When companies need to grow earnings or react to difficult market conditions, cost cutting is usually the first step, but a superior way to have profits rise is to have a business which has top line growth in revenue. These four companies have been raising both revenue and earnings per share (EPS) by over 10% for the past three years. They have the staying power for future growth as well.
Integrated energy company AGL Energy Ltd (ASX: AGK) has 3.5 million customers across NSW, QLD, VIC and SA, providing both electricity and gas services. As a gas developer and producer, it has operations in the Cooper, Surat and Galilee basins – all LNG regions that will be sending gas to export markets as the LNG industry begins processing from 2015 in QLD.
Over the past three years, operating revenue and earnings per share have been growing yearly by a compound 30.3% and 23.1% rate respectively.
Super Retail Group Ltd (ASX: SUL) is a specialty retailer with brands like Supercheap Auto, BCF and Rebel Sports. It is expanding its supply chain and distribution centre capacity for further growth at lower cost. It is the market share leader in motor vehicle parts retailing and also sporting and camping equipment retailing.
Since 2010, through acquisitions and sustained organic growth, it has doubled total revenue and EPS has risen from $0.33 a share to $0.576, or 20.4% compounded annually.
Online jobs listings and education provider SEEK Limited (ASX: SEK) still holds the number one spot for people finding employment. As the economy improves, the number of jobs will rise accordingly. Since listing in 2005, EPS has grown almost six times, and the past five-year total shareholder returns were an average annual 37.3%.
Net profit margins are typically in the mid-to high 20% levels, and return on equity in 2013 was 17.9%.
Magellan Financial Group Ltd (ASX: MFG) manages three global equity funds, which have benefitted from improving strength in foreign equity markets in North America and Asia. For the past three years it has delivered an average annual 93.5% total shareholder return, with the share price rising from about $1.20 per share in October 2011 to its current $11.21.
The earnings growth may not be as high over the coming years, but the ability to achieve above average profit growth can carry on into the future.
Foolish takeaway
We want to celebrate all companies that have a great year or two. But as serious investors it's the long-term business and earnings growth that we have to concentrate on.
Does the company have a durable competitive advantage? Are more competitors crowding its space, making profit growth difficult? Are things like new technology helping the company or creating protective "moats" for the business? These are some of the questions we have to answer for sustained growth.
