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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:

Style3yr Avg Return10yr Avg ReturnValuation
ADBEAdobe IncTechnologyLarge Growth35%39%Fairly Valued
ALGNAlign Technology IncHealthcareLarge Growth23%45%Materially Overvalued
AMATApplied Materials IncTechnologyLarge Growth43%29%Fairly Valued
AMDAdvanced Micro Devices IncTechnologyLarge Growth78%33%Fairly Valued
APPSDigital Turbine IncTechnologySmall Growth255%35%Materially Overvalued
APTAlpha Pro Tech LtdIndustrialsSmall Core39%21%Fairly Valued
ATVIActivision Blizzard IncCommunication ServicesLarge Core5%22%Fairly Valued
COWNCowen Inc Class AFinancial ServicesSmall Value39%11%Fairly Valued
CTLTCatalent IncHealthcareMid-Cap Growth45%Materially Overvalued
DGXQuest Diagnostics IncHealthcareMid-Cap Value13%13%Overvalued
DHRDanaher CorpHealthcareLarge Growth45%26%Materially Overvalued
DISHDISH Network Corp Class ACommunication ServicesMid-Cap Value5%7%Fairly Valued
DXCMDexCom IncHealthcareLarge Growth61%47%Materially Overvalued
EBAYeBay IncConsumer CyclicalLarge Core25%20%Overvalued
EBSEmergent BioSolutions IncHealthcareSmall Core3%15%Fairly Valued
ETSYEtsy IncConsumer CyclicalMid-Cap Growth61%Overvalued
EXPEagle Materials IncBasic MaterialsSmall Core14%24%Overvalued
FBFacebook Inc Class ACommunication ServicesLarge Growth25%Fairly Valued
GMABGenmab A/S ADRHealthcareLarge Growth41%54%Materially Overvalued
HRBH&R Block IncConsumer CyclicalSmall Value3%10%Fairly Valued
KLACKLA CorpTechnologyLarge Core46%27%Fairly Valued
LHLaboratory Corp of America HoldingsHealthcareMid-Cap Value19%14%Overvalued
LOGILogitech International SATechnologyLarge Growth34%26%Fairly Valued
MASIMasimo CorpHealthcareMid-Cap Core36%28%Overvalued
MKSIMKS Instruments IncTechnologyMid-Cap Core19%21%Fairly Valued
MKTXMarketAxess Holdings IncFinancial ServicesMid-Cap Growth38%33%Materially Overvalued
MSFTMicrosoft CorpTechnologyLarge Core39%28%Undervalued
NBIXNeurocrine Biosciences IncHealthcareMid-Cap Growth-9%32%Fairly Valued
NFLXNetflix IncCommunication ServicesLarge Growth14%34%Materially Overvalued
NKENike Inc Class BConsumer CyclicalLarge Growth29%23%Overvalued
NVDANVIDIA CorpTechnologyLarge Growth47%53%Overvalued
NXSTNexstar Media Group Inc Class ACommunication ServicesSmall Value27%39%Fairly Valued
PKIPerkinElmer IncHealthcareMid-Cap Core30%24%Materially Overvalued
PYPLPayPal Holdings IncFinancial ServicesLarge Growth47%Materially Overvalued
QDELQuidel CorpHealthcareSmall Core24%26%Fairly Valued
RILYB. Riley Financial IncFinancial ServicesSmall Core51%41%Fairly Valued
TERTeradyne IncTechnologyMid-Cap Growth44%27%Fairly Valued
TGNATegna IncCommunication ServicesSmall Value19%16%Fairly Valued
TMOThermo Fisher Scientific IncHealthcareLarge Growth33%27%Overvalued
TTDThe Trade Desk Inc ATechnologyMid-Cap Growth106%Materially Overvalued
VEEVVeeva Systems Inc Class AHealthcareLarge Growth59%Fairly Valued
VRTXVertex Pharmaceuticals IncHealthcareLarge Core5%16%Undervalued
WSMWilliams-Sonoma IncConsumer CyclicalMid-Cap Core39%20%Fairly Valued
YETIYETI Holdings IncConsumer CyclicalMid-Cap GrowthMaterially Overvalued
ZMZoom Video Communications IncTechnologyLarge GrowthOvervalued

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:

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.