How does a $500 million company become a $1 billion company?
The same way a $10 billion company turns into a $20 billion
company: One dollar at a time.
Investors have a lot of ways to count those dollars, or, more
specifically, they have various methods to measure the growth of
Two of the most common yardsticks in this regard come from
theincome statement : revenue growth andearnings growth. Other
investors, Warren Buffett for instance, look past the
to thebalance sheet , where they prefer to focus on the spread
between assets and liabilities, which is known as shareholder
Today, I'll show you companies with a lot of room to grow -- each
with a market cap between $400 million and $500 million -- that are
also showing serious
growth. Among all U.S. companies, only 20 had year-over-year
earnings growth of more than 100% in the most recent quarter.
Here are three:
1. LoopNet (Nasdaq:
The company runs a popular website with nationwidereal estate
listings. While thousands of sites offer prospective homeowners
free ads for houses, LoopNet collects information from brokers
seeking to sell commercial and industrial property. It's a
relatively pricey service (about $35 a month for a subscription or
$30 for a temporary login) used mostly by industry insiders. It
earned $7.28 million in the most recent quarter compared with $3.31
million a year ago, a 120% increase.
Does that increase signal a "buy" opportunity? The underlying
question is whether this increase in earnings is likely to
continue, and the answer appears to be no. The company's revenue is
very, very stable and the only reason for this
in earnings was a tax
, which is an extraordinary event -- not something the company is
likely to see every year. (Unless it has really dumb accountants.)
Action to Take -->
LoopNet is a great resource for people in the
business, but this earnings spike was a one-time deal. Keep
2. Conceptus (Nasdaq:
This medical device company makes a noninvasive form of permanent
birth control for women that requires no surgery and no drug or
hormone regimen. The product, called Essure, has been approved by
the Food & Drug Administration (FDA) and is available
internationally. The product is 98% effective, carries a high level
of patient satisfaction and a high awareness among obstetricians.
This company's quarterly results also were the result of a
favorable tax event on the income statement. But it bears a second
look because, unlike LoopNet, Conceptus shows a favorable uptrend
in revenue and earnings, indicating use of its product is growing.
And as market awareness begins to rise, so too will demand. There
are about 700,000 tubal ligations a year in the United States (and
some 400,000 vasectomies), and many of those patients might prefer
a noninvasive procedure. The total market, however, is far wider
than that, as there are 7.5 million women who don't want any more
children, but who still take birth control. Revenue is up 241% in
the past four years.
Action to Take -->
Don't let the low price-to-earnings (
) ratio (about 6) fool you into thinking this is a low- or
no-growth company or some sort of value play. It's not. The
earnings multiple shot down because earnings shot up so
dramatically in a one-time event. This is an excellent company with
a proven, FDA-approved product that is capable of substantially
growing its market, increasing its earnings even further. Theshares
are worth considering for growth investors with a multiyear
3. Sonosite (Nasdaq:
makes a handheld ultrasound machine about the size of a laptop.
It's a good, old-fashioned high-tech growth story. This small
ultrasound machine can be deployed in traditional areas like the
OB/GYN's office in addition to areas that typically haven't had
easy access to the technology's capabilities, such as the emergency
room, the operating room and internal medicine clinics. "Deployed"
is a good word to use, as the Pentagon has adopted the technology
in its hospitals and even in the field in war zones, and it's also
been stationed courtside at basketball games. The company isn't
content with its product lineup and has been making acquisitions to
bolster its offerings.
Earnings rocketed up 158.7% in the most recent quarter compared
with a year ago, and it did it without a check from the U.S.
Treasury. Instead, it took in more money and managed costs. That
said, this is a tough company to predict, and earnings and revenue,
while generally on a positive trend, seem a little inconsistent.
Action to Take -->
A new device that offers significant advantages over the incumbent
technology is a valuable thing indeed. That's what GPS technology
did to Rand McNally, what the iPhone did to the BlackBerry and what
-- and all made billions in the process. I expect Sonosite to
continue its growth story and advance its products in the vast
medical marketplace. It's a strong buy.
Coming up, I'll show you the companies that are showing significant
top line growth. Stay tuned...
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where I examine the latest trends in business, industry and
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Disclosure: Neither Andy Obermueller nor StreetAuthority, LLC
hold positions in any securities mentioned in this article.
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