—P/E) is less than I seek for a medium-size company at 4.9%. If a healthy margin of safety (MOS) anchors the study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 199 studies (my study and 56 other outliers excluded) over the past 90 days, averages (lesser of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and PR are 7.9%, 9.7%, 21.0, 14.7, and 31.6%, respectively. I am lower across the board. Value Line’s projected average annual P/E of 18.0 is greater than MS (17.9) and greater than mine (13.5).

MS high / low EPS are $2.90 / $1.81 versus my $2.75 / $1.79 (per share). My high EPS is less due to a lower growth rate. Value Line’s $3.05 is greater than both.

MS LSPF of $25.00 implies Forecast Low P/E of 13.8: less than the above-stated 14.7. MS LSPF is 6.0% less than the default $1.81/share * 14.7 = $26.61 resulting in more conservative zoning. MS LSPF is 8.7% greater than mine, however.

With regard to valuation, PEG is 1.0 and 1.8 per Zacks and my projected P/E, respectively: fairly valued. Relative Value [(current P/E) / 5-year-mean average P/E] is also fair at 0.92.

MOS is robust because my inputs (including most-recent quarterly EPS) are near or below respective analyst/historical ranges and MS averages. This is further supported by an MS TAR (15.5%) 7.2%/year greater than mine.

My biggest concern about the company is historical and projected sales growth falling well short of double digits.

Per U/D, GNTX is a BUY < $23. BI TAR criterion is met ~ $21/share based on forecast high price of $44 and 1.3% dividend.

A 90-day free trial to BetterInvesting® may be secured here (also see link under “Pages” section at top right of this page).

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SCHW Stock Study (8-29-24)

Posted by on October 21, 2024 at 06:21 | Last modified: August 29, 2024 10:22

I recently did a stock study on Charles Schwab Corp. (SCHW) with a closing price of $63.98. The previous study is here.

M* writes:

     > Charles Schwab operates in brokerage, wealth management, banking,
     > and asset management. It runs a large network of brick-and-mortar
     > brokerage branch offices and a well-established online investing
     > website, and has mobile trading capabilities. It also operates a bank
     > and a proprietary asset-management business and offers services to
     > independent investment advisors. Schwab is among the largest firms
     > in the investment business, with over $8 trillion of client assets
     > at end of December 2023. Nearly all of its revenue is from [U.S.].

Over the last 10 years, this large-size company grows sales and EPS at annualized rates of 15.7% and 14.4%, respectively. Lines are mostly up, straight, and parallel except for an EPS dip in ’20 and sales/EPS dip in ’23. Five- and 10-year EPS R^2 are 0.12 and 0.82, respectively, and Value Line gives an Earnings Predictability score of 75.

Over the past decade, PTPM leads peer and industry averages while ranging from 33.9% in ’23 to 45.2% in ’19 and ’22 with a last-5-year mean of 40.5%. ROE leads peer and industry averages while increasing from 11.8% (’14) to 16.2% (’23) with a last-5-year mean of 17.1%. Debt-to-Capital is lower than peer and industry averages despite increasing from 13.9% (’14) to 59.1% (’23) with a last-5-year mean of 37.0%.

M* gives an Exemplary rating for Capital Allocation and awards a “Wide” Economic Moat. Value Line gives an A grade for Financial Strength. Last-5-year mean for Return on Average Assets is 0.89%.

With regard to sales growth:

My 5.0% forecast is in the lower portion of the range.

With regard to EPS growth:

My 11.0% per year forecast is below the 6-long-term-estimate range (mean 16.4%). I will use 2024 Q2 EPS of $2.41/share (annualized) as initial value rather than ’23 EPS of $2.54.

My Forecast High P/E is 21.0. Over the past decade, high P/E ranges from 19.3 in ’19 to 34.7 in ’15 with a last-5-year mean of 27.3 and a last-5-year-mean average P/E of 21.5. I am near bottom of the range (only ’19 is less).

My Forecast Low P/E is 15.0. Over the past decade, low P/E falls from 24.6 (’14) to 17.7 (’23) with a last-5-year mean of 15.8. I am forecasting toward bottom of the range [only ’19 (13.0) and ’20 (13.2) are less].

My Low Stock Price Forecast (LSPF) is $45.00. Default ($36.20) based on initial value given above seems unreasonably low at 43.4% (25.7%) less than the previous close (52-week low). My [arbitrary] forecast is 29.7% and 7.6% less, respectively.

Over the past decade, Payout Ratio (PR) ranges from 18.8% in ’18 to 39.4% in ’23 with a last-5-year mean of 29.6%. I am forecasting below the entire range at 18.0%.

These inputs land SCHW in the HOLD zone with a U/D ratio of 1.1. Total Annualized Return (TAR) is 6.8%.

PAR (using Forecast Average—not High—P/E) of 3.7% is less than I seek for any size company. If a healthy margin of safety (MOS) anchors the study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 150 studies (my study and 48 outliers excluded) over the past 90 days, averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and PR are 8.0%, 13.6%, 26.3, 15.7, and 25.5%, respectively. I am lower across the board. Value Line’s projected average annual P/E of 23.0 is greater than MS (21.0) and mine (18.0).

MS high / low EPS are $4.68 / $2.41 versus my $4.06 / $2.41 (per share). My high EPS is less due to a lower growth rate. Value Line’s $5.40 is greater than both.

MS LSPF of $44.10 implies Forecast Low P/E of 18.3: greater than the above-stated 15.7. MS LSPF is 16.6% higher than the default $2.41/share * 15.7 = $37.84 resulting in more aggressive zoning. MS LSPF is 2.0% less than mine, however.

With regard to valuation, PEG is 1.2 and 2.2 per Zacks and my projected P/E, respectively: slightly overvalued on average. Relative Value [(current P/E) / 5-year-mean average P/E] is high at 1.2.

MOS is robust because my inputs (including quarterly initial value) are near or below respective analyst/historical ranges and MS averages. That is further supported by an MS TAR of 13.5%: 6.7%/year greater than mine.

Per U/D, SCHW is a BUY under $55. Given a forecast high price of $85.30, BI TAR criterion is met:

85.3 * (((1 – (12.94 – 0.9) / 100)) ^ 5) ~ $45/share.

A 90-day free trial to BetterInvesting® may be secured here (also see link under “Pages” section at top right of this page).

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SMCI Stock Study (8-28-24)

Posted by on October 20, 2024 at 06:54 | Last modified: August 28, 2024 12:25

I recently did a stock study on Super Micro Computer Inc. (SMCI) with a closing price of $547.64.

M* writes:

     > Super Micro Computer Inc provides high-performance server technology
     > services to cloud computing, data center, Big Data, high-performance
     > computing, and “Internet of Things” embedded markets. Its solutions
     > include server, storage, blade and workstations to full racks,
     > networking devices, and server management software. The firm follows
     > a modular architectural approach, which provides flexibility to
     > deliver customized solutions. The Company operates in one operating
     > segment that develops and provides high-performance server solutions
     > based upon an innovative, modular and open-standard architecture.
     > More than half of the firm’s revenue is generated in the United
     > States, with the rest coming from Europe, Asia, and other regions.

Over the last 10 years, this large-size company has grown sales and earnings at annualized rates of 20.0% and 31.5%, respectively. Lines are mostly up, straight, and parallel except for YOY sales dip in ’20 and EPS declines in ’16, ’17, and ’18 [FY ends 6/30]. Ten-year EPS R^2 triggers the audit flag at 0.64, and Value Line gives an Earnings Predictability score of 50.

Over the past decade, PTPM falls from 7.3% in ’15 to 2.5% in ’20 before rallying to 8.5% in ’24 for a last-5-year mean of 6.3% [no peer or industry data available]. ROE traces a similar pattern falling from 16.4% in ’15 to 8.1% in ’20 then rallying to 23.9% in ’24 for a last-5-year mean of 19.5%. Debt-to-Capital ranges from 2.5% in ’19 to 30.3% in ’22 with a last-5-year mean of 17.2%. Of 10 peers listed by CFRA, Super Micro Computer’s 23.2% is below the 30.2% median.

Quick Ratio is 2.2 and Interest Coverage is 58.7 per M* who awards a “Narrow” (quantitative) Economic Moat. Value Line gives a B++ grade for Financial Strength.

With regard to sales growth:

My 15.0% per year forecast is below the range.

With regard to EPS growth:

My 15.0% per year forecast is at bottom of the long-term-estimate range (mean of five: 36.7%). Initial value is ’24 EPS of $20.09/share despite being up 75.8% YOY.

My Forecast High P/E is 17.0. Over the last decade, high P/E ranges from 11.0 in ’22 to 61.2 in ’24 with a last-5-year mean of 27.2 and a last-5-year-mean average P/E of 17.7. I am near bottom of the range (only ’22 is less).

My Forecast Low P/E is 6.0. Over the last decade, low P/E ranges from 3.2 in ’23 to 18.1 in ’18 with a last-5-year mean of 8.2. I am forecasting near bottom of the range (only ’23 is less).

My Low Stock Price Forecast (LSPF) is $380.00. Default ($265.20) based on initial value given above seems unreasonably low at 78.0% (46.8%) less than the previous close (52-week low). My forecast is 30.6% less and 67.7% greater, respectively.

These inputs land SMCI in the HOLD zone with a U/D ratio of 0.7. Total Annualized Return (TAR) is 4.1%.

PAR (using Forecast Average—not High—P/E) of -3.7% is unacceptable for any size company. If a healthy margin of safety (MOS) anchors the study, then I can proceed based on TAR but even that is less than current yield on T-bills.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 117 studies (my study and 44 outliers excluded) over the past 90 days, averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 20.0%, 20.0%, 27.2, and 8.2, respectively. I am lower across the board. Value Line’s projected average annual P/E of 35.0 is double that of MS (17.7) and triple mine (11.5).

MS high / low EPS are $45.96 / $17.84 versus my $40.41 / $20.09 (per share). My high EPS is less due to a lower growth rate. Value Line’s $45.00 is in the middle.

MS Low Stock Price Forecast (LSPF) of $226.00 implies Forecast Low P/E of 12.7: greater than the above-stated 8.2. MS LSPF is 54.5% greater than the default $17.84/share * 8.2 = $146.29 resulting in more aggressive zoning. MS LSPF is still 40.5% less than mine, however.

With regard to valuation, PEG is 0.53 and 1.6 per Zacks and my projected P/E, respectively: fairly valued on average. Relative Value [(current P/E) / 5-year-mean average P/E] is extremely high at 1.59.

MOS is robust because my inputs are near or below respective analyst/historical ranges and MS averages. That is further supported by an MS TAR of 15.0%, which is 10.9%/year greater than mine.

Super Micro Computer is a perplexing stock study for multiple reasons. With the stock down 37.4% in the last three months, I would expect MS LSPF closer to current price (if not INVALID). Such is the opposite with MS LSPF much lower than mine. Even with other studies also overriding default, the earlier the study date the closer to my number their LSPF should be.

Besides LSPF, projected future P/E is also perplexing. P/E range for the stock is ~ 6 to 25 from ’15-’22. In ’23 we get a low P/E of 3.2 and in ’24 we get a high P/E of 61.2. Are we suddenly in a new range? Value Line suggests “yes” with a 5-year average annual P/E of 35. I just think it’s too soon to tell.

The other long-term estimates (arithmetic mean 38.0%/year) seem to support Value Line’s 5-year average annual P/E. I’m not buying into the sky-high growth rate so soon and neither does MS (20.0%).

Analyst 12-month stock projections are strange with the lowest (of 19 analysts covered by CNN Business) at -53.4%. I routinely collect but rarely mention these data since analysts are notorious for bullish bias. Nevertheless, I can never recall a low projection of this magnitude. As potential caveats, -53.4% may not be so bad with the stock up 91.9% YTD and 684% over the past two years. It also may be a single downside outlier.

The final mysteries are why Nasdaq.com reports: 1) only one; 2) extremely low estimate (11.0%). The stock is not short on analyst estimates. MarketWatch projects 36.5%/year (albeit for two years) while YF and Zacks project > 50% YOY for ’25. I don’t recall ever seeing this combination of circumstances.

Per U/D, SMCI is a BUY under $456. BI TAR criterion is met ~ $344/share given a forecast high price of $687 (no dividend).

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PLAB Stock Study (8-27-24)

Posted by on October 19, 2024 at 06:36 | Last modified: August 27, 2024 10:01

I recently did a stock study on Photronics, Inc. (PLAB) with a closing price of $23.79.

M* writes:

     > Photronics Inc is a U.S.-based company that is principally engaged in
     > manufacturing photomasks. The photomasks are photographic quartz
     > plates that contain microscopic images of electronic circuits that
     > are used as a component in the manufacture of integrated circuits
     > and flat-panel displays. The revenue from products designed for
     > integrated circuits production accounts for the majority of total
     > revenue, with the rest derived from products for flat-panel display
     > production. The company’s assets are located in Taiwan, Korea, and
     > the United States. It generates revenue worldwide, including in
     > the United States, Europe, Taiwan, Korea, China, and elsewhere in
     > Asia, with Taiwan contributing the majority of total revenue.

Over the past 10 years, the small-size company has grown sales and earnings at annualized rates of 7.4% and 17.5%, respectively. Lines are somewhat up, straight, and parallel except for YOY sales dips in ’16 and ’17 (sizeable—perhaps due to TCJA) and EPS declines in ’17 and ’19 [FY ends 10/31]. Ten-year EPS R^2 is 0.48 (0.56 excluding ’17), and Value Line gives an Earnings Predictability score of 55.

Over the past decade, PTPM leads peer averages but trails the industry while rising from 9.1% (’14) to 30.3% (’23) with a last-5-year mean of 18.8%. ROE also leads peer averages but trails the industry while rising from 4.2% (’14) to 13.0% (’23) with a last-5-year mean of 8.3%. Debt-to-Capital is lower than peer and industry averages while falling from 18.5% (’14) to 2.6% (’23) with a last-5-year mean of 6.9%.

Quick Ratio is 3.9 and Interest Coverage is 640 per M*. Value Line [surprisingly only] gives a B grade for Financial Strength.

With regard to sales growth:

My 3.0% per year forecast is nearly halving the long-term estimate due to projected short-term weakness.

With regard to EPS growth:

My 5.0% per year forecast is below both long-term estimates (8.1% average). Initial value is ’23 EPS of $2.03/share rather than 2024 Q2 EPS of $2.16 (annualized).

My Forecast High P/E is 15.0. Over the past decade, high P/E falls from 23.8 (’14) to 13.3 (’23) with a last-5-year mean of 20.9 and a last-5-year-mean average P/E of 16.3. I am near bottom of the range [only ’23 and ’22 (13.3) are less].

My Forecast Low P/E is 8.0. Over the past decade, low P/E falls from 17.3 (’14) to 6.8 (’23) with a last-5-year mean of 11.7. I am forecasting near bottom of the range [only ’23 and ’22 (6.8) are less].

My Low Stock Price Forecast (LSPF) of $17.30 is default based on initial value given above. This is 27.3% less than the previous closing price and 3.9% less than the 52-week low.

These inputs land PLAB in the HOLD zone with a U/D ratio of 2.3. Total Annualized Return (TAR) is 10.3%.

PAR (using Forecast Average—not High—P/E) of 4.6% is less than I seek for a small-size company. If a healthy margin of safety (MOS) anchors the study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on only 22 studies (my study and 9 outliers excluded) over the past 90 days, averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E, are 7.4%, 5.6%, 16.9, and 11.0, respectively. I am lower across the board. Value Line’s projected average annual P/E of 14.0 is equal to MS and greater than mine (11.5).

MS high / low EPS are $2.78 / $2.14 versus my $2.59 / $2.16 (per share). My high EPS is less due to a lower growth rate. Value Line’s $2.75 is in the middle.

MS LSPF of $18.00 implies Forecast Low P/E of 8.4: less than the above-stated 11.0. MS LSPF is 23.5% less than the default $2.14/share * 11.0 = $23.54 resulting in more conservative zoning. MS LSPF is 4.1% greater than mine, though.

With regard to valuation, PEG is 2.1 per my projected P/E: a bit high. Relative Value [(current P/E) / 5-year-mean average P/E] is low at 0.67.

MOS is robust because my inputs are near or below respective analyst/historical ranges. Although MS sample size limits an impactful comparison, MS TAR is anecdotally 4.3% per year greater than mine.

We must realize much of this analysis is based on the estimates of only two analysts (one aside from Value Line). I believe the fewer the analysts, the larger MOS is needed. I try to achieve that by forecasting below the range.

Per U/D, PLAB is a BUY under $22/share. BI TAR criterion is met ~ $19/share given a forecast high price ~ $39 (no dividend).

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OPCH Stock Study (8-26-24)

Posted by on October 18, 2024 at 06:11 | Last modified: August 26, 2024 16:35

I recently did a stock study on Option Care Health, Inc. (OPCH) with a closing price of $31.83.

M* writes:

     > Option Care Health Inc is the provider of home and alternate-
     > site infusion services. It provides treatment for bleeding
     > disorders, neurological disorders, heart failure, anti-
     > infectives, and chronic inflammatory disorders among others.

Since 2014 and 2021 (first year of profitability), this medium-size company has grown sales and earnings at annualized rates of 11.9% and 23.4%, respectively. Lines are somewhat up, straight, and parallel (since ’21) with YOY sales dips each year between ’14-’18. EPS R^2 is 0.83 (three data points) but Value Line gives an Earnings Predictability score of 30.

Since 2021, PTPM trails peer and industry averages despite increasing from 3.4% to 8.3% (mean 5.6%). ROE leads industry averages while increasing from 12.6% to 17.9% (mean 14.0%). Debt-to-Capital is less than industry averages while falling from 49.6% to 45.1% (mean 46.7%).

Quick Ratio is 1.2 and Interest Coverage is 6.6 per M* who assigns a “Narrow” [Quantitative] Economic Moat. Value Line gives a B+ grade for Financial Strength.

With regard to sales growth:

My 8.0% per year forecast is near bottom of the range.

With regard to EPS growth:

The spectre of data duplication is raised with YF and Zacks having almost identical estimates. Even assuming this to be the case, however, the mean [of four] is little changed [at 11.5% per year].

My 8.0% per year forecast is near bottom of the long-term-estimate range (mean of five: 11.2%). Initial value is 2024 Q2 EPS of $1.19/share (annualized) rather than ’23 EPS of $1.52.

My Forecast High P/E is 24.0. From 2021-3, high P/E is 37.5, 43.2, and 24.1, respectively (mean 34.9). The mean average P/E is 27.8. I am below the range.

My Forecast Low P/E is 19.0. From 2021-3, low P/E is 20.0, 25.7, and 16.4, respectively (mean 20.7). I am forecasting in lower portion of the range.

My Low Stock Price Forecast (LSPF) of $22.60 is default based on initial value given above. This is 29.0% less than the previous closing price and 13.4% less than the 52-week low.

These inputs land OPCH in the HOLD zone with a U/D ratio of 1.1. Total Annualized Return (TAR) is 5.7%.

PAR (using Forecast Average—not High—P/E) of 3.4% is less than I seek for a medium-size company. If a healthy margin of safety (MOS) anchors the study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on only 10 studies (my study and 3 outliers excluded) over the past 90 days, averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E, are 9.7%, 10.0%, 28.1, and 17.7, respectively. I am lower on all but the latter (19.0). Value Line’s projected average annual P/E of 29.0 is greater than MS (22.9) and greater than mine (21.5).

MS high / low EPS are $2.38 / $1.45 versus my $1.75 / $1.19 (per share). My high EPS is less due to a lower growth rate and initial value. Value Line’s $1.90 is in the middle.

MS LSPF of $22.90 implies Forecast Low P/E of 15.8: less than the above-stated 17.7. MS LSPF is 10.8% less than the default $1.45/share * 17.7 = $25.67 resulting in more conservative zoning. MS LSPF is 1.3% greater than mine, however.

With regard to valuation, PEG is 2.4 and 3.1 per Zacks and my projected P/E, respectively: a bit rich. Relative Value [(current P/E) / 5-year-mean average P/E] is fair at 0.96.

MOS is robust because my inputs (including quarterly initial value) are near or below respective analyst/historical ranges. While MS sample size is too small for a meaningful comparison, its 15.3% TAR is anecdotally 9.6% per year greater than mine.

With only three years of profitable data recorded, I think estimates have to lean conservative because few analysts have little on which to base judgments.

Per U/D, OPCH is a BUY under $27/share. BI TAR criterion is met at $21/share given a forecast high price of $42 (no dividend).

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CNC Stock Study (8-26-24)

Posted by on October 16, 2024 at 06:47 | Last modified: August 26, 2024 07:27

I recently did a stock study on Centene Corp. (CNC) with a closing price of $78.55. The previous study is here.

M* writes:

     > Centene is a managed-care organization focused on government-
     > sponsored healthcare plans, including Medicaid, Medicare, and
     > the individual exchanges. Centene served 24 million medical
     > members as of June 2023, mostly in Medicaid (67% of membership),
     > the individual exchanges (14%), Medicare Advantage (6%), and
     > the balance in Tricare (West region), correctional facility,
     > and commercial plans. The company also serves traditional
     > Medicare users with its Medicare Part D pharmaceutical program.

Over the past 10 years, the mega-size ( > $50B annual revenue) company has grown sales and earnings at annualized rates of 28.5% and 11.9%, respectively. Lines are somewhat up, straight, and parallel except for YOY EPS declines in ’18, ’20, ’21, and ’22 (recent year catches back up to previous trendline). Ten- (Five-) year EPS R^2 is 0.65 (0.05), but Value Line gives an Earnings Predictability score of 90.

Over the past decade, PTPM trails peer and industry averages while falling from 2.8% (’14) to 2.3% (’23) with a last-5-year mean of 2.0%. ROE also trails peer and industry averages while falling from 16.2% (’14) to 10.5% (’23) with a last-5-year mean of 7.5%. Debt-to-Capital is about even with peer and industry averages while increasing from 33.9% (’14) to 42.2% (’23) with a last-5-year mean of 44.8%.

Value Line gives a B++ grade for Financial Strength. Quick Ratio is 1.1 and Interest Coverage is 6.3 per M* who assigns a “Narrow” Economic Moat, “Standard” Capital Allocation, and writes:

     > Overall, while the balance sheet appears weak to us, it is
     > improving and could reach sound territory in the near future if the
     > firm refrains from significant, leverage-increasing acquisitions.

With regard to sales growth:

My 2.0% per year forecast is near bottom of the range.

With regard to EPS growth:

My 8.0% per year forecast is near bottom of the long-term-estimate range (mean of six using lower for M*: 10.8%). Initial value is ’23 EPS of $4.95/share rather than 2024 Q2 EPS of $5.27 (annualized).

My Forecast High P/E is 17.0. Over the past decade, high P/E ranges from 16.9 in ’23 to 47.6 in ’22 with a last-5-year mean of 29.6 and a last-5-year-mean average P/E of 24.8. I am near bottom of the range (only ’23 is less).

My Forecast Low P/E is 12.0. Over the past decade, low P/E ranges from 11.9 in ’17 to 35.4 in ’22 with a last-5-year mean of 20.2. I am forecasting near bottom of the range (only ’17 is less).

My Low Stock Price Forecast (LSPF) of $59.40 is default based on initial value given above. This is 24.4% less than the previous closing price and 2.3% less than the 52-week low.

These inputs land CNC in the HOLD zone with a U/D ratio of 2.4. Total Annualized Return (TAR) is 9.5%.

PAR (using Forecast Average—not High—P/E) of 6.1% is less than I seek for a mega-size company. If a healthy margin of safety (MOS) anchors the study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on only 55 studies (my study and 18 outliers excluded) over the past 90 days, averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E, are 4.5%, 10.0%, 22.0, and 14.0, respectively. I am lower across the board. Value Line’s projected average annual P/E of 13.5 is less than MS (18.0) and less than mine (14.5).

MS high / low EPS are $8.13 / $5.03 versus my $7.27 / $4.95 (per share). My high EPS is less due to a lower growth rate. Value Line’s $10.50 soars above both.

MS LSPF of $55.60 implies Forecast Low P/E of 11.0: less than the above-stated 14.0. MS LSPF is 21.5% less than the default $5.03/share * 14.0 = $70.42 resulting in more conservative zoning. MS LSPF is also 6.9% less than mine.

With regard to valuation, PEG is 1.1 and 1.7 per Zacks and my projected P/E, respectively: fairly valued. Relative Value [(current P/E) / 5-year-mean average P/E] is quite low at 0.60.

MOS is robust because my inputs are near or below respective analyst/historical ranges and MS averages. That is further supported by an MS TAR that is 9.9% per year greater than mine at 19.4%.

I approach Centene with hesitation because of its low sales growth and high debt load. M* comments like those included above are unusually sour. Value Line forecasts long-term debt to decrease by 38% over the next five years, which should help.

Per U/D, CNC is a BUY under $75/share. BI TAR criterion is met ~ $62/share given a forecast high price ~ $124 (no dividend).

A 90-day free trial to BetterInvesting® may be secured here (also see link under “Pages” section at top right of this page).

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ACMR Stock Study (10-14-24)

Posted by on October 14, 2024 at 06:23 | Last modified: August 23, 2024 11:16

I recently did a stock study on ACM Research, Inc. (ACMR) with a closing price of $19.22.

CFRA writes:

     > ACM Research, Inc… develops, manufactures, and sells single-wafer wet
     > cleaning equipment for enhancing the manufacturing process and yield for
     > integrated chips worldwide. It offers space alternated phase shift
     > technology for flat and patterned wafer surfaces, which employs
     > alternating phases of megasonic waves to deliver megasonic energy in a
     > uniform manner on a microscopic level; timely energized bubble oscillation
     > technology for patterned wafer surfaces at advanced process nodes, which
     > provides cleaning for 2D and 3D patterned wafers; Tahoe technology for
     > delivering cleaning performance using less sulfuric acid and hydrogen
     > peroxide; and electro-chemical plating technology for advanced metal
     > plating. The company markets and sells its products under the SAPS,
     > TEBO, ULTRA C, ULTRA Fn, Ultra ECP, Ultra ECP map, and Ultra ECP ap
     > trademarks through direct sales force and third-party representatives.

Since 2018, this small-size company has grown sales and earnings at annualized rates of 51.0% and 47.6%, respectively (pre-2018 data excluded from full analysis due to fractional/negative EPS numbers, triple-digit Debt-to-Capital, and a negative ROE print). Lines are up, straight, and parallel except for a YOY EPS decline in ’20. Five-year EPS R^2 is 0.86. Value Line SMC edition mentions a page 4210 that is inaccessible online.

Since 2018, PTPM leads peer averages but trails the industry while increasing from 9.9% to 20.8% (’23) with a last-5-year mean of 16.9%. ROE also leads peer averages and trails the industry while ranging from 5.5% in ’22 to 19.6% in ’19 and ’21 with a last-5-year mean of 13.5%. Debt-to-Capital is slightly higher than peer averages and lower than the industry while ranging from 5.5% in ’21 to 26.2% in ’20 with a last-5-year mean of 13.8%.

Quick Ratio is 1.2 and Interest Coverage is 43.7 per M*.

With regard to sales growth:

My 19.0% per year forecast is below the range.

With regard to EPS growth:

My 15.0% per year forecast is below the long-term-estimate range (mean of only two: 31.4%). Initial value is ’23 EPS of $1.16/share rather than 2024 Q2 EPS of $1.26 (annualized).

My Forecast High P/E is 18.0. Since 2018, high P/E ranges from 18.2 in ’23 to 83.7 in ’21 (excluding 128 in ’20) with last-5-year mean of 43.9 and last-5-year-mean average P/E (also excluding 35.1 low P/E in ’21) of 27.4. I am below the range.

My Forecast Low P/E is 8.0. Since 2018, low P/E ranges from 7.5 in ’23 to 17.9 in ’20 (excluding 35.1 in ’21) with a last-5-year mean of 11.0. I am forecasting near bottom of the range (only ’23 is less).

My Low Stock Price Forecast (LSPF) is $12.50. Default ($10.10) based on initial value seems unreasonably low at 47.5% (19.2%) less than the previous closing price (52-week low). I am using the 52-week low instead: previous close less 35.0%.

These inputs land ACMR on the cusp of the HOLD zone with U/D ratio of 3.0. Total Annualized Return (TAR) is 16.1%.

PAR (using Forecast Average—not High—P/E) of 8.8% is less than I seek for a small-size company. If a healthy margin of safety (MOS) anchors the study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 109 studies (my study and 32 outliers excluded) over the past 90 days, averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 18.4%, 18.2%, 23.2, and 12.0, respectively. I am lower on all but sales (19.0%). MS projected average annual P/E is 17.6 versus my 13.0.

MS high / low EPS are $2.95/ $1.31 versus my $2.23 / $1.26 (per share). My high EPS is less due to a lower growth rate.

MS LSPF of $13.70 implies Forecast Low P/E of 10.5: less than the 12.0 above. MS LSPF is 12.9% less than the default $1.31/share * 12.0 = $15.72, which results in more conservative zoning. MS LSPF is still 9.6% greater than mine, though.

With regard to valuation, PEG is 0.9 per my projected P/E (Zacks unavailable): one of the lowest I have seen. Relative Value [(current P/E) / 5-year-mean average P/E] is extremely low at 0.58. While the latter excludes the two highest extremes around COVID, subsequent values may also prove to be inflated.

MOS is robust because my inputs are near or below respective analyst/historical ranges and MS averages (sales immaterial to the analysis). Consistent with this is MS TAR being 10.1%/year greater than mine.

I’ve done a decent job putting ACM Research through the ringer and multiple facets look pretty good. I learned about it in a Manifest Investing “Bull Sessions” as a candidate for the 2024 Best Small Companies portfolio. Hopefully soon we can get a more complete data set (e.g. Value Line and possibly M* coverage, Zacks EPS estimate, more from Nasdaq.com and perhaps Argus). Until then, maybe we can also get a lower stock price for the volatile issue [beta 1.55 and “Extreme” uncertainty rating by M* (quantitative)].

Per U/D, ACMR is a BUY under $19.90/share. BI TAR criterion is met right now given a forecast high price ~ $42 (no dividend; this is an unusual circumstance of U/D criterion being more stringent than the TAR criterion).

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