Seeking Self-Powered Growth


By Michael Kaye, CFA To spur their own growth, many companies increase their financial leverage -- that is, borrow money to finance acquisitions or new facilities. But not every business chooses that approach. Some outfits can generate their own growth through efficient deployment of capital and strong sales.

The benefits are obvious. When a company can finance its own growth with funds coming in the door, it doesn't have to take on as much debt. And lower debt levels mean that interest costs take less of a bite out of a company's bottom line.

SALES STREAKS. For this week's stock screen, we identified names with a strong capacity to self-finance future sales growth by looking in our database for companies that have a return on equity above 25% for their most recent reporting period -- and a long-term debt-to-equity ratio of below 2%. Sales for each company had to have increased in each of the last five years.

And finally, to make sure that these were solid, established names, we chose only companies with a stock price above $5 and a market capitalization above $100 million. When we finished our number crunching, these five names remained:

Paying Their Own Way

Company

Ticker

Coach Inc.

COH

Digene Corp

DIGE

Engineered Support Systems

EASI

J2 Global Communications

JCOM

Nam Tai Electronics

NTE

All of the views expressed in this research report accurately reflect the research analyst's personal views regarding any and all of the subject securities or issuers. No part of analyst compensation was, is or will be, directly or indirectly related to the specific recommendations or views expressed in this research report.

Standard & Poor's Regulatory Disclosure

Any advice, analysis, or recommendations contained in articles labeled "Insight from Standard & Poor's" reflect the views of Standard & Poor's, which operates separately from and independently of BusinessWeek Online. It is possible that BWOL may from time to time publish information that is not consistent with advice, analysis, or recommendations that are published by Standard & Poor's. Standard & Poor's and BusinessWeek Online are each units of The McGraw-Hill Companies, Inc. Kaye, an analyst for Standard & Poor's Portfolio Services, is the author of the forthcoming book The Standard & Poor's Guide to Selecting Stocks


Burger King's Young Buns
LIMITED-TIME OFFER SUBSCRIBE NOW

(enter your email)
(enter up to 5 email addresses, separated by commas)

Max 250 characters

 
blog comments powered by Disqus