TSC Ratings TheStreet.com Ratings provides exclusive stock, ETF and mutual fund ratings and commentary based on award-winning, proprietary tools. Its "safety first" approach to investing aims to reduce risk while seeking solid outperformance on a total return basis. Each business day, we compile a list of the top five stocks in one of five categories -- fast-growth, all-around value, large-cap, mid-cap and small-cap -- and publish these lists in the Ratings section of our website. Today, fast-growth stocks are in the spotlight.These are stocks of companies that are projected to increase revenue and profit by at least 12% in the coming year and rank near the top all stocks rated by our proprietary quantitative model, which looks at more than 60 factors. In addition, the stocks must be followed by at least one financial analyst who posts estimates on the Institutional Brokers' Estimate System. Please note that definitions of revenue vary by industry, and this screen does not make adjustments for acquisitions, which can materially affect posted results. Likewise, earnings-per-share growth may be affected by accounting charges, share repurchases and other one-time items. Note that no provision is made for off-balance-sheet assets such as unrealized appreciation/depreciation of investments, market value of real estate or contingent liabilities that might affect book value. This could be material for some companies with large underfunded pension plans. Pegasystems' ( PEGA) business management software helps companies manage complex, changing business processes by automating decision-making and the implementation of those decisions. We have rated the company a buy since May 2008. This rating is based on the company's growth, solvency, and expanding profit margins. For the fourth quarter of fiscal 2008, the company reported revenue growth of 26.9% year over year. Continuing an impressive record of EPS growth, Pegasystems' EPS improved significantly, rising from 3 cents to 8 cents per share. Net income also increased in the fourth quarter, surging 99.6% from $1.4 million to $2.8 million. Both revenue and net income growth exceeded the averages for the Software industry. Pegasystems' gross profit margin is rather high at 64.8%; it has increased from the same quarter a year ago. The company has no debt to speak of, and its resulting debt-to-equity of zero can be seen as a favorable sign. In addition, Pegasystems maintains a quick ratio of 3.4, which clearly demonstrates its ability to cover short-term cash needs.
Management reported that the company's fourth quarter revenue was a record for the company. Pegasystems also achieved record new license signings for the quarter. Looking ahead to fiscal 2009, the company currently expects full-year revenue to top $250 million, while net income could surpass $17 million on a GAAP basis. The company's weak operating cash flow is a concern, but we feel that the strengths detailed above outweigh any potential weakness at this time. HMS Holdings ( HMSY) provides a variety of cost containment and payment accuracy services relating to government healthcare programs. We have rated this stock a buy since September 2004 on the basis of such strengths as the company's largely solid financial position, good cash flow from operations, and growth in revenue, net income and EPS. For the fourth quarter of fiscal 2008, the company reported that its earnings surged 74.9% on higher revenue. Net income rose from $4.04 million in the fourth quarter of fiscal 2007 to $7.1 million in the most recent quarter. Revenue increased 25.8% year-over-year, greatly exceeding the industry average of 7%. This increase, led by strong revenue growth in each of the government healthcare program markets, appears to have helped boost EPS, which showed significant improvement over the same quarter a year ago, rising from 15 cents to 26 cents per share. HMS Holdings has a very low debt-to-equity ratio of 0.1, which implies that it has successfully managed its debt levels. In addition, a quick ratio of 3.2 clearly demonstrates an ability to cover short-term cash needs. Finally, net operating cash flow increased 17.5% when compared to the same quarter of last year.
Having had a record year in terms of revenue growth and profitability, the company expects to see strong results continue into the next fiscal year. Looking ahead to fiscal 2009, HMS Holdings raised its earnings outlook to $1 per share from previous guidance of 96 cents per share. The company is currently trading at a premium valuation, but we feel that the strengths detailed above justify the higher price at this time. Quality Systems ( QSII) develops and markets healthcare information systems that automate medical and dental practices, networks of practices such as physician hospital organizations, ambulatory care centers, community health centers, and medical and dental schools. We have rated Quality Systems a buy since November 2001 due to its efficiency, solvency, and growth in revenue, net income, and EPS. Solid stock price performance also supports this rating. For the third quarter of fiscal 2009, the company reported that its revenues rose 36.1% year over year. The company announced that its net revenue results were a record for the company. A 15% improvement in EPS implies that the revenue growth trickled down to the bottom line. The company has achieved positive EPS growth routinely over the past two years, and we feel that this trend should continue. Net income also increased in the third quarter, rising 17.3% from $11.2 million to $13.2 million. Quality Systems has no debt to speak of, giving it a debt-to-equity ratio of zero. We consider this a favorable sign, as is a quick ratio of 2, which demonstrates the company's ability to cover its short-term liquidity needs.
Quality Systems' stock has risen over the past year, reflecting the earnings growth and other positive factors like the ones cited above. Although this increase has driven to the stock to a level that is somewhat expensive to the rest of the Software industry, we feel that the company's strengths justify the higher price level at this time. Edwards Lifesciences ( EW) is a global provider of products and technologies designed to treat advanced cardiovascular disease. The company has been rated a buy since February 2007. This rating is supported by the company's efficiency, stock performance, and growth in net income, revenue and EPS. Edwards Lifesciences reported that its fourth quarter results were driven by strong heart valve sales. Although the company's revenue was less than that of the industry average, it was able to report an increase of 5.7% year over year. This growth appears to have been enough to have helped boost EPS, which showed significant improvement when compared to the prior year's quarter. We feel that the company's trend of positive EPS growth over the past two years should continue going forward. Net income surged in the fourth quarter, rising 141.1% from $15.8 million to $38 million. Net operating cash flow also saw a slight increase, rising 4.8% to $80.5 million. Edwards' debt-to-equity ratio of 0.2 indicates that the company has been very successful at debt management, while a quick ratio of 1.7 demonstrates the ability to cover short-term cash needs. Management considered Edwards' fourth quarter results to be a strong finish to a successful fiscal 2008. The company is confident that it will continue its momentum into fiscal 2009 and announced EPS guidance anticipating growth of 15% to 19% for the full year. First quarter EPS is expected to be in the range of 66 cents to 70 cents per share. Although any company may harbor some minor weaknesses, we do not currently see any that are likely to have a significant impact on Edwards Lifesciences' future financial results.
Stifel Financial ( SF) offers securities-related financial services through its wholly-owned subsidiaries: Stifel, Nicolaus & Company, Century Securities Associates, and Stifel Nicolaus Limited. We recently upgraded this company's stock to a buy on April 2, 2009. The new rating is supported by the company's efficiency, solvency, revenue growth, and solid stock price performance. For the fourth quarter of fiscal 2008, Stifel reported slight revenue growth of 6.5% year over year. As a result, EPS also improved slightly, rising from 51 cents to 53 cents. Net income increased 16% when compared to the same quarter a year ago, rising from $16.1 million to $31.8 million. Return on equity also showed a slight improvement when compared to the fourth quarter of fiscal 2007 and can be considered a modest strength for Stifel. Finally, Stifel has a low debt-to-equity ratio of 0.4. This ratio is below the industry average and implies that the company has been able to successfully manage its debt levels. Management announced that Stifel's fourth quarter and full year results were records for the company, and stated that Stifel had managed to dodge many of the challenges faced by others in the financial services industry. Going forward, the company plans to focus on building shareholder value for the long-term. Although Stifel's low profit margins could be considered a cause for concern, we feel that the strengths detailed above outweigh any potential at this time. TheStreet.com Ratings, recently cited for Best Stock Selection from October 2007 through February 2009 , is an independent research provider that combines fundamental and technical analysis to offer investors tremendous value in volatile times. To see how your portfolio can use this research, click here now!
Our quantitative rating, which can be viewed for any stock through our stock screener stock rating screener, is based on a variety of historical fundamental and pricing data and represents our opinion of a stock's risk-adjusted performance relative to other stocks. However, the rating does not incorporate all of the factors that can alter a stock's performance. For example, it doesn't always factor in recent corporate or industry events that could affect the stock price, nor does it include recent technology developments and competitive dynamics that may affect the company. For those reasons, we believe that a rating alone cannot tell the whole story and that it should be part of an investor's overall research.