There is the constant debate of whether there is more opportunity in growth or value stocks. For the most part, growth has historically outperformed in the current cycle. One of the reasons is that the value proposition in growth companies is constantly changing. What that means is if growth expectations increase, it makes the company cheaper and helps create more upside in the price.
As you attempt to identify growth companies there are a few things to consider. First and foremost, it is about earnings and revenue growth. For earnings growth you have historical and future earnings growth that are estimated by analysts. Another consideration is EBITDA growth. This helps eliminate so of the effects of capital structure on earnings by adding back interest expense, taxes, depreciation, and amortization. Ideally seeing high rates of historical and future projected earnings growth being organically generated by high revenue is a way to define growth.
Since earnings is key, seeing companies beat analyst estimates and having analyst raise EPS estimates can help garner momentum. The helps create an upgrade cycle of higher price and earnings forecasts.
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Finally, balance sheet considerations come down to lower debt and higher cash levels. In an environment where bankruptcies will likely increase, a company can’t go bankrupt if they have no debt.
Check out our recent posts on mid cap companies and growth opportunities.
The following list of three mid cap stocks have high earnings, EBITDA and revenue growth rates in the past three years. They also have high cash and low debt.
Mid Cap Growth Stock #1: eHealth, Inc. (NASDAQ: EHTH)
EHealth is a private health insurance exchange where individuals, families and small businesses can compare health insurance products from various insurers. Consumers can also purchase and enroll in plans through the eHealth websites. In the most recent earnings report the company announced revenue growth of 55% year-over-year (yoy) with a 75% increase in Medicare revenue. The company also posted a quarterly profit of $0.13 compared to a $0.24 loss last year.
EHTH has 3-year revenue growth of 25%, 3-year EBITDA growth of 119.9% and 3-year EPS growth of 414.9%. Its current 2020 and 2021 revenue growth estimates are over 25% and a 5-year EPS growth estimate of 13.28%. The company has blown away estimates in the last four quarters with recent positive EPS revisions for 2020 and 2021.
EHTH has a near-term price target of $150.
Mid Cap Growth Stock #2: SPS Commerce, Inc (NASDAQ: SPSC)
SPS Commerce is a cloud-based supply chain management company that provides network-proven fulfillment, sourcing and item assortment management solutions and analytics. The company reported an 11% growth in revenue yoy with 12% growth in recurring revenue. The company reported quarterly GAAP EPS of $0.26 compared to $0.19 in 2019.
SPSC has 3-year revenue growth of 11.4%, 3-year EBITDA growth of 43.6% and 3-year EPS growth of 86.5%. Its current 2020 and 2021 revenue growth estimates are 8.2% and 9.1%, respectively. The 5-year EPS growth estimate is 15%. The company has beaten quarterly EPS estimates by over 15% in all of the past four quarters and EPS estimates have remained stable in the past 90 days.
SPSC has a near-term price target of $84.
Mid Cap Growth Stock #3: Medifast Inc (NYSE: MED)
Medifast is a weight loss and weight management company that produces healthy living, consumable health and nutritional products. The company saw revenue increase in the most recent quarter by 7.6% yoy but saw EPS decline 8.2%. The company also has a forward annual dividend yield of 3.76%.
MED has 3-year revenue growth of 36.9%, 3-year EBITDA growth of 43% and 3-year EPS growth of 62.8%. Its current 2020 and 2021 revenue growth estimates are 5.7% and 11.8%, respectively. The 5-year EPS growth estimate is 20%. The company has beaten analyst estimates by over 45% in the past two announcements and had significant positive revisions to 2020 and 2021 EPS estimates in the last 30 days.
MED has a near-term price target of $143.