After the excitement of catching a fish there is the relatively unpleasant process of gutting the fish before things get exciting again – the cooking and the eating!
Same with stocks, the financial media is full of “darling” stocks. However, Slack Investor likes to take a deep look into the entrails before parting with his precious funds for the glorious pleasure of share ownership. The data gathering is not the most exciting part of investing and Slack Investor likes to keep things simple here – and finds the best way to sort out the worthy fish is to put them on a list with a few relevant numbers ” the guts”.
Profitability and Growth are two things that really impress Slack Investor and I have probably oversimplified matters by just representing these complex things with one number for each. For Profitability, I am using the Return on Invested Capital (ROIC) – For Growth, I am using the Compound Annual Growth rate (CAGR) for the companies revenue over a 3-yr period. Both of these numbers were obtained from the excellent Morningstar site, search for the company and then use the “Key Stats” tab. I tried to use the latest figures available.
The companies that Slack Investor did a bit of research on is not definitive … I usually look into my own portfolio first to see if the investment case still stands … and, if the company has been performing well, I like to add to my holding.
The newer stocks come from a variety of sources – usually the financial press. I tend to stay away from mining and retail stocks because of the uncertainties present in these sectors. As these potential buys are a replacement for my largest portfolio member, Altium (Potential Takeover target), I have concentrated on the “growth stocks” The first screening is for growth using the CAGR and the ROIC.
Gather the Data
I have put all my prospective BUYS in a list
| Company | Ticker | ROIC 23 | CAGR 3-yr |
|---|---|---|---|
| Alphabet (US) | GOOGL | 24 | 19 |
| Altium Ltd | ALU | 23 | 13 |
| Audinate | AD8 | 12 | 32 |
| Car Group | CAR | 7 | 25 |
| Cochlear Ltd | COH | 17 | 14 |
| Codan Ltd | CDA | 14 | 9 |
| CSL Ltd | CSL | 10 | 13 |
| Dicker Data | DDR | 16 | 4 |
| Fisher & Paykel Healthcare Corp Ltd | FPH | 14 | 8 |
| Microsoft (US) | MSFT | 29 | 14 |
| NextDC | NXT | -133 | 22 |
| NVIDEA Corp (US) | NVDA | 66 | 54 |
| Pro Medicus | PME | 50 | 30 |
| REA Group Ltd | REA | 20 | 16 |
| Resmed | RMD | 15 | 13 |
| Seek Ltd | SEK | -1 | -8 |
| Supply Network | SNL | 24 | 23 |
| Technology One | TNE | 30 | 13 |
| Telix Pharmaceuticals | TLX | 35 | 380 |
| WiseTech | WTC | 60 | 24 |
| Xero | XRO | -5 | 23 |
The list needs a bit of narrowing down so I applied a filter to reduce the field to a top 10. I refined the list to those companies that have a historical ROIC of greater than 20% and a 3-yr CAGR of greater than 12% – this now becomes a list of great, profitable, efficient companies that are growing. I also added Forecast P/E ratios for 2026 from MarketScreener.
| Company | Ticker | ROIC 23 | CAGR 3-yr | P/E 2026 |
|---|---|---|---|---|
| NVIDEA Corp (US) | NVDA | 66 | 54 | 26 |
| WiseTech | WTC | 60 | 24 | 60 |
| Pro Medicus | PME | 50 | 30 | 82 |
| Telix Pharmaceuticals | TLX | 35 | 380 | 35 |
| Technology One | TNE | 30 | 13 | 33 |
| Microsoft (US) | MSFT | 29 | 14 | 26 |
| Alphabet (US) | GOOGL | 24 | 19 | 18 |
| Supply Network | SNL | 24 | 23 | 21 |
| Altium Ltd | ALU | 23 | 13 | 45 |
| REA Group Ltd | REA | 20 | 16 | 36 |
The Price/Earnings Filter
The above list represents some profitable, growing companies – but they might be priced too highly. Slack Investor generally doesn’t like to pay for a forecast P/E ratio of over 40 when I’m buying a new growth stock – that means the projected earnings are 40 times the current price of the stock. This reduces the table to 7 stocks. I can reduce the table even further by taking out the 3 US based stocks (MSFT, NVDA, GOOGL) – which I can buy in one trade by purchasing more of the ASX listed NDQ . The Betashares NASDAQ 100 ETF was already on my BUY radar. Have a look at the 1-yr returns on these amazing growth companies in the table below of top NDQ holdings – It is unlikely that this stellar growth will continue … but there is certainly momentum here.
The Final List – this is not advice!
| Company | Ticker | ROIC 23 | CAGR 3-yr | P/E 2026 | Price |
|---|---|---|---|---|---|
| Telix Pharmaceuticals | TLX | 35 | 380 | 35 | $15.05 |
| Technology One | TNE | 30 | 13 | 33 | $16.25 |
| Supply Network | SNL | 24 | 23 | 21 | $20.05 |
| REA Group Ltd | REA | 20 | 16 | 36 | $179.64 |
| Betashares NASDAQ 100 | NDQ | – | 18 | 27 (2024) | $41.35 |
As well as BetaShares NASDAQ 100 ETF (NDQ), I will be looking forward to topping up my supplies of Technology One, Supply Network and REA Group and hoping for a bit of a price contraction over the next couple of months. The share price shown in this table is at the end of April 2024.
A newcomer to this list is Telix Pharmaceuticals (TLX) – a relatively new entry to the ASX that develops radiopharmaceuticals for cancer diagnosis and treatment. There is a lot of talk of this companies potential.
“It’s developing into a premier global radiopharmaceutical company … I see this as going on to become the next CSL in Australia.”
Shane Fitzgerald, Monash Investors – Livewire
A CAGR of 380 is skewed by recent figures – but they definitely are a growth company – but there is risk here! Slack Investor will roll the dice and add a bit of this to his portfolio while it is still around the $15 mark – there is a bit of momentum with this stock – might have to get in soon! He likes that they already have a money-making product and they have a further product pipeline ready to roll out.
(Telix Pharmaceuticals) has demonstrated extraordinary progress by generating over $100 million in revenue in the March 2023 quarter, a remarkable leap from zero, less than twelve months ago.
Sean Sequeira – Australian Eagle Asset Management
April 2024 – End of Month Update
Slack Investor is IN for Australian index shares, the US Index S&P 500 and the FTSE 100.
A bit of the froth has settled down with the ASX 200 (-2.9%) and the S&P 500 (-4.2%). However, the FTSE 100 (+2.4%) is powering on at the moment. After a while in the doldrums, the FTSE 100 is now reaching record highs with the expectation of some interest rate cuts soon.
All Index pages and charts have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index).
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Very interesting article, thanks! I’m curious how accurate you’ve found the forecast earnings to be – can you comment? What made you decide to use estimates 2-3 years ahead, instead of 1 year?
Hi Scott, I get all of my analyst Information (forecasts, etc) from the Market Screener site. They kindly allow you to access a limited number of stock information pages per day – providing you free register. The link is for their pages on REA. If you scroll down the financials page you will see a chart “Earnings Per Share (EPS) – Change in analysts’ estimates”. You can see there that the analysts will often review their earnings forecasts even monthly.
In my early investing days, I used to dread the company reporting seasons as there would often be a failed earnings expectation in my portfolio and the company might drop 20%. I am a bit more sanguine about things these days and will forgive a missed target – but I will look to sell if it becomes a regular thing. To your question, I have found the forecast earnings a useful guide – I do not expect 100% accuracy on forecasts (I am a retired Meteorologist after all!) – there will often be mistakes along the way in a good companies progress. I like the long-term forecasts because this is my investing time frame … and, I’m slack! My goal is to surround myself with great, growing companies that under-estimate their earnings … and out-perform at reporting time. Happy Days. Good luck with your investing. Cheers, Slack Investor