Top Five Fast-Growth Stocks

We have rated Diamond a buy since June 2005, on the basis of various strengths displayed by the company. Boosted by solid sales growth from its Contract Drilling segment, Diamond's revenue surged 29% year over year to $666.7 million in the first quarter of fiscal 2008. First-quarter earnings rose 30%, fueled by a rise in daily rates for the company's deepwater rigs. Net income for the quarter increased to $290.6 million, or $2.09 a share, from $224.2 million, or $1.64 a share, in the first quarter of fiscal 2007. In keeping with its policy of considering the payment of special cash dividends on a quarterly basis, the Board of Directors recently declared a special cash dividend of $1.25 per share of common stock in addition to a regular cash dividend of 12.5 cents per share of common stock. Both dividends are payable in June 2008. Finally, Diamond's debt-to-equity ratio is very low at 0.17, implying successful management of debt.

While lower than a year ago, Diamond's gross profit margin continued to remain relatively high at 62%. However, the company's net profit margin of 37% significantly outperformed against the industry. Furthermore, the company has demonstrated a pattern of positive EPS over the past two years, and we feel that this trend could continue. The slowdown in the U.S. economy and weak job data pose risks to the stock's performance, as they may put pressure on the demand for oil and gas. This could in turn disturb activities related to exploration and production, affecting the number of rigs that are operational in the market and potentially affecting Diamond's future profitability.