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TheStreet Open House

Aaron's Rents, You Should Own the Stock

Stocks in this article: AAN

NEW YORK ( F.A.S.T. Graphs) -- When investing for growth I like to see a company with a consistent record of above-average earnings growth.

I also like smaller companies because I feel it is easier for them to continue to grow faster. But most of all, I like good value.

Aaron's (AAN - Get Report) meets all these criteria. The following F.A.S.T. Graphs plotting earnings shows that Aaron's has consistently grown operating earnings at the above-average rate of 17.7% since calendar year 2003.

Earnings have grown from 50 cents a share in 2003 to a current estimate of $2.33 a share for fiscal 2014. Furthermore, I like the fact that their debt to capital is only 11%.

As a long-term investor, I believe in buying the business rather than the stock. My reasoning is simple and straightforward. I believe that earnings drive market price in the long run, and therefore, a company with strong earnings will generate strong price performance over time.

When I correlate Aaron's stock price with their earnings, I discover a strong long-term correlation. Even better, I see that Aaron's stock price becomes undervalued from time to time as it falls below its earnings justified valuation (the orange line). These have proven to be great times for the long-term investor to buy, and Aaron's stock price is currently trading at one of those undervalued levels.

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