Bank on Nara's Strong Performance

1. The strategy wants to make sure the most recent quarter doesn't represent a slowdown in EPS growth. To that end, it looks at EPS growth for the most recent quarter and compares that to the average growth of the three previous quarters (measured from last year's comparable quarters to this year's); to pass this test, the most recent quarter needs higher growth than the three-quarter average. Exception: If the most recent quarter had really high growth (30% or more), it's OK if that growth is lower than the three quarters' growth rate.

Nara's average earnings growth rate for the prior three quarters was 37.0%, while the growth rate of the current quarter was 57.1%. This performance earns the company a passing grade on both counts.

2. The EPS growth rate for the current quarter should be greater than or equal to the historical growth rate. The numbers for Nara are 57.1% for the current quarter and 21.5% for the historical growth rate, giving the stock its one failing grade. This is acceptable, because Nara passes all the strategy's other tests.

The Zweig strategy likes to see steadily increasing earnings for the past five years. This does not hold true for Nara, whose earnings dropped in 2001 and again in 2002, though they have increased since. This is the one test Nara fails. A final test requires the long-term earnings growth rate to be at least 15% per year; Nara's is 21.5%, which gives it a passing grade.

By investing in Nara, you are investing in a bank that targets a specific and growing community, has a good track record of growth and profitability and has the support of two of the guru strategies. This is a stock I believe you can bank on, so buying it at this price level is a good opportunity, given that it is of strong interest to two of my guru strategies.

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Please note that due to factors including low market capitalization and/or insufficient public float, we consider Nara Bancorp to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

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