Is CARBO Ceramics Inc. (CRR) Destined for Greatness?

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 CARBO Ceramics Inc. (NYSE:CRR) fit the bill? Let’s take a 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 CARBO Ceramics Inc. (NYSE:CRR)’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 take a look at CARBO Ceramics Inc. (NYSE:CRR)’s key statistics:

CRR Total Return Price data by YCharts

Passing Criteria	Three-Year* Change	Grade
Revenue growth > 30%	68.2%	Pass
Improving profit margin	0.1%	Pass
Free cash flow growth > Net income growth	153.2% vs. 68.3%	Pass
Improving EPS	69.2%	Pass
Stock growth + 15% < EPS growth	29.6% vs. 69.2%	Pass

Source: YCharts. * Period begins at end of Q1 2010.

CRR Return on Equity data by YCharts

Passing Criteria	Three-Year* Change	Grade
Improving return on equity	9.0%	Pass
Declining debt to equity	No debt	Pass
Dividend growth > 25%	50.0%	Pass
Free cash flow payout ratio < 50%	30.3%	Pass

Source: YCharts. * Period begins at end of Q1 2010.

How we got here and where we’re going
CARBO Ceramics Inc. (NYSE:CRR) comes through with flying colors, earning only the second perfect score ever awarded by this analysis (read about the other perfect score here). The company came very close to missing one point, but that just means that it should be a simple matter to maintain that one grade the next time we look at the company. This is an outstanding performance, but can CARBO Ceramics Inc. (NYSE:CRR) keep up the progress? Let’s dig a little deeper to find out.

Despite making many of the right moves, CARBRO has struggled to prop up its share price, due to slowdown in well drilling activity since the collapse of natural gas prices several years ago. Costs of delivery have also been on the rise as CARBO Ceramics Inc. (NYSE:CRR)’s customers shift from nat-gas to oil drilling, which resulted in a 20% drop in net income last year. A pricing discrepancy between oil and natural gas, and between domestic and international nat-gas pricing, ought to become a driving force for liquefied natural gas exports, which are supposed to start in the next few years. A steady outflow of natural gas to international markets will support higher levels of drilling activity, bringing more production for CARBO.