...looking deeper into EMLX
stockconsultant.com
QUARTERLY EPS CHANGE (THIS QUARTER VS. SAME QUARTER LAST YEAR): [FAIL]
The EPS growth for this quarter relative to the same quarter a year earlier for EMLX (--388.24%) is below the minimum 18% that this methodology likes to see for a "good" growth company. EMLX fails the first requirement.
ANNUAL EARNINGS GROWTH: [PASS]
This methodology looks for annual earnings growth above 18%, but prefers higher than 25%. EMLX's annual earnings growth rate of 31.67% passes this test.
EARNINGS CONSISTENCY: [FAIL]
According to this methodology, each year's EPS numbers should be better than the previous year's. One dip is allowed, but the following year's earnings should be a new high. EMLX, whose annual EPS before extraordinary items for the last 5 years (from earliest to the most recent fiscal year) were 0.03, -0.22, 0.09, 0.43, -0.31, fails this criterion, as more than 1 dip is unacceptable to the methodology.
LONG-TERM EPS GROWTH RATE RELATIVE TO GROWTH IN THE LATEST 2 QUARTERS: [FAIL]
This methodology looks unfavorably at any company whose earnings growth in the latest 2 quarters has been less than half of the long-term earnings growth rate. EMLX fails this criterion, as earnings growth in the 2 most recent quarters (-416.7% for Q6 to Q2 and -388.2% for Q5 to Q1) have slowed substantially to a point less than its long-term growth rate of 31.7%.
CURRENT PRICE LEVEL: [FAIL]
Investors should avoid stocks that are not trading within 15% of their 52-week highs. EMLX's current stock price ($44.49) is not within 15% of the 52-week high ($109.75), and, therefore, the stock is looked at unfavorably until the price moves into the acceptable range.
4 MONTH S&P RELATIVE STRENGTH LINE: [PASS]
This methodology likes to see confirmation from this indicator when buying as a sign of a company's recently strong momentum. It shows a company's weekly performance in comparison to the overall market, as measured by the S&P 500. Look for a general upward trend in weekly relative strength, as the best stocks usually act better than the overall market. EMLX's relative strength trend has been increasing over the last 4 months. This type of price action is favorable.
PRICE PERFORMANCE COMPARED TO ALL OTHER STOCKS: [FAIL]
A company's weighted relative strength, which is the stock's price performance compared with the overall market over the past year, should be no less than 80, although above 90 is preferred. As long as all the other numbers are in check, these companies should continue to perform well over the next 3 months. EMLX's relative strength of 31 is too low to pass the test.
CONFIRM AT LEAST ONE OTHER LEADING STOCK IN THE INDUSTRY: [PASS]
Make sure that a company's industry is attractive by confirming that at least one other company in the industry has a relative strength above 80. There is confirmation in EMLX's industry (Computer Storage Devices), as there are 6 companies that have a relative strength at or above 80.
LOOK FOR LEADING INDUSTRIES: [FAIL]
Investors should consider stocks in top performing industries. Look at the number of companies within an industry that have a weighted relative strength above 80, and choose only the top 30% of those industries from which to select stocks. In another method, look for industries with the most stocks making new 52-week highs. EMLX's industry (Computer Storage Devices) is not one of the top performing industries at this time, thus failing the criterion.
DECREASING LONG-TERM DEBT/EQUITY: [FAIL]
Companies who have consistently cut debt over the last 3 years, or who have no debt, are looked at favorably. EMLX's Debt/Equity figures are not available, hence no opinion can be rendered.
PROFIT MARGIN CONSISTENCY: [FAIL]
The profit margin in the past must be consistently increasing. The profit margin of EMLX has been inconsistent in the past three years (Current year: -9.62%, Last year: 23.47%, Two years ago: 7.68%), which is unacceptable. This inconsistency will carryover directly to the company's bottom line, or earnings per share.
RETURN ON EQUITY: [FAIL]
Preferred companies must have a ROE of at least 17%. EMLX's ROE of -12.4% is below the minimum 17% that this methodology likes to see, and therefore fails the criterion.
SHARES OUTSTANDING: [NEUTRAL]
Shares outstanding should be less than 30 million, as fewer shares mean bigger price jumps when demand surges. However, there is no penalty for a large number of shares outstanding as long as all the other parameters are met. Although EMLX exceeds the preferred level with shares outstanding of 81 million, the stock still passes the test.
INSIDER OWNERSHIP: [FAIL]
Companies with the best prospects have strong insider ownership, which we define as 15% or more. When there is strong insider ownership, management is more likely to act in the best interest of the company, as their interests are right in line with that of the shareholders. Insiders own 4.28% of EMLX's stock. Management's representation is not large enough and fails this test.
INSTITUTIONAL OWNERSHIP: [PASS]
Some institutional ownership is preferred, but there is no indication that a large number of institutions is too many. Institutions own 71.28% of EMLX's stock. Because there is some institutional ownership present, EMLX passes this test.
P/E/GROWTH RATIO: [FAIL]
The investor should examine the P/E (N/A) relative to the growth rate (31.67%) for a company. This is a quick way of determining the fairness of the price. In this particular case, the P/E/G ratio for EMLX is not available which means an opinion could not be rendered on this criterion.
SALES AND P/E RATIO: [NEUTRAL]
For companies with sales greater than $1 billion, this methodology likes to see that the P/E ratio remain below 40. Large companies can have a difficult time maintaining a growth rate as high needed to support the P/E above this threshold. EMLX, whose sales are $242.6 million, is not considered large enough to apply the P/E ratio analysis. However, an investor can analyze the P/E ratio relative to the EPS growth rate.
INVENTORY TO SALES: [FAIL]
When inventories increase faster than sales, it is a red flag. However an increase of up to 5% is considered bearable if all other ratios appear attractive. Inventory to sales for EMLX was 9.04% last year, while for this year it is 15.74%. Since inventory has been rising and the inventory change, 6.70% is greater than 5%, it fails this test.
INVENTORY TO SALES: [PASS]
This methodology strongly believes that companies, especially small ones, should have tight control over inventory. It's a warning sign if a company's inventory relative to sales increases significantly when compared to the previous year. Up to a 30% increase is allowed, but no more. Inventory to Sales for EMLX was 9.04% last year, while for this year it is 15.74%. Although the inventory to sales is rising, it is below the max 30% that is allowed. The investor can still consider the stock if all other criteria appear very attractive.
EPS GROWTH RATE: [PASS]
This methodology favors companies that have several years of fast earnings growth, as these companies have a proven formula for growth that in many cases can continue many more years. This methodology likes to see earnings growth in the range of 20% to 50%, as earnings growth over 50% may be unsustainable. The EPS growth rate for EMLX is 31.7%, based on the projected future long term growth rate, which is acceptable.
SALES GROWTH RATE: [FAIL]
Another important issue regarding sales growth is that the rate of quarterly sales growth is rising. To evaluate this, the change from this quarter last year to the present quarter (-4.9%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (43.3%) of the current year. Sales growth for the prior must be greater than the latter. For EMLX this criterion has not been met and fails this test.
EARNINGS PER SHARE PERSISTENCE: [FAIL]
The Cornerstone Growth methodology looks for companies that show persistent earnings growth without regard to magnitude. To fulfill this requirement, a company's earnings must increase each year for a five year period. EMLX, whose annual EPS before extraordinary items for the last 5 years (from earliest to the most recent fiscal year) were 0.03, -0.22, 0.09, 0.43 and -0.31, fails this test.
POSITIVE EARNINGS GROWTH RATE FOR CURRENT QUARTER: [FAIL]
The growth rate of the current quarter's earnings compared to the same quarter a year ago must also be positive. EMLX's growth rate of -388.24% fails this test.
EARNINGS GROWTH RATE FOR THE PAST SEVERAL QUARTERS: [FAIL]
Compare the earnings growth rate of the past four quarters with long-term EPS growth rate. Earnings growth in the past 4 quarters should be at least half of the long-term EPS growth rate. A stock should not be considered if it posted several quarters of skimpy earnings. EMLX had 3 quarters of skimpy growth in the last 2 years.
EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN PRIOR 3 QUARTERS: [FAIL]
If the growth rate of the prior three quarter's earnings, -232.35%, (versus the same three quarters a year earlier) is greater than the growth rate of the current quarter earnings, -388.24%, (versus the same quarter one year ago) then the stock fails, with one exception: if the growth rate in earnings between the current quarter and the same quarter one year ago is greater than 30%, then the stock would pass. The growth rate over this period for EMLX is -388.24, and it would therefore fail this test.
EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN THE HISTORICAL GROWTH RATE: [FAIL]
The EPS growth rate for the current quarter, -388.24% must be greater than or equal to the historical growth which is 31.67%. Since this is not the case EMLX would therefore fail this test.
PRICE/SALES RATIO: [FAIL]
The Price/Sales ratio should be below 1.5. This value criterion, coupled with the growth criterion, identify growth stocks that are still cheap to buy. Unfortunately, EMLX's Price/Sales ratio of 14.59, based on trailing 12 month sales fails this criterion.
PRICE/SALES RATIO: [FAIL]
The prospective company should have a low Price/Sales ratio. Non-cyclical stocks with Price/Sales ratios > 3 should never be purchased, however they can be held depending on the investor's risk aversion. EMLX's P/S ratio of 14.59 based on trailing 12 month sales, is above 3, which is considered very unfavorable by this methodology. Based on this ratio, the stock is quite risky, however if risk does not bother you much, consider holding the stock until the P/S ratio approaches 6.
RELATIVE STRENGTH: [FAIL]
The final criterion for the Cornerstone Growth Strategy requires that the Relative Strength of the company be among the top 50 of the stocks screened using the previous criterion. This gives you the opportunity to buy the growth stocks you are searching for just as the market is embracing them. EMLX has a relative strength of 31. Therefore, it would fail not only the three previous required criterion but also the overall methodology.
CURRENT RATIO: [PASS]
The current ratio must be greater than or equal to 2. Companies that meet this criterion are typically financially secure and defensive. EMLX's current ratio of 6.67 passes the test.
LONG-TERM DEBT IN RELATION TO NET CURRENT ASSETS: [PASS]
For industrial companies, long-term debt must not exceed net current assets (current assets minus current liabilities). Companies that meet this criterion display one of the attributes of a financially secure organization. The long-term debt for EMLX is $0.0 million, while the net current assets are $210.5 million. EMLX passes this test.
LONG-TERM EPS GROWTH: [PASS]
Companies must increase their EPS by at least 30% over a ten-year period. We have data for over five years, and have adjusted this requirement to be a 15% gain over the five-year period. Companies with this type of growth tend to be financially secure and have proven themselves over time. EMLX's EPS growth over that period of 15.5% passes the EPS growth test.
P/E RATIO: [FAIL]
The Price/Earnings (P/E) ratio must be "moderate", which this methodology states is not greater than 15. Stocks with moderate P/Es are more defensive by nature. Unfortunately, this variable cannot be analyzed since EMLX's trailing 12 month earnings were negative.
PRICE/BOOK RATIO: [FAIL]
The Price/Book ratio must also be reasonable. That is, the Price/Book multiplied by P/E cannot be greater than 22. Unfortunately, EMLX's P/E ratio is unavailable. Accordingly, only the Price/Book can be evaluated. This value must not be greater than 1.5. EMLX's Price/Book ratio of 4.35 fails this test.
PRICE/RESEARCH RATIO: [FAIL]
This methodology considers Technology and Medical companies with low Price/Research ratios to be attractive. This ratio indicates how much a market values a company's Research and Development (R&D). Companies with Price/Research ratios greater than 15 should never be purchased, because they either spend too little on R&D or are extremely overvalued. EMLX's Price/Research ratio of 133.59 is considered extremely unfavorable.
PROFIT MARGIN: [FAIL]
This methodology seeks companies with a minimum trailing 12 month after tax profit margin of 7%. The companies that pass this criterion have strong positions within their respective industries and offer greater shareholder returns. A true test of the quality of a company is that they can sustain this margin. EMLX's profit margin of -31.53% fails this test.
RELATIVE STRENGTH: [FAIL]
The investor must look at the relative strength of the company in question. Companies whose relative strength is 90 or above (that is, the company outperforms 90% or more of the market for the past year), are considered attractive. Companies whose price has been rising much quicker than the market tend to keep rising. EMLX, with a relative strength of 31, fails this test.
COMPARE SALES AND EPS GROWTH TO THE SAME PERIOD LAST YEAR: [FAIL]
Companies must demonstrate both revenue and net income growth of at least 25% as compared to the prior year. These growth rates give you the dynamic companies that you are looking for. These rates for EMLX (-388.24% for EPS, and -4.90% for Sales) are not good enough to pass.
INSIDER HOLDINGS: [FAIL]
EMLX's insiders should own at least 10% (they own 4.28%) of the company's outstanding shares. This does not satisfy the minimum requirement, and companies that do not pass this criteria are less attractive.
INCOME TAX PERCENTAGE: [PASS]
EMLX's income tax paid expressed as a percentage of pretax income this year was (375.17%) and last year (25.14%) are greater than 20% which is an acceptable level. If the tax rate is below 20% this could mean that the earnings that were reported were unrealistically inflated due to the lower level of income tax paid. This is a concern. |
