Investing 101: 4 High-Growth Tech Stocks Showing Accounting Red ...
Investing 101: 4 High-Growth Tech Stocks Showing Accounting Red Flags
Companies on the fast track usually appear like good investments - after all, what's bad about growth? But before jumping into a risky investment, it's always a good idea to study the company's financial sheets. Red flags may be lurking.
We ran a screen with this idea in mind. We began by screening for high-growth stocks in the tech sector, with 5-year projected EPS growth above 20%.
We then searched for potential red flags in the companies' revenue trends relative to accounts receivable and relative to inventory.
When accounts receivable becomes a larger percentage of the revenues reported by a company, it indicates lower quality revenues because there is no guarantee that accounts receivable will be paid back in full. Companies with shrinking accounts receivable (relative to revenue) are viewed favorably.
Positive trends in inventory usually consist of growth in quarterly revenue outpacing growth in quarterly inventory year-over-year, as well as inventory becoming a smaller portion of current assets. To understand why these trends are positive, think of why the opposite trends would be negative. If revenue were growing slower than inventory, it may indicate that the company is having trouble selling its inventory ? although this could just indicate inventory building or a change in sales policies.
Business Section: Investing Ideas
Below are the results of this stock screen. These are high-growth tech stocks that have been exhibiting negative trends in accounts receivable and inventory relative to revenue trends.
Do you think these companies are in hot water?
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1. Calix Inc. (CALX, Earnings, Analysts, Financials): 5-year projected EPS growth at 24.67%. Revenue grew by -0.12% during the most recent quarter ($91.58M vs. $91.69M y/y). Accounts receivable grew by 10.51% during the same time period ($47.94M vs. $43.38M y/y). Receivables, as a percentage of current assets, increased from 24.47% to 33.06% during the most recent quarter (comparing 13 weeks ending 2011-12-31 to 13 weeks ending 2010-12-31). Inventory grew by 81.6% during the same time period ($44.6M vs. $24.56M y/y). Inventory, as a percentage of current assets, increased from 13.85% to 30.76% during the most recent quarter (comparing 13 weeks ending 2011-12-31 to 13 weeks ending 2010-12-31).
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2. Cavium Networks, Inc. (CAVM, Earnings, Analysts, Financials): Designs, develops, and markets semiconductor processors for intelligent and secure networks. 5-year projected EPS growth at 20.56%. Revenue grew by 22.68% during the most recent quarter ($67.73M vs. $55.21M y/y). Accounts receivable grew by 49.7% during the same time period ($47.5M vs. $31.73M y/y). Receivables, as a percentage of current assets, increased from 22.48% to 28.33% during the most recent quarter (comparing 3 months ending 2011-09-30 to 3 months ending 2010-09-30). Inventory grew by 46.92% during the same time period ($33.35M vs. $22.7M y/y). Inventory, as a percentage of current assets, increased from 16.09% to 19.89% during the most recent quarter (comparing 3 months ending 2011-09-30 to 3 months ending 2010-09-30).
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3. KVH Industries Inc. (KVHI, Earnings, Analysts, Financials): Engages in the development, manufacture, and marketing of mobile communication products for the marine, land mobile, and aeronautical markets primarily in North America, Europe, and Asia. 5-year projected EPS growth at 30.00%. Revenue grew by -7.71% during the most recent quarter ($25.62M vs. $27.76M y/y). Accounts receivable grew by 12.36% during the same time period ($19.27M vs. $17.15M y/y). Receivables, as a percentage of current assets, increased from 23.29% to 25.6% during the most recent quarter (comparing 3 months ending 2011-09-30 to 3 months ending 2010-09-30). Inventory grew by 28.97% during the same time period ($19.59M vs. $15.19M y/y). Inventory, as a percentage of current assets, increased from 20.62% to 26.02% during the most recent quarter (comparing 3 months ending 2011-09-30 to 3 months ending 2010-09-30).
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4. NXP Semiconductors NV (NXPI, Earnings, Analysts, Financials): Provides mixed signal solutions and semiconductor components primarily in Japan, Europe, South Korea, Rest of Asia Pacific, and the Americas. 5-year projected EPS growth at 27.50%. Revenue grew by -13.64% during the most recent quarter ($931M vs. $1,078M y/y). Accounts receivable grew by 9.36% during the same time period ($479M vs. $438M y/y). Receivables, as a percentage of current assets, increased from 20.51% to 24.36% during the most recent quarter (comparing 13 weeks ending 2011-12-31 to 13 weeks ending 2010-12-31). Inventory grew by 20.47% during the same time period ($618M vs. $513M y/y). Inventory, as a percentage of current assets, increased from 24.02% to 31.43% during the most recent quarter (comparing 13 weeks ending 2011-12-31 to 13 weeks ending 2010-12-31).
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(Written by Alexander Crawford. Accounting data sourced from Google Finance.)
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Use Kapitall's Tools: Looking for ways to analyze this list?Use this article snapshot as a launch pad (click here for help): Simply click on the links, and use Kapitall's tab navigation to browse through the data...
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Analyze These Ideas: Getting Started
Read descriptions for all companies mentioned
Access a performance overview for all stocks in the list
Compare analyst ratings for the companies mentioned
Compare analyst ratings to annual returns for stocks mentioned
Real-Time Opinion: Scan the latest tweets about these companies (feed will open in a new window)
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New to Kapitall?1. New to the site? Click here to register for a free account, and gain access to more tools and data2. Looking for more investing ideas like this? Click here to sign up for your free copy of Kapitall Weekly3. Follow us on SeekingAlpha, Motley Fool, Nasdaq and Twitter
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Articles
Investing 101: 4 High-Growth Tech Stocks Showing Accounting Red Flags
Companies on the fast track usually appear like good investments - after all, what's bad about growth? But before jumping into a risky investment, it's always a good idea to study the company's financial sheets. Red flags may be lurking.
We ran a screen with this idea in mind. We began by screening for high-growth stocks in the tech sector, with 5-year projected EPS growth above 20%.
We then searched for potential red flags in the companies' revenue trends relative to accounts receivable and relative to inventory.
When accounts receivable becomes a larger percentage of the revenues reported by a company, it indicates lower quality revenues because there is no guarantee that accounts receivable will be paid back in full. Companies with shrinking accounts receivable (relative to revenue) are viewed favorably.
Positive trends in inventory usually consist of growth in quarterly revenue outpacing growth in quarterly inventory year-over-year, as well as inventory becoming a smaller portion of current assets. To understand why these trends are positive, think of why the opposite trends would be negative. If revenue were growing slower than inventory, it may indicate that the company is having trouble selling its inventory ? although this could just indicate inventory building or a change in sales policies.
Business Section: Investing Ideas
Below are the results of this stock screen. These are high-growth tech stocks that have been exhibiting negative trends in accounts receivable and inventory relative to revenue trends.
Do you think these companies are in hot water?
?
?
1. Calix Inc. (CALX, Earnings, Analysts, Financials): 5-year projected EPS growth at 24.67%. Revenue grew by -0.12% during the most recent quarter ($91.58M vs. $91.69M y/y). Accounts receivable grew by 10.51% during the same time period ($47.94M vs. $43.38M y/y). Receivables, as a percentage of current assets, increased from 24.47% to 33.06% during the most recent quarter (comparing 13 weeks ending 2011-12-31 to 13 weeks ending 2010-12-31). Inventory grew by 81.6% during the same time period ($44.6M vs. $24.56M y/y). Inventory, as a percentage of current assets, increased from 13.85% to 30.76% during the most recent quarter (comparing 13 weeks ending 2011-12-31 to 13 weeks ending 2010-12-31).
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2. Cavium Networks, Inc. (CAVM, Earnings, Analysts, Financials): Designs, develops, and markets semiconductor processors for intelligent and secure networks. 5-year projected EPS growth at 20.56%. Revenue grew by 22.68% during the most recent quarter ($67.73M vs. $55.21M y/y). Accounts receivable grew by 49.7% during the same time period ($47.5M vs. $31.73M y/y). Receivables, as a percentage of current assets, increased from 22.48% to 28.33% during the most recent quarter (comparing 3 months ending 2011-09-30 to 3 months ending 2010-09-30). Inventory grew by 46.92% during the same time period ($33.35M vs. $22.7M y/y). Inventory, as a percentage of current assets, increased from 16.09% to 19.89% during the most recent quarter (comparing 3 months ending 2011-09-30 to 3 months ending 2010-09-30).
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3. KVH Industries Inc. (KVHI, Earnings, Analysts, Financials): Engages in the development, manufacture, and marketing of mobile communication products for the marine, land mobile, and aeronautical markets primarily in North America, Europe, and Asia. 5-year projected EPS growth at 30.00%. Revenue grew by -7.71% during the most recent quarter ($25.62M vs. $27.76M y/y). Accounts receivable grew by 12.36% during the same time period ($19.27M vs. $17.15M y/y). Receivables, as a percentage of current assets, increased from 23.29% to 25.6% during the most recent quarter (comparing 3 months ending 2011-09-30 to 3 months ending 2010-09-30). Inventory grew by 28.97% during the same time period ($19.59M vs. $15.19M y/y). Inventory, as a percentage of current assets, increased from 20.62% to 26.02% during the most recent quarter (comparing 3 months ending 2011-09-30 to 3 months ending 2010-09-30).
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4. NXP Semiconductors NV (NXPI, Earnings, Analysts, Financials): Provides mixed signal solutions and semiconductor components primarily in Japan, Europe, South Korea, Rest of Asia Pacific, and the Americas. 5-year projected EPS growth at 27.50%. Revenue grew by -13.64% during the most recent quarter ($931M vs. $1,078M y/y). Accounts receivable grew by 9.36% during the same time period ($479M vs. $438M y/y). Receivables, as a percentage of current assets, increased from 20.51% to 24.36% during the most recent quarter (comparing 13 weeks ending 2011-12-31 to 13 weeks ending 2010-12-31). Inventory grew by 20.47% during the same time period ($618M vs. $513M y/y). Inventory, as a percentage of current assets, increased from 24.02% to 31.43% during the most recent quarter (comparing 13 weeks ending 2011-12-31 to 13 weeks ending 2010-12-31).
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(Written by Alexander Crawford. Accounting data sourced from Google Finance.)
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Use Kapitall's Tools: Looking for ways to analyze this list?Use this article snapshot as a launch pad (click here for help): Simply click on the links, and use Kapitall's tab navigation to browse through the data...
?
Analyze These Ideas: Getting Started
Read descriptions for all companies mentioned
Access a performance overview for all stocks in the list
Compare analyst ratings for the companies mentioned
Compare analyst ratings to annual returns for stocks mentioned
Real-Time Opinion: Scan the latest tweets about these companies (feed will open in a new window)
Dig Deeper: Access Company Snapshots, Charts, Filings
New to Kapitall?1. New to the site? Click here to register for a free account, and gain access to more tools and data2. Looking for more investing ideas like this? Click here to sign up for your free copy of Kapitall Weekly3. Follow us on SeekingAlpha, Motley Fool, Nasdaq and Twitter
Companies on the fast track usually appear like good investments - after all, what's bad about growth? But before jumping into a risky investment, it's always a good idea to study the company's financial sheets. Red flags may be lurking.
Use Kapitall's Tools: Looking for ways to analyze this list?Use this article snapshot as a launch pad (click here for help): Simply click on the links, and use Kapitall's tab navigation to browse through the data...
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