Very rarely do stocks perform well on all the StarMine models. While some may perform well on the valuation models, others may fare better on the momentum models, with others exhibiting strong earnings quality. With more than 2,200 stocks in the U.S. with more than $1 billion in market cap, we searched for one that performed well on most of these metrics. Our most recent model, the Combined Alpha Model, combines all available StarMine models in an optimal static, linear combination. We used this as the starting point. We then screened for companies in the top quintile of the Earnings Quality model, the Relative Valuation model and the Analyst Revisions model, while eliminating companies with strained balance sheets by taking only those that score more than 30 on the Combined Credit Risk model.
Source: Thomson Reuters Eikon/StarMine
Top of the list
Several interesting candidates come through this screen as you can see above. We find apparel company Express Inc. (EXPR.N) an interesting example of a company that performs well on most of our models. The company seems to have turned around its operations in the last year. The stock is up more than 75% since January 2015, easily outperforming the S&P 500. However, the stock doesn’t still look expensive according to the 94 score on the Relative Valuation model, which puts it in the top decile of all companies in the region. Consider this: Express still trades at a forward P/E of just 10.9, which is less than the five year median of 12.4. Although Express does not pay a dividend, it continues to return value to shareholders via a strong buy back yield of 7.1% in the past year, a sign that management thinks its shares may be undervalued.
Source: Thomson Reuters Eikon/StarMine
Moving forward
Express also seems to have strong analyst momentum. In the last 90 days, analysts have raised earnings estimates for the company for this quarter, for the full year and for next year. It’s a sign that analysts continue to expect strong earnings. The Thomson Reuters Same Store Sales index indicates that analysts see 2.5% growth this quarter, despite a tough comparison to last year, when Express saw 7% SSS growth, another strong sign for the company.
Source: Thomson Reuters Eikon/StarMine
Popular with shoppers
Express has seen YoY revenues increase in each of the last five quarters. In the last reported quarter, Express reported revenues of $766 million, its highest ever quarterly revenue. That revenue growth has not come at the cost of margins. The chart above shows how Express margins had taken a hit, declining steadily until 2015. Since then margins have bounced higher, and after trailing the industry median for much of the last two years, it now exceeds the industry median (8.8% vs. 7.5%).
Rising margins indicates that the company has had to discount less in order to move product, another good sign for future earnings. The company also generates strong positive cash flows, which will enable it to continue to invest in its products, and possibly buy back more shares and return value to investors. It is part of the reason the company scores in the top decile of companies in the region on the StarMine Earnings Quality model, an indicator that earnings are coming from sustainable sources.
Ultimately, for an apparel company, it all comes down to how consumers perceive their products. According to Jharonne Martis, Director of Consumer Research at Thomson Reuters – “they implemented a fresh new spring selection that has resonated well with shoppers and today translates into consumers that keep returning to the store.” So while institutional investors are likely to be attracted to the fundamentals of Express (as seen by the strong SmartHoldings model score of 91), shoppers are likely to enjoy the fresh designs at Express.
