Many investors don't know much about
return on invested capital. But you might want to look at
it, because ROIC reflects how effectively a company is
investing the money at its disposal. The higher the number,
the better.
Of course, as with any metric, it's not enough to consider
ROIC on its own. The more numbers you crunch and the more
information you digest, the better understanding you'll have
of the company, its health, and its prospects. But if you
want to get the biggest bang for your buck from high-ROIC
companies, then you might want to focus on younger, smaller
companies.
As Passport Capital hedge fund founder John Burbank noted
last year, "One of the keys to Warren Buffett's early success
was investing in high return on capital consumer businesses
that were relatively immature when he bought them and that
grew enormously along with the U.S., the largest economy in
the world."
Hmm. That seems doable: Looking for companies in their
youth with high ROIC numbers and relatively low market caps.
And it's silly to not look into any
investing advice Mr. Buffett has offered. Here are some
contenders I found when screening for those criteria:
Company
CAPS
Stars(out of 5)
Market Capitalization
ROIC
Hansen Natural (Nasdaq: HANS)
****
$3.3 billion
24.9%
Sohu.com (Nasdaq: SOHU)
****
$2.6 billion
26%
Mindray Medical (NYSE: MR)
*****
$3.4 billion
12.8%
Netflix (Nasdaq: NFLX)
**
$2.6 billion
25.4%
IMS Health (NYSE: RX)
***** Continued... |