This company beat analysts’ EPS estimates by $0.38 last quarter.
Argan, Inc. (AGX)
From Validea Hot List Newsletter
Strategy: Growth Investor
Based on: Martin Zweig
Argan, Inc. (AGX) conducts operations through its subsidiaries, Gemma Power Systems, LLC and affiliates (GPS), Atlantic Projects Company Limited (APC), Southern Maryland Cable, Inc. (SMC) and The Roberts Company (Roberts). Through GPS and APC, the company’s power industry services segment provides engineering, procurement, construction, commissioning, operations management, maintenance, development, technical and consulting services to the power generation and renewable energy markets. Through SMC, the telecommunications infrastructure services segment of the company provides project management, construction, installation and maintenance services to commercial, local government and federal government customers. Through Roberts, the company’s industrial fabrication and field services segment produces, delivers and installs fabricated steel components specializing in pressure vessels and heat exchangers for industrial plants.
P/E RATIO: PASS: The P/E of a company must be greater than 5 to eliminate weak companies, but not more than 3 times the current Market P/E because the situation is much too risky, and never greater than 43. AGX’s P/E is 12.13, based on trailing 12-month earnings, while the current market PE is 20.00. Therefore, it passes the first test.
REVENUE GROWTH IN RELATION TO EPS GROWTH: PASS: Revenue Growth must not be substantially less than earnings growth. For earnings to continue to grow over time they must be supported by a comparable or better sales growth rate and not just by cost cutting or other non-sales measures. AGX’s revenue growth is 34.86%, while its earnings growth rate is 32.48%, based on the average of the 3, 4 and 5-year historical eps growth rates. Therefore, AGX passes this criterion.
CURRENT QUARTER EARNINGS: PASS: The first of these criteria is that the current EPS be positive. AGX’s EPS ($1.31) pass this test.
QUARTERLY EARNINGS ONE YEAR AGO: PASS: The EPS for the quarter one year ago must be positive. AGX’s EPS for this quarter last year ($0.81) pass this test.
POSITIVE EARNINGS GROWTH RATE FOR CURRENT QUARTER: PASS: The growth rate of the current quarter’s earnings compared to the same quarter a year ago must also be positive. AGX’s growth rate of 61.73% passes this test.
EARNINGS GROWTH RATE FOR THE PAST SEVERAL QUARTERS: PASS: Compare the earnings growth rate of the previous three quarters with long-term EPS growth rate. Earnings growth in the previous 3 quarters should be at least half of the long-term EPS growth rate. Half of the long-term EPS growth rate for AGX is 16.24%. This should be less than the growth rates for the 3 previous quarters, which are 72.00%, 61.11%, and 182.22%. AGX passes this test, which means that it has good, reasonably steady earnings.
EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN PRIOR 3 QUARTERS: PASS: If the growth rate of the prior three quarter’s earnings, 93.75%, (versus the same three quarters a year earlier) is greater than the growth rate of the current quarter earnings, 61.73%, (versus the same quarter one year ago) then the stock fails, with one exception: if the growth rate in earnings between the current quarter and the same quarter one year ago is greater than 30%, then the stock would pass. The growth rate over this period for AGX is 61.7%, and it would therefore pass this test.
EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN THE HISTORICAL GROWTH RATE: PASS: The EPS growth rate for the current quarter, 61.73% must be greater than or equal to the historical growth which is 32.48%. AGX would therefore pass this test.
LONG-TERM EPS GROWTH: PASS: One final earnings test required is that the long-term earnings growth rate must be at least 15% per year. AGX’s long-term growth rate of 32.48%, based on the average of the 3, 4 and 5-year historical eps growth rates, passes this test.
TOTAL DEBT/EQUITY RATIO: PASS: A final criterion is that a company must not have a high level of debt. A high level of total debt, due to high interest expenses, can have a very negative effect on earnings if business moderately turns down. If a company does have a high level, an investor may want to avoid this stock altogether. AGX’s Debt/Equity (0.00%) is not considered high relative to its industry (50.91%) and passes this test.
John Reese, Validea Hot List Newsletter, www.validea.com, 877-439-0506, August 11, 2017