The Affordable Growth investing strategy targets companies that combine above-average earnings growth with a sensible valuation, while maintaining sound financial health and reasonable profitability. The aim is to avoid paying excessive multiples for growth, which often leads to disappointment when expectations are not met. By filtering for stocks that score well on growth and valuation, but also show decent health and profitability, this approach seeks a balanced risk-reward profile. One stock that recently passed this screen is CALIX INC (NYSE:CALX), a provider of cloud and software platforms for broadband service providers.
Strong Growth Trajectory
Growth is the primary pillar of this strategy, and Calix delivers on that front. The company’s earnings per share (EPS) surged nearly 130% over the past year, while revenue grew by 27.8%. Looking beyond one-year snapshots, revenue has compounded at a 13.1% annual rate over the last several years. Even more encouraging are the forward projections: analysts expect EPS to grow at an average rate of 36.2% per year over the next few years, with revenue growth accelerating to 17.4% annually. This acceleration in both top- and bottom-line growth suggests the business is gaining momentum, a trait that makes the stock stand out among its peers in the Communications Equipment industry.
Reasonable Valuation in Context
For a stock growing at this pace, valuation is critical. Calix trades at a trailing price-to-earnings (P/E) ratio of 21.2, which is actually 76% cheaper than the average P/E of over 41 for its industry. Its forward P/E of 14.4 is also well below the industry average of 20.7 and the S&P 500’s forward P/E of about 21.2. The PEG ratio, which adjusts the P/E for near-term earnings growth, comes in on the low side, signaling that the current multiple does not fully reflect the expected EPS growth. In other words, investors are not overpaying for the growth that is already baked into estimates. The fundamental report provides a deeper analysis of these valuation metrics and the overall rating of 6/10, which you can review in the full fundamental analysis report.
Solid Health, Acceptable Profitability
A growth stock is only as good as the foundation it stands on. Calix scores a 7/10 on financial health, with no outstanding debt, an Altman-Z score of 6.96 (well above the safety threshold), and a current ratio of 2.83 that indicates plenty of short-term liquidity. The solvency picture is particularly strong, as the company’s debt-free balance sheet places it in the top quartile of its industry. Profitability is rated a more modest 5/10, but it is supported by positive operating cash flow and consistent earnings over the past five years. Return on equity and return on invested capital both sit above industry medians, and the gross margin of 56.6% is well above average. While margins have slipped slightly in recent years, the overall profitability profile is solid enough to support the growth story without raising red flags.
Why This Combination Works
The Affordable Growth screen requires that a stock meet minimum thresholds across all four areas – growth, valuation, health, and profitability. Calix meets or exceeds those thresholds with a ChartMill Growth rating of 8, Health rating of 7, Valuation rating of 5, and Profitability rating of 5. The growth is clearly exceptional, the valuation is attractive relative to both peers and the broader market, and the balance sheet provides a cushion. For investors looking to add exposure to a company that is growing quickly without stretching into expensive territory, Calix warrants attention.
If you are interested in exploring similar opportunities, you can find more stocks that meet these affordable growth criteria by running the same stock screener used to identify this candidate. The screener allows you to adjust the parameters further to suit your own risk preferences and investment goals.
Disclaimer: This article is for informational and educational purposes only and does not constitute investment advice. Always conduct your own due diligence before making any investment decisions.
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Calix (NYSE:CALX): An Affordable Growth Stock Combining Strong Earnings Acceleration with a Reasonable Valuation
The Affordable Growth investing strategy targets companies that combine above-average earnings growth with a sensible valuation, while maintaining sound financial health and reasonable profitability. The aim is to avoid paying excessive multiples for growth, which often leads to disappointment when expectations are not met. By filtering for stocks that score well on growth and valuation, but also show decent health and profitability, this approach seeks a balanced risk-reward profile. One stock that recently passed this screen is CALIX INC (NYSE:CALX), a provider of cloud and software platforms for broadband service providers.
Strong Growth Trajectory
Growth is the primary pillar of this strategy, and Calix delivers on that front. The company’s earnings per share (EPS) surged nearly 130% over the past year, while revenue grew by 27.8%. Looking beyond one-year snapshots, revenue has compounded at a 13.1% annual rate over the last several years. Even more encouraging are the forward projections: analysts expect EPS to grow at an average rate of 36.2% per year over the next few years, with revenue growth accelerating to 17.4% annually. This acceleration in both top- and bottom-line growth suggests the business is gaining momentum, a trait that makes the stock stand out among its peers in the Communications Equipment industry.
Reasonable Valuation in Context
For a stock growing at this pace, valuation is critical. Calix trades at a trailing price-to-earnings (P/E) ratio of 21.2, which is actually 76% cheaper than the average P/E of over 41 for its industry. Its forward P/E of 14.4 is also well below the industry average of 20.7 and the S&P 500’s forward P/E of about 21.2. The PEG ratio, which adjusts the P/E for near-term earnings growth, comes in on the low side, signaling that the current multiple does not fully reflect the expected EPS growth. In other words, investors are not overpaying for the growth that is already baked into estimates. The fundamental report provides a deeper analysis of these valuation metrics and the overall rating of 6/10, which you can review in the full fundamental analysis report.
Solid Health, Acceptable Profitability
A growth stock is only as good as the foundation it stands on. Calix scores a 7/10 on financial health, with no outstanding debt, an Altman-Z score of 6.96 (well above the safety threshold), and a current ratio of 2.83 that indicates plenty of short-term liquidity. The solvency picture is particularly strong, as the company’s debt-free balance sheet places it in the top quartile of its industry. Profitability is rated a more modest 5/10, but it is supported by positive operating cash flow and consistent earnings over the past five years. Return on equity and return on invested capital both sit above industry medians, and the gross margin of 56.6% is well above average. While margins have slipped slightly in recent years, the overall profitability profile is solid enough to support the growth story without raising red flags.
Why This Combination Works
The Affordable Growth screen requires that a stock meet minimum thresholds across all four areas – growth, valuation, health, and profitability. Calix meets or exceeds those thresholds with a ChartMill Growth rating of 8, Health rating of 7, Valuation rating of 5, and Profitability rating of 5. The growth is clearly exceptional, the valuation is attractive relative to both peers and the broader market, and the balance sheet provides a cushion. For investors looking to add exposure to a company that is growing quickly without stretching into expensive territory, Calix warrants attention.
If you are interested in exploring similar opportunities, you can find more stocks that meet these affordable growth criteria by running the same stock screener used to identify this candidate. The screener allows you to adjust the parameters further to suit your own risk preferences and investment goals.
Disclaimer: This article is for informational and educational purposes only and does not constitute investment advice. Always conduct your own due diligence before making any investment decisions.
Read full article here »