Investors love stocks that consistently beat the Street without getting ahead of their fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with robust and improving financial metrics that support strong price growth. Does Boston Scientific Corporation (NYSE:BSX) fit the bill? Let’s look at what its recent results tell us about its potential for future gains.
What we’re looking for
The graphs you’re about to see tell Boston Scientific Corporation (NYSE:BSX)’s story, and we’ll be grading the quality of that story in several ways:
Growth: Are profits, margins, and free cash flow all increasing?
Valuation: Is share price growing in line with earnings per share?
Opportunities: Is return on equity increasing while debt to equity declines?
Dividends: Are dividends consistently growing in a sustainable way?
What the numbers tell you
Now, let’s look at Boston Scientific Corporation (NYSE:BSX)’s key statistics:
BSX Total Return Price data by YCharts
| Passing Criteria | 3-Year* Change | Grade |
|---|---|---|
| Revenue growth >30% | (10.8%) | Fail |
| Improving profit margin | 65.1% | Pass |
| Free cash flow growth >Net income growth | 589.1% vs. 68.9% | Pass |
| Improving EPS | 66.2% | Pass |
| Stock growth (+ 15%) <EPS growth | 84.5% vs. 66.1% | Fail |
Source: YCharts.
*Period begins at end of Q2 2010.
BSX Return on Equity data by YCharts
| Passing Criteria | 3-Year* Change | Grade |
|---|---|---|
| Improving return on equity | (332.7%) | Fail |
| Declining debt to equity | 48.7% | Fail |
Source: YCharts.
*Period begins at end of Q2 2010.
How we got here and where we’re going
Boston Scientific is in a bit of a rut today, as it’s mustered only three out of seven possible passing grades. The company’s bottom line, though in a better place than it was three years ago, is still buried in the red. However, free cash flow has grown substantially over the past three years. Will Boston Scientific be able to get back into the black, or is it time to pull the plug on this stock? Let’s dig a bit deeper.
This has been one of Boston Scientific Corporation (NYSE:BSX)’s best years in a long time — its shares are up nearly 90% since the start of 2013. But why? My foolish colleague Dan Carroll notes that Boston Scientific recently got a long-awaited approval from the Food and Drug Administration for its electrophysiology business, which has grown substantially over the past few quarters. The global electrophysiology market is estimated to be worth $2.5 billion, and is growing at a rate of 10% per year. It’s only a small piece of the puzzle, and investors don’t seem to certain that this is the way forward (shares are down in August), but every little bit of momentum helps.
