Bill Gunderson's Radio Play of the Day: A Fast-Growing Catamaran

NEW YORK (TheStreet) -- Just how much correlation is there between earnings growth and stock price appreciation?

In 2012, Fortune Magazine named Catamaran Corp. ( CTRX) the 12th-fastest growing company in America. It listed Catamaran's revenue growth at 72% per year (three-year average), and profit growth at 52% per year.

Now let's check the returns to shareholders:

Data from Best Stocks Now App

Let's see, three-year average profit growth of 42% per year and three-year average returns to shareholders of 49.9%! I would call that a pretty strong correlation. I could show many such examples from today's market.

Maybe Fortune should have looked out even longer at the company's five-year earnings growth. I see five-year average returns of almost 82% per year to shareholders. Those returns make it one of the top-performing stocks over the last five years.

It should also be noted that Catamaran was up 28.8% in 2008 when the market was down 38.5%. I asked CFO Jeff Park about this on my radio show on Monday. You can hear the interview here.

Of course, there are no guarantees the next time around, but this current four-year-old bullmMarket won't last forever.

It would seem that one of the tricks to the market is finding good stocks before they experience these huge surges in sales and earnings.

Let's not overlook companies that have already walked the walk, however.

While I like to invest in stocks that have racked up big growth and returns for their shareholders, I also refuse to overlook valuation, as so many momentum investors fail to do.

Let's take a peek at the current valuation of this Lisle, Ill.-based large-cap company:

Data from Best Stocks Now App

The shares are currently trading at 22 times its forward earnings estimates. While this may seem a little rich, we have to consider its past growth record and its future forecasts.

If the company can continue to grow at the 30% rate that the analysts think that it can, it is currently trading at a discount to those earnings.

In fact, the PEG ratio is 0.74.

Furthermore, when I take next year's EPS estimate of $2.34 per share and extrapolate them over the next five years at 30% per year, I come up with a fairly large number.

When I apply what I consider to be an appropriate multiple to those future EPS forecasts, I get a five-year target price of just over $105 per share. This is still more than double where the shares are today.

In other words, I can still justify this stock from a valuation point of view.

Performance and valuation are two pieces of a three-part puzzle for me. The third piece is the stock chart. I like a good, healthy stock chart.

I see very little to not like in the current three-year stock chart of Catamaran.

Overall, when I compare the stock against the other 3,278 stocks that I follow, it gets an overall grade of "A-."

I only like to buy "A-" stocks or better. Catamaran is one of the better large-cap stocks in the market right now. Bu, as always, stay vigilant.

Clients of Gunderson Capital Management are long the stock.

Data from Best Stocks Now App

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

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