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Scoop Up These 4 Stocks With Amazing Interest Coverage Ratio
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The Federal Reserve’s greatest challenge now is to rein in soaring inflation, and it is treading the path of steady rate hike to tame the same. Trimming of balance sheet is also on the cards. The officials have agreed to trim $60 billion a month from the U.S. central bank's Treasury holdings and $35 billion from holdings of mortgage-backed securities. This is likely to commence in May. At present, investors should gauge the changing market dynamics and accordingly chalk out a sturdy investment strategy.
An ill-informed investor can lose cash if he wagers on a stock only on the basis of the numbers flashing on a real-time stock screen. A critical analysis of the company’s financial background is always required for a better investment decision.
Often, investors evaluate a company’s performance by simply looking at its sales and earnings, which sometimes do not reveal the real picture. To be more precise, they do not tell whether a company’s fundamentals are sound enough to meet its financial obligations. Here, the coverage ratio comes into play — the higher the metric, the more efficient an enterprise will be in meeting its financial obligations.
Why Interest Coverage Ratio?
Interest Coverage Ratio is used to determine how effectively a company can pay interest charges on its debt.
Debt, which is crucial to financing operations for the majority of companies, comes at a cost called interest. Interest expense has a direct bearing on the profitability of a company. The company’s creditworthiness depends on how effectively it meets its interest obligations. Therefore, Interest Coverage Ratio is one of the important criteria to factor in before making any investment decision.
Interest Coverage Ratio = Earnings before Interest & Taxes (EBIT) divided by Interest Expense.
Interest Coverage Ratio suggests how many times the interest could be paid from earnings and gauges the margin of safety a firm has for paying interest.
An interest coverage ratio lower than one suggests that the company is unable to fulfill its interest obligations and could default on repaying debt. A company capable of generating earnings well above its interest expense can withstand financial hardships. One should also track the company’s past performance to determine whether the interest coverage ratio has improved or worsened over a period of time.
Apart from having an Interest Coverage ratio that is more than the industry average, adding a favorable Zacks Rank and a VGM Score of A or B to your search criteria should lead to better results.
Interest Coverage Ratio greater than X-Industry Median
Price greater than or equal to 5: The stocks must all be trading at a minimum of $5 or higher.
5-Year Historical EPS Growth (%) greater than X-Industry Median: Stocks with a strong EPS growth history.
Projected EPS Growth (%) greater than X-Industry Median: This is the projected EPS growth over the next three to five years. This shows that the stock has near-term earnings growth potential.
Average 20-Day Volume greater than 100,000: A substantial trading volume ensures that the stock is easily tradable.
Zacks Rank less than or equal to 2: Zacks Rank #1 (Strong Buy) or 2 (Buy) stocks are known to outperform irrespective of the market environment.
VGM Score of less than or equal to B: Our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 or 2, offer the best upside potential.
Here are four of the 11 stocks that qualified the screening:
CBRE Group is a commercial real estate services and investment firm, which sports a Zacks Rank #1 and has a VGM Score of B. Its expected earnings per share (EPS) growth rate for three-five years is 11%. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for CBRE Group’s current financial year sales and EPS suggests growth of 22.3% and 6%, respectively, from the year-ago period. CBRE has a trailing four-quarter earnings surprise of 34.2%, on average. The stock has jumped 7.9% in the past year.
Tecnoglass, a leading manufacturer of architectural glass, windows, and associated aluminum products serving the global residential and commercial end markets, sports a Zacks Rank #1 and has a VGM Score of B. Its expected EPS growth rate for three-five years is 20%.
The Zacks Consensus Estimate for Tecnoglass’ current financial year sales and EPS suggests growth of 18.9% and 21.8%, respectively, from the year-ago period. TGLS has a trailing four-quarter earnings surprise of 39.9%, on average. The stock has surged 80.3% in the past year.
Dillard's, which operates retail department stores, carries a Zacks Rank #2 and has a VGM Score of A. Its expected EPS growth rate for three-five years is 14.6%.
The Zacks Consensus Estimate for Dillard's current financial year sales suggests growth of 4.7% from the year-ago period. DDS has a trailing four-quarter earnings surprise of 294.5%, on average. The stock has zoomed 166% in the past year.
Boot Barn Holdings, a leading lifestyle retailer of western and work-related footwear, apparel and accessories, carries a Zacks Rank #2 and a VGM Score of A. Its expected EPS growth rate for three-five years is 20%.
The Zacks Consensus Estimate for Boot Barn Holdings’ current financial year sales and EPS suggests growth of 62.6% and 220.8%, respectively, from the year-ago period. BOOT has jumped 33.5% in the past year.
You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and backtest them first before taking the investment plunge.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
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Scoop Up These 4 Stocks With Amazing Interest Coverage Ratio
The Federal Reserve’s greatest challenge now is to rein in soaring inflation, and it is treading the path of steady rate hike to tame the same. Trimming of balance sheet is also on the cards. The officials have agreed to trim $60 billion a month from the U.S. central bank's Treasury holdings and $35 billion from holdings of mortgage-backed securities. This is likely to commence in May. At present, investors should gauge the changing market dynamics and accordingly chalk out a sturdy investment strategy.
An ill-informed investor can lose cash if he wagers on a stock only on the basis of the numbers flashing on a real-time stock screen. A critical analysis of the company’s financial background is always required for a better investment decision.
Often, investors evaluate a company’s performance by simply looking at its sales and earnings, which sometimes do not reveal the real picture. To be more precise, they do not tell whether a company’s fundamentals are sound enough to meet its financial obligations. Here, the coverage ratio comes into play — the higher the metric, the more efficient an enterprise will be in meeting its financial obligations.
Why Interest Coverage Ratio?
Interest Coverage Ratio is used to determine how effectively a company can pay interest charges on its debt.
Debt, which is crucial to financing operations for the majority of companies, comes at a cost called interest. Interest expense has a direct bearing on the profitability of a company. The company’s creditworthiness depends on how effectively it meets its interest obligations. Therefore, Interest Coverage Ratio is one of the important criteria to factor in before making any investment decision.
Interest Coverage Ratio = Earnings before Interest & Taxes (EBIT) divided by Interest Expense.
Interest Coverage Ratio suggests how many times the interest could be paid from earnings and gauges the margin of safety a firm has for paying interest.
An interest coverage ratio lower than one suggests that the company is unable to fulfill its interest obligations and could default on repaying debt. A company capable of generating earnings well above its interest expense can withstand financial hardships. One should also
track the company’s past performance to determine whether the interest coverage ratio has improved or worsened over a period of time.
CBRE Group, Inc. (CBRE - Free Report) , Tecnoglass Inc. (TGLS - Free Report) , Dillard's, Inc. (DDS - Free Report) and Boot Barn Holdings, Inc. (BOOT - Free Report) boast an impressive interest coverage ratio.
The Winning Strategy
Apart from having an Interest Coverage ratio that is more than the industry average, adding a favorable Zacks Rank and a VGM Score of A or B to your search criteria should lead to better results.
Interest Coverage Ratio greater than X-Industry Median
Price greater than or equal to 5: The stocks must all be trading at a minimum of $5 or higher.
5-Year Historical EPS Growth (%) greater than X-Industry Median: Stocks with a strong EPS growth history.
Projected EPS Growth (%) greater than X-Industry Median: This is the projected EPS growth over the next three to five years. This shows that the stock has near-term earnings growth potential.
Average 20-Day Volume greater than 100,000: A substantial trading volume ensures that the stock is easily tradable.
Zacks Rank less than or equal to 2: Zacks Rank #1 (Strong Buy) or 2 (Buy) stocks are known to outperform irrespective of the market environment.
VGM Score of less than or equal to B: Our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 or 2, offer the best upside potential.
Here are four of the 11 stocks that qualified the screening:
CBRE Group is a commercial real estate services and investment firm, which sports a Zacks Rank #1 and has a VGM Score of B. Its expected earnings per share (EPS) growth rate for three-five years is 11%. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for CBRE Group’s current financial year sales and EPS suggests growth of 22.3% and 6%, respectively, from the year-ago period. CBRE has a trailing four-quarter earnings surprise of 34.2%, on average. The stock has jumped 7.9% in the past year.
Tecnoglass, a leading manufacturer of architectural glass, windows, and associated aluminum products serving the global residential and commercial end markets, sports a Zacks Rank #1 and has a VGM Score of B. Its expected EPS growth rate for three-five years is 20%.
The Zacks Consensus Estimate for Tecnoglass’ current financial year sales and EPS suggests growth of 18.9% and 21.8%, respectively, from the year-ago period. TGLS has a trailing four-quarter earnings surprise of 39.9%, on average. The stock has surged 80.3% in the past year.
Dillard's, which operates retail department stores, carries a Zacks Rank #2 and has a VGM Score of A. Its expected EPS growth rate for three-five years is 14.6%.
The Zacks Consensus Estimate for Dillard's current financial year sales suggests growth of 4.7% from the year-ago period. DDS has a trailing four-quarter earnings surprise of 294.5%, on average. The stock has zoomed 166% in the past year.
Boot Barn Holdings, a leading lifestyle retailer of western and work-related footwear, apparel and accessories, carries a Zacks Rank #2 and a VGM Score of A. Its expected EPS growth rate for three-five years is 20%.
The Zacks Consensus Estimate for Boot Barn Holdings’ current financial year sales and EPS suggests growth of 62.6% and 220.8%, respectively, from the year-ago period. BOOT has jumped 33.5% in the past year.
You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and backtest them first before taking the investment plunge.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
Click here to sign up for a free trial to the Research Wizard today.
Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance.