mark ballard

Mark's Investment Blog

This blog is intended to keep clients and friends current on my investment management activities. In no way is this intended to be investment advice that anyone reading this blog should act upon in their personal investment accounts. There are other significant factors involved in my investment management activities that may not be written about in this blog that are equally as important as the things that are written about that materially impact investment results. Neither is this blog to be construed in any way to be an offer to buy or sell securities. To be notified via e-mail when new posts are made, CLICK HERE TO SUBSCRIBE

Investment Metrics

Important Indicators Of Company Performance

I like metrics. They give me a quick way to both monitor the performance of a company I own and to indicate whether further due diligence is warranted on a company I currently do not own.

I use several metrics that give me a feel for how a company is performing as that performance translates into stock price performance (or at least it should subject to valuation levels and sentiment).

One of my top metrics is one I call the High Performer 15’s. This is a set of ratios that all must exceed 15%:

  • Earnings Per Share Growth > 15%
  • Revenue Per Share Growth > 15%
  • Return on Equity > 15%
  • Operating Margin > 15%
  • Book Value Growth > 15%
  • Return on Invested Capital > 15%

This set of six ratios tells me whether a company is growing, whether it is operating efficiently and effectively, whether they are building value and providing top level returns for its shareholders. This is a tough hurdle for most companies to pass; in my database of 1200 companies that I follow, only 45 meet or exceed all six of these ratios. Here is that list:

Ticker Company Stock Sector Style 3yr Avg Return 10yr Avg Return Valuation
ADBE
Adobe Inc
Technology
Large Growth
35%
39%
Fairly Valued
ALGN
Align Technology Inc
Healthcare
Large Growth
23%
45%
Materially Overvalued
AMAT
Applied Materials Inc
Technology
Large Growth
43%
29%
Fairly Valued
AMD
Advanced Micro Devices Inc
Technology
Large Growth
78%
33%
Fairly Valued
APPS
Digital Turbine Inc
Technology
Small Growth
255%
35%
Materially Overvalued
APT
Alpha Pro Tech Ltd
Industrials
Small Core
39%
21%
Fairly Valued
ATVI
Activision Blizzard Inc
Communication Services
Large Core
5%
22%
Fairly Valued
COWN
Cowen Inc Class A
Financial Services
Small Value
39%
11%
Fairly Valued
CTLT
Catalent Inc
Healthcare
Mid-Cap Growth
45%
-
Materially Overvalued
DGX
Quest Diagnostics Inc
Healthcare
Mid-Cap Value
13%
13%
Overvalued
DHR
Danaher Corp
Healthcare
Large Growth
45%
26%
Materially Overvalued
DISH
DISH Network Corp Class A
Communication Services
Mid-Cap Value
5%
7%
Fairly Valued
DXCM
DexCom Inc
Healthcare
Large Growth
61%
47%
Materially Overvalued
EBAY
eBay Inc
Consumer Cyclical
Large Core
25%
20%
Overvalued
EBS
Emergent BioSolutions Inc
Healthcare
Small Core
3%
15%
Fairly Valued
ETSY
Etsy Inc
Consumer Cyclical
Mid-Cap Growth
61%
-
Overvalued
EXP
Eagle Materials Inc
Basic Materials
Small Core
14%
24%
Overvalued
FB
Facebook Inc Class A
Communication Services
Large Growth
25%
-
Fairly Valued
GMAB
Genmab A/S ADR
Healthcare
Large Growth
41%
54%
Materially Overvalued
HRB
H&R Block Inc
Consumer Cyclical
Small Value
3%
10%
Fairly Valued
KLAC
KLA Corp
Technology
Large Core
46%
27%
Fairly Valued
LH
Laboratory Corp of America Holdings
Healthcare
Mid-Cap Value
19%
14%
Overvalued
LOGI
Logitech International SA
Technology
Large Growth
34%
26%
Fairly Valued
MASI
Masimo Corp
Healthcare
Mid-Cap Core
36%
28%
Overvalued
MKSI
MKS Instruments Inc
Technology
Mid-Cap Core
19%
21%
Fairly Valued
MKTX
MarketAxess Holdings Inc
Financial Services
Mid-Cap Growth
38%
33%
Materially Overvalued
MSFT
Microsoft Corp
Technology
Large Core
39%
28%
Undervalued
NBIX
Neurocrine Biosciences Inc
Healthcare
Mid-Cap Growth
-9%
32%
Fairly Valued
NFLX
Netflix Inc
Communication Services
Large Growth
14%
34%
Materially Overvalued
NKE
Nike Inc Class B
Consumer Cyclical
Large Growth
29%
23%
Overvalued
NVDA
NVIDIA Corp
Technology
Large Growth
47%
53%
Overvalued
NXST
Nexstar Media Group Inc Class A
Communication Services
Small Value
27%
39%
Fairly Valued
PKI
PerkinElmer Inc
Healthcare
Mid-Cap Core
30%
24%
Materially Overvalued
PYPL
PayPal Holdings Inc
Financial Services
Large Growth
47%
-
Materially Overvalued
QDEL
Quidel Corp
Healthcare
Small Core
24%
26%
Fairly Valued
RILY
B. Riley Financial Inc
Financial Services
Small Core
51%
41%
Fairly Valued
TER
Teradyne Inc
Technology
Mid-Cap Growth
44%
27%
Fairly Valued
TGNA
Tegna Inc
Communication Services
Small Value
19%
16%
Fairly Valued
TMO
Thermo Fisher Scientific Inc
Healthcare
Large Growth
33%
27%
Overvalued
TTD
The Trade Desk Inc A
Technology
Mid-Cap Growth
106%
-
Materially Overvalued
VEEV
Veeva Systems Inc Class A
Healthcare
Large Growth
59%
-
Fairly Valued
VRTX
Vertex Pharmaceuticals Inc
Healthcare
Large Core
5%
16%
Undervalued
WSM
Williams-Sonoma Inc
Consumer Cyclical
Mid-Cap Core
39%
20%
Fairly Valued
YETI
YETI Holdings Inc
Consumer Cyclical
Mid-Cap Growth
-
-
Materially Overvalued
ZM
Zoom Video Communications Inc
Technology
Large Growth
-
-
Overvalued

This list does not provide a template for a fully diversified portfolio – it is heavily weighted toward technology and communications companies, with limited to no exposure to large sectors of the market like Industrials, Financials, Real Estate, Energy or Utilities

Many of these companies do show up in client portfolios – others do not as they may be too overvalued to purchase at this time, we may have full allocations to their sector without them, they may not meet our financial strength requirements, the projected outlook for them is not as solid as their past performance, they may have just recently joined this list and are candidates for purchase, or one of many other reasons.

There are other metrics that I follow that will give me other lists of companies, some of which we own and some of which we do not. The point is that there is not one way to know whether you want to buy or sell a company – but it all comes down to fundamental analysis of their financial statements, their industries, their competition, and their prospects. However, if you look at the 3yr and 10yr average returns of the companies on this list, they predominantly have been companies that you want to own and that have provided you with well above average returns.

So why wouldn’t we just own all of them and call it a day? It goes back to the fundamental analysis. If we look at a company like Quidel Corp you can see that it is fairly valued (an important factor if you want to be a buyer – remember in a previous blog post we discussed forward returns and how they are impacted by the price at which you buy a stock) and has had mid-20% average returns over three and ten years. But when you look at their forward prospects you have to stop and wonder if they will continue – I write that because Quidel Corp is one of the primary providers of the Covid-19 tests that have been so prominent in our lives for most of the past two years. Check out their stock price chart below:

However, I specifically chose the last three years average return because it included the covid correction in the spring of 2020 for the stock market. I wanted to specifically know which designation performed better during a major correction.

Why Is This Important Now?

Invesment Metrics

This is a three-year price chart and you can see how their stock price skyrocketed higher in the Spring of last year coincident with the start of Covid-19, how it fell back in the Spring of this year but has moved back up roughly 30% higher since the Delta variant has been prevalent. When we get past the Delta variant, will QDEL still be on this list? Will its stock price continue to return mid-20% on average over the next three or ten years?

My best guess is that Covid-19 will be with us for longer than any of us would like – there will likely be new variants that will hit us generating the need for more tests, and that their performance will keep QDEL on this list. Given that, I want to own this company and have slowly been adding shares to client accounts where they were below target equity allocations – but I added partial positions so that if we get a pull back in price I can build a full position at an improved basis.

You can develop your own set of metrics to manage your investment portfolio – it just takes time and research to find a set that will give you a list of stocks upon which you can do your own due diligence before investing. The metric is not the final answer as to whether you should own a specific company, as we saw with QDEL above. However, they can provide you with a good place to start.

If you don’t want to do the work and want to be a client so that I do the work for you, you can call or email me at the contact information on this website and we can discuss next steps.

I will be back with other metrics and the lists of companies they generate in coming posts, so watch for those in the near future.

– Mark