Banco Macro: Zweig-style Buy

03/03/2016 10:00 am EST


John Reese

Founder and CEO, And Validea Capital Management

John Reese of Validea analyzes stocks based on the strategies of the stock market’s most legendary investors. This idea scores a 100% rating on his Martin Zweig-based model.

Banco Macro (BMA) scores a 100% rating my Growth Investor strategy based on Martin Zweig.

Banco Macro SA—the Bank—is an Argentina-based bank offering traditional bank products and services to companies, including those operating in regional economies, as well as to individuals.

Under our Zweig model, the P/E of a company must be greater than 5 to eliminate weak companies, but not more than three times the current market P/E.

BMA's P/E is 13.90, based on trailing 12-month earnings, while the current market P/E is 14. Therefore, it passes the first test.

Revenue growth must not be substantially less than earnings growth. For earnings to continue to grow over time, they must be supported by a comparable or better sales growth rate and not just by cost cutting or other non-sales measures.

BMA's revenue growth is 39.05%, while it's earnings growth rate is 38.36%, based on the average of the 3-, 4-, and 5-year historical EPS growth rates. Therefore, BMA passes this criterion.

The earnings numbers of a company should be examined from various different angles.

The first of these criteria is that the current quarter EPS be positive. Banco Macro’s EPS are $1.30 a share. The EPS for the quarter one year ago must also be positive. EPS for this quarter last year was positive, at $0.11 a share.

The growth rate of the current quarter's earnings compared to the same quarter a year ago must also be positive. BMA's growth rate passes this test.

Under the Zweig model, we then compare the earnings growth rate of the previous three quarters with long-term EPS growth rate.

This strategy looks at the rate which earnings grow and evaluates this rate of growth from different angles.

Earnings per share growth for the current quarter must be greater than the prior three quarters and quarter must be greater than the historical growth rate. BMA passes these tests.

Companies must also show persistent yearly earnings growth. To fulfill this requirement, a company's earnings must increase each year for a five-year period, which is the case for Banco Macro.

One final earnings test required is that the long-term earnings growth rate must be at least 15% per year. BMA's long-term growth rate of 38.36%, based on the average of the 3-, 4-, and 5-year historical EPS growth rates, passes this test.

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