It was another very light week for financial statement filings as companies with fiscal quarters ended August passed their deadline. The larger volume of companies with begin to appear this week and peak on November 8. The election result will not be the only reveal in November.
Use the recent market strength to sell extended-share-price those shares of companies with falling growth and focus on locating companies with exceptional fundamental attributes. There may be a recovery out there somewhere but there is no evidence of it yet and current extended stock prices are dependent on extraordinary and coordinated manipulation by the global central banks.
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Any sign that the global financial cabal is breaking up or any sign that the recession will be long and deep despite the central bank measures or any sigh of inflation will produce a major market decline. The recent share advance is a recovery rally in a downtrend. Shares will remain on a downtrend until corporate growth begins to improve. First evidence of that improvement will be an increase in the frequency or number of rising sales growth companies.
At the stock level - A quality GROWTH pattern requires:
- Higher sales growth
- Low & rising gross margin
- High & falling SG&A and interest costs
- Falling inventories and receivables
RPM International Inc $87.240 BUY this poor company getting better
RPM International Inc. (NYSE:RPM) has been an unprofitable company with frequently low cash return on total capital of 7.6% on average over the past 21 years. Over the long term the shares of RPM International Inc have advanced by 29% relative to the broad market index.
The shares have been very highly correlated with trends in Growth Factors. One of the dominant factors in the Growth group is cash from operation (ROI) which has been correlated with the direction of the share price with a two-quarter lead.
Currently, sales growth is 0.9% which is low in the record of the company but higher than last quarter. The shares have been very highly correlated with the direction of sales growth. Receivable turnover continues to fall which reflects an improvement in the quality of sales.
The company is recording a low and rising gross profit margin. Rising gross profit has been correlated with the share price. Inventories relative to sales has continued to fall improving the chance of a further increase in the gross margin. Costs also continued to fall as represented by lower Sales, General & Administrative (SG&A) expenses. Interest costs are low in the record of the company and falling. Lower interest costs not only free-up cash flow but are often associated with a better valuation.
Free cash flow as a percentage of sales measures the relationship between cash flow growth and capital expenditures. Lower capital expenditures have helped increase free cash flow since early 2019 and the higher gross margins with lower costs are producing an acceleration in the EBITDA profit margin.
Dividend Growth Continues
The current indicated annual dividend produces a yield of 1.8%. Five-year average dividend growth is 6.1%. Current trailing operating cash-flow coverage of the dividend is 2.9 times. More recently, the shares of RPM International Inc have advanced by 36% since the March, 2018 low. The shares are trading at upper-end of the volatility range in a 31-month rising relative share price trend.
Despite the recently extended share price, the broad improvement in fundamentals forces a reversal of Otos July, 2020 sell decision.