OK, there's been talk here of evaluating companies that have a sustained competitive advantage, so I'll bite.
Here are factors I think are important when comsidering investing in companies. The factors borrow but don't adhere strictly to G&K principles:
1. Competitive advantage with a defined "moat" around business through proprietary technology, name brand recognition of company and product, and/or market share.
2. In a high growth industry, looking at recent and potential revenue growth.
3. A "light" business model (high gross and net profit margins), selling technology rather than a widget, an indication of competitive advantage (since competition erodes margins), a clever business plan, good management, and also a good indicator of stocks that can really explode when revenue growth is high.
4. A proven business model as exhibited by success in the market place and adoption of the product/service over several quarters.
Here are some companies that I think meet these definitions:
1. ISRG (gross profit 69%, net profit 26%)
2. DLB (gross profit 82%, net profit 25%)
3. NUAN (gross profit 66%, net profit -2% due to acquisitions)
4. GOOG (gross profit 61%, net profit 25%)
5. SNDA (gross profit 70%, net profit 36%)
6. LOOP (gross profit 89%, net profit 31%)
7. QCOM (gross profit 69%, net profit 50%)
At the top are companies that have a combination of proven strength and are still in a high growth curve. At the lower end are QCOM, a proven business but unclear what the future holds as far as growth rate is concerned, and LOOP and SNDA which have less certain business models but show potential. |
