I’m constantly scanning the market for stocks that promise hyper growth in the years ahead. One tool that I use to find these high growth companies is Finviz. With that in mind, I recently ran a screen on Finviz searching for the following attributes:
- Market cap larger than $300 million.
- Profitable on a trailing and forward basis.
- Based in the U.S.
From there, I simply sorted by projected earnings-growth rate over the coming five years. These criteria identified three stocks — Freeport-McMoRan (NYSE:FCX), Corcept Therapeutics (NASDAQ:CORT), and Penumbra (NYSE:PEN) — that all are expected to grow EPS in excess of 67% annually over the next five years.
Let’s take a closer look at each to see if any could actually be worth buying.
A miner on the rebound
Freeport-McMoRan is one of the world’s largest producers of copper. When copper prices are strong — like they were in 2011 — this company cranks out huge profits. However, when copper prices are weak, those profits can turn into devastating losses.
Unfortunately, copper prices were on a slow and steady decline 2011 to 2016. Combine that reality with Freeport’s disastrous acquisition history and it isn’t surprising to see that shares have lost more than 60% of their value over the last five years.
Thankfully, Wall Street believes that this company’s fortunes are finally turning around. Copper prices have recovered strongly from their 2016 lows and there’s reason to believe that they will remain high for the foreseeable future. That’s why analysts are currently predicting that Freeport’s profits will grow in excess of 72% annually over the next five years. With shares trading for less than nine times next year’s earnings estimates, growth investors might think that this stock is an absolute bargain.
While those numbers do look enticing, Freeport’s Achilles’ heel is that its financial success is completely dependent on a factor that is outside of its control — the price of copper. This Fool knows all too well that predicting commodity prices is a guessing game at best. That’s why this is one potential high growth stock that I want nothing to do with.
A one trick pony
The biotechnology industry is known for producing eye-popping growth numbers. One company that is currently putting up impressive results is Corcept Therapeutics. Last quarter this company’s sales grew 97% to $42.8 million thanks to strong growth in sales of Korlym, which is the company’s one and only drug that treats a rare disease called Cushing’s syndrome. What’s more, the company translated that huge growth into $17.4 million in profits, which is a figure that smoked analyst’s estimates.
As impressive as those numbers are, Wall Street believes that Corcept’s profit growth is just getting started. Current projections call for Corcept’s profits to grow 71% annually over the next five years. With shares trading for less than 21 times forward earnings, the numbers certainly suggest that Corcept’s stock is a screaming buy.
But why is this company’s valuation so reasonable? One potential answer is Corcept isn’t likely to have the Cushing’s syndrome market all to itself for that much longer. Pharma giant Novartis and a small biotech called Strongbridge Biopharma are both working on Cushing’s disease treatments of their own. If they succeed, then Corcept’s fast growth might come to a screeching halt.
On the flip side, Corcept isn’t taking the potential competition lightly. The company has a next-generation Cushing’s syndrome drug of its own called CORT125134 in development. If all goes well then it might be able to neutralize the potential competition before they can get any traction.
Margin expansion is here
Penumbra in an under-the-radar medical device company that focuses on interventional therapies across two major markets: neuro and peripheral vascular disease.
Penumbra’s neuro business — which comprises 70% of revenue — primarily focuses on helping patients who are suffering from a stroke. The company makes a minimally invasive device that uses suction to remove blood clots in the brain. While the company first entered this market a decade ago this business is still growing at a greater than 20% rate. That’s impressive.
The company’s peripheral vascular business is similar to neuro. The company makes a few products that remove blood clots in arteries and veins that are stuck in other parts of the body. This business is also growing rapidly at a greater than 20% rate thanks to increased customer adoption.
While Penumbra’s stock has been a massive winner since its 2014 IPO — shares have climbed more than 150% since first hitting the markets — the company hasn’t produced much in the way of profits. That’s finally on the cusp of changing now that the company is starting to scale. Wall Street expects Penumbra to post a small profit in 2018 and for that figure to grow in excess of 67% annually over the next five years.
Of course, with shares currently trading around 12 times sales and greater than 2000 times forward earnings (!!!), you could argue that the extreme growth has already been priced in.
Are any worth buying?
While Freeport’s profit growth potential and cheap price make it interesting, I think that its reliance on copper prices and high debt load makes it too dicey to touch. I also have a hard time getting excited about Corcept Therapeutics, since its future is completely dependent on the success of a single drug. With competition on the way, there’s no telling what could happen next.
However, I think that Penumbra is an intriguing business for investors to take a closer look at right now. Revenue is growing rapidly, the business is diversified, its balance sheet is packed with cash and debt free, and huge profit growth is right around the corner. While shares are certainly expensive, it is my favorite stock among these three.