My first trip is to Yahoo! Finance, which I find a quick and handy source for getting an overview of the data before bothering with more research. After plugging in a stock symbol, I use the News search to check the earnings press release to make sure the rising margins are really clean and don't include anything odd like a low tax rate or one-time gain. I also see what management says about the quarter and the future. I check the balance sheet (if there is one) to see if there's anything odd (like bloated accounts receivable or inventories) and to see whether the company's in good financial health.
From there I check the Profile for Market Guide's take on the company's trailing twelve-month return on equity (ROE), the debt level, the net margins, the short interest ratio, and the cash and book value per share. I don't universally trust Market Guide since the SEC filings are the only source guaranteed to be accurate, but it's pretty dependable and fine for my purposes. I just want a quick overview of the company's profitability, whether it has juiced up profits with a lot of leverage, what the balance sheet basics look like on a per share basis, and whether short-sellers are flashing a "Beware" or an "All clear."
From there, I check on Estimates to see whether they've been rising or falling, to eyeball whether forward estimates are likely to be adjusted up or down given the latest quarter (the News section may include recent upgrades), and to calculate a quick forward P/E or PEG. I then click on Insider Trades looking for recent purchases (a positive sign) or recent sales of over $1 million, which I consider at least a preliminary reason for caution.
Most of this same info is available at the Fool Quotes & Data area. Just plug in a symbol for a quote, then check the Snapshot and Estimates. For now, though, I prefer using Yahoo! because it includes the short interest and insider trade data that can quickly offer a potentially quite interesting perspective on what two presumably knowledgeable sets of investors think about the stock. I'm pretty sure the Fool will soon offer these features, too, but it doesn't yet.
To take one example, Department 56 (NYSE: DFS) catches my eye because the name has always struck me as odd, and I've never bothered to find out what the company does. I see it enjoyed a 30% jump in EPS on a 16% increase in revenue for Q3. The press release says Department 56 is "a leading designer, importer and distributor of fine quality collectibles and other specialty giftware products sold through gift and home accessory retailers." These include a "series of collectible, handcrafted lit ceramic and porcelain houses." A little bizarre, but okay. Collectibles are big business.
A few things become clear from the earnings release. First, margins as measured by net income actually declined slightly, but the company bought back 0.6 million shares during the quarter at an average price of $34 , or well above the current price of $28. It's spent $56 million this year to buy back 1.6 million shares. The balance sheet doesn't appear to have suffered from these repurchases. Given that the company paid an average of $35 a share, the stock is either a bargain now or the board paid too much.
The balance sheet reveals a seasonal surge in accounts receivable (AR) that's eaten up a $75 million credit line plus a lot of cash. I'd want to check this against the Q3 report from a year ago to see how it compares, but the press release mentions that one reason the $2.06 in year-to-date EPS has already topped the total for FY97 is that the company has met its goal of shipping products earlier this year. So the AR number is probably intentionally high. That makes the slight dip in net margins during the quarter a little more troubling since one would have expected higher volume to produce some operating leverage. It's also worrisome in that fourth quarter results will be lower as a result.
From the Snapshot, I see awesome ROE of 25.4% with very little debt, terrific net margins of 20%, a P/E of 11, a price-to-sales ratio of 2.2, and a small amount of short interest. Looks good. From the Estimates page, I see modest upward revisions, but I note that Q3 results were just a penny ahead of the consensus estimate, explaining why the stock didn't do much following the October 21 report. Though it has an attractive PEG of just 0.69 based on FY98 estimates, there's nothing here to get real excited about. Similarly, some minor insiders' sales of late plus some from last October suggest that insiders think $30 to $34 looks pretty fair. That explains why the 52-week chart isn't so inspiring.
This one could be worth additional research. It's a highly profitable business that could very well be worth owning. It's also trading at a 20% discount to what the board considers a good price to repurchase stock. On the other hand, the early shipments and their effect on Q4 revenues concern me. The Q3 sales growth and earnings may be deceptively strong.
Doing this quick scan takes maybe five minutes more or less per company, depending upon how interested you get. Now that I've modeled my approach, next week we'll hit some more examples.
[NOTE -- Due to the fact that Value Line has still not corrected their file, we've decided not to provide the database and rankings for last week. We know this inconveniences people, and we apologize. Unfortunately, this is beyond our control, and we'd rather provide no data than bad data. Thank you for your patience.]