We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
7 Stocks to Buy with Impressive Interest Coverage Ratio
Read MoreHide Full Article
You can simply arrive at a decision to “Buy” or “Sell” a particular stock by looking at its sales and earnings numbers. But such a strategy does not always guarantee superior returns. A critical analysis of the company’s financial background is always required for a better investment decision.
A company’s fundamentals should be sound enough to meet its financial obligations. This can be judged through coverage ratios—the higher these are the more efficient an enterprise will be in meeting its financial obligations. Here we have discussed one such ratio—the Interest Coverage Ratio.
Interest Coverage Ratio = Earnings before Interest & Taxes (EBIT) divided by Interest Expense.
Why Interest Coverage Ratio?
Interest Coverage Ratio is used to determine how effectively a company can pay the interest charged on its debt.
Debt, which is crucial for most of the companies to finance operations, comes at a cost called interest. Interest expense has a direct bearing on the profitability of a company and 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 suggests the number of times the interest could be paid from earnings and also gauges the margin of safety a firm carries for paying interest.
An interest coverage ratio lower than 1.0 implies that the company is unable to fulfill its interest obligations, and could default on repaying debt. A company that is capable of generating earnings well above its interest expense can withstand financial hardship. Definitely, 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.
What’s the 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 that have 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 seven of the 16 stocks that qualified the screening:
Build-A-Bear Workshop, Inc. (BBW - Free Report) , which operates as a specialty retailer of plush animals and related products, has a VGM score of “A”. Its expected EPS growth rate for 3–5 years is pegged at 22.5%. The stock flaunts a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Citizens Financial Group, Inc. (CFG - Free Report) operates as the bank holding company for Citizens Bank, N.A. and Citizens Bank of Pennsylvania which provide retail and commercial banking products and services. The company has a VGM score of “B” and sports a Zacks Rank #1. Its expected EPS growth rate for 3–5 years pegged at 19.1%.
Nucor Corporation (NUE - Free Report) , which manufactures and sells steel and steel products, has a VGM score of “A”. Its expected EPS growth rate for 3–5 years is pegged at 12%. Nucor carries a Zacks Rank #2.
UnitedHealth Group Incorporated (UNH - Free Report) , a diversified health and well-being company, has a Zacks Rank #2 and a VGM score of “A”. The expected EPS growth rate for 3–5 years is currently pegged at 13.4%.
Sprouts Farmers Market, Inc. (SFM - Free Report) , which provides fresh, natural, and organic food, has a VGM score of “A” with an expected EPS growth rate of 11.7% for 3–5 years. The stock carries a Zacks Rank #2.
Grand Canyon Education, Inc. (LOPE - Free Report) , which provides postsecondary education services, has a VGM score of “A” and an expected EPS growth rate of 10.8% for 3–5 years. The stock currently carries a Zacks Rank #2.
LeMaitre Vascular, Inc. (LMAT - Free Report) , which designs, markets, services and supports medical devices and implants for the treatment of peripheral vascular disease globally, has a VGM score of “B” and an expected EPS growth rate of 15% for 3–5 years. The stock currently carries a Zacks Rank #2.
Get the rest of the stocks on the list and start putting this and other ideas to the test. It can all be done with the Research Wizard stock picking and backtesting software.
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.
Zacks Restaurant Recommendations: In addition to dining at these special places, you can feast on their stock shares. A Zacks Special Report spotlights 5 recent IPOs to watch plus 2 stocks that offer immediate promise in a booming sector. Download it free »
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
7 Stocks to Buy with Impressive Interest Coverage Ratio
You can simply arrive at a decision to “Buy” or “Sell” a particular stock by looking at its sales and earnings numbers. But such a strategy does not always guarantee superior returns. A critical analysis of the company’s financial background is always required for a better investment decision.
A company’s fundamentals should be sound enough to meet its financial obligations. This can be judged through coverage ratios—the higher these are the more efficient an enterprise will be in meeting its financial obligations. Here we have discussed one such ratio—the Interest Coverage Ratio.
Interest Coverage Ratio = Earnings before Interest & Taxes (EBIT) divided by Interest Expense.
Why Interest Coverage Ratio?
Interest Coverage Ratio is used to determine how effectively a company can pay the interest charged on its debt.
Debt, which is crucial for most of the companies to finance operations, comes at a cost called interest. Interest expense has a direct bearing on the profitability of a company and 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 suggests the number of times the interest could be paid from earnings and also gauges the margin of safety a firm carries for paying interest.
An interest coverage ratio lower than 1.0 implies that the company is unable to fulfill its interest obligations, and could default on repaying debt. A company that is capable of generating earnings well above its interest expense can withstand financial hardship. Definitely, 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.
What’s the 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 that have 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 seven of the 16 stocks that qualified the screening:
Build-A-Bear Workshop, Inc. (BBW - Free Report) , which operates as a specialty retailer of plush animals and related products, has a VGM score of “A”. Its expected EPS growth rate for 3–5 years is pegged at 22.5%. The stock flaunts a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Citizens Financial Group, Inc. (CFG - Free Report) operates as the bank holding company for Citizens Bank, N.A. and Citizens Bank of Pennsylvania which provide retail and commercial banking products and services. The company has a VGM score of “B” and sports a Zacks Rank #1. Its expected EPS growth rate for 3–5 years pegged at 19.1%.
Nucor Corporation (NUE - Free Report) , which manufactures and sells steel and steel products, has a VGM score of “A”. Its expected EPS growth rate for 3–5 years is pegged at 12%. Nucor carries a Zacks Rank #2.
UnitedHealth Group Incorporated (UNH - Free Report) , a diversified health and well-being company, has a Zacks Rank #2 and a VGM score of “A”. The expected EPS growth rate for 3–5 years is currently pegged at 13.4%.
Sprouts Farmers Market, Inc. (SFM - Free Report) , which provides fresh, natural, and organic food, has a VGM score of “A” with an expected EPS growth rate of 11.7% for 3–5 years. The stock carries a Zacks Rank #2.
Grand Canyon Education, Inc. (LOPE - Free Report) , which provides postsecondary education services, has a VGM score of “A” and an expected EPS growth rate of 10.8% for 3–5 years. The stock currently carries a Zacks Rank #2.
LeMaitre Vascular, Inc. (LMAT - Free Report) , which designs, markets, services and supports medical devices and implants for the treatment of peripheral vascular disease globally, has a VGM score of “B” and an expected EPS growth rate of 15% for 3–5 years. The stock currently carries a Zacks Rank #2.
Get the rest of the stocks on the list and start putting this and other ideas to the test. It can all be done with the Research Wizard stock picking and backtesting software.
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.
Zacks Restaurant Recommendations: In addition to dining at these special places, you can feast on their stock shares. A Zacks Special Report spotlights 5 recent IPOs to watch plus 2 stocks that offer immediate promise in a booming sector. Download it free »