In this article, we take a look at 10 high growth low debt stocks to buy.
High growth stocks have various definitions to different people.
For this article, we define high growth as a company with an estimated average annual EPS growth rate of over 10% a year for the next 5 years.
For high growth stocks, a substantial percentage of a company’s value is based on future predicted growth. If a high growth company’s growth doesn’t meet expectations, market growth expectations for the future might decrease and the company’s value estimated by the market could decrease. As a result, the company’s stock price could decline, in some cases substantially depending on various factors. Given they are more uncertain, many high growth stocks could be potentially riskier than blue chip stocks.
In terms of EPS growth rate in the future, inflation is an important factor for many companies.
If inflation is higher, it would be easier for some companies in certain industries to grow their EPS a little faster simply by maintaining their profit margin and realizing higher revenues as a result of the inflation.
If long term inflation in the future is 5%, there could be a lot more companies that grow their EPS by 10% or more each year. If they keep their profit margins the same and realize 5% more revenues, those companies would have 5% profit increases. If they buy back a lot of their stock, they would have even higher EPS growth if they maintain the same level of profitability. If the companies do other things to increase their EPS enough, those companies would have a 10%+ EPS growth rate. For those of you interested, check out 15 Companies That Are Buying Back Their Stock.
Given the Federal Reserve’s actions with interest rates, however, it is likely that inflation will eventually normalize to 2% or perhaps slightly higher than that in the long term.
Low Debt Stocks
Low debt stocks are stocks of companies without a lot of debt. With interest rates higher, the cost of variable debt is higher and as a result, many companies are paying more in interest payments on debt. Because they don’t have as much debt, low debt stocks don’t have to pay as much in terms of interest on debt payments as similar companies with more debt.
If there is a recession or an economic slowdown, not having that much debt would be a good characteristic as it would give management more flexibility.
Of course, the success of a company depends on many different things rather than just debt ratios or expected growth ratios. Markets can be unpredictable and as a result, it could be a good idea for long term investors to own a well diversified portfolio of leading stocks across many different sectors.
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Methodology
For our list of 10 High Growth Low Debt Stocks to Buy, we chose 10 stocks with competitive advantages that have an estimated average annual EPS growth rate of over 10% a year for the next 5 years according to FINVIZ.com.
We filtered the stocks based on stocks that had less than a debt to equity ratio of 0.7.
What is considered low debt varies from industry to industry.
The debt-to-equity ratio and EPS Next 5 Year Ratio are from FINVIZ.com.
EPS Next 5 Year Ratio is the estimated average annual EPS growth rate in the next 5 years.
10 High Growth Low Debt Stocks to Buy
10. Costco Wholesale Corporation (NASDAQ:COST)
EPS Next 5 Year Ratio: 10.40%
Debt-to-Equity Ratio: 0.30
Wholesale retail leader Costco Wholesale Corporation (NASDAQ:COST) has low debt given its debt to equity ratio of 0.3. Analysts are also expecting the company to grow its EPS by an average annual rate of 10.40% for the next 5 years.
For the first quarter of fiscal year 2023, which is the quarter ended November 20, 2022, Costco Wholesale Corporation (NASDAQ:COST)’s net sales rose 8.1% year over year to $53.44 billion. U.S. comparable sales rose 9.3% year over year and the company’s total company comparable sales rose 6.6% year over year. As of February 18, the stock has a forward P/E ratio of 31.90 and a dividend yield of 0.71%.
Alongside The Walt Disney Company (NYSE:DIS), NVIDIA Corporation (NASDAQ:NVDA), and ASML Holding N.V. (NASDAQ:ASML), Costco Wholesale Corporation (NASDAQ:COST) is a company with a fairly fast next 5 year expected EPS growth rate in addition to having low debt.
9. Microsoft Corporation (NASDAQ:MSFT)
EPS Next 5 Year Ratio: 11.77%
Debt-to-Equity Ratio: 0.35
Microsoft Corporation (NASDAQ:MSFT) is a company with low debt given its debt to equity ratio of 0.35. The software giant arguably has excess capital given its strong profits over the years. In terms of stock buybacks on an accrual basis, the company bought back $19.688 billion in its FY2020, $22.97 billion in FY2021, and $28.033 billion in FY2022. In terms of the long term, Microsoft Corporation (NASDAQ:MSFT) has growth potential in terms of AI given the company has a leading cloud computing business that could realize more demand from AI processing. The company has also invested $10 billion into OpenAI this year and $1 billion into the company in 2019. Although OpenAI’s ChatGPT is inaccurate in many instances, many people find it useful nevertheless and it is likely that AI will continue to improve in the future.
8. S&P Global Inc. (NYSE:SPGI)
EPS Next 5 Year Ratio: 13.10%
Debt-to-Equity Ratio: 0.30
S&P Global Inc. (NYSE:SPGI) is a leading ratings agency that has a strong balance sheet given its relatively low debt. With the overall financial market expected to continue to expand, S&P Global Inc. (NYSE:SPGI) is also expected to continue to increase its EPS. In terms of estimates, analysts expect the company to grow its EPS by an average annual rate of 13.10% in the next 5 years. How well the company does in terms of growth will partly depend on how successful S&P Global Inc. (NYSE:SPGI) integrates its purchase of IHS Markit.
S&P Global Inc. (NYSE:SPGI) CEO Douglas Peterson said, “During 2022 we began a new transformation of S&P Global through the merger with IHS Markit and our continued investment in growth and innovation. Our people came together in every sense of the word, integrating through a historic merger, navigating through complex macroeconomic and geopolitical conditions, and positioning S&P Global to power global markets in a sustainable way for years to come.”
7. SAP SE (NYSE:SAP)
EPS Next 5 Year Ratio: 15.41%
Debt-to-Equity Ratio: 0.42
SAP SE (NYSE:SAP) is an enterprise software company that had free cash flow of €4.35 billion for full year 2022 and a debt to equity ratio of 0.42 in its most recent quarter according to FINVIZ.com. In addition to having a strong balance sheet, SAP SE (NYSE:SAP) is also expected to grow earnings per share relatively quickly over the next 5 years given its EPS Next 5 Year Ratio of 15.41%. In terms of estimates, analysts expect SAP SE (NYSE:SAP) to earn $4.71 per share in FY2022, $5.85 per share in FY2023, $6.76 per share in FY2024, and $7.76 per share in FY2025.
6. Thomson Reuters Corporation (NYSE:TRI)
EPS Next 5 Year Ratio: 17%
Debt-to-Equity Ratio: 0.35
Thomson Reuters Corporation (NYSE:TRI) is a leading business information service company with a debt to equity ratio of 0.35. Despite the weaker market in 2022, Thomson Reuters Corporation (NYSE:TRI)’s total sales nevertheless rose 4% in full year 2022 with organic sales up 6% year over year. For 2022, the company earned an adjusted ESP of $2.56, up from $1.95 in the previous year.
Free cash flow of $1.34 billion and Thomson Reuters Corporation (NYSE:TRI)’s board of directors approved an 10% annualized increase to the dividend to $1.96 per common share, representing 30 straight years of dividend increases.
Like Thomson Reuters Corporation (NYSE:TRI), The Walt Disney Company (NYSE:DIS), NVIDIA Corporation (NASDAQ:NVDA), and ASML Holding N.V. (NASDAQ:ASML) are companies with fairly rapid next 5 year expected EPS growth rates and low debt.
5. Dollar Tree, Inc. (NASDAQ:DLTR)
EPS Next 5 Year Ratio: 17.22%
Debt-to-Equity Ratio: 0.46
Dollar Tree, Inc. (NASDAQ:DLTR) is a leading discount chain that analysts expect will grow its EPS by an average annual rate of 17.22% over the next 5 years. For Q3 fiscal 2022, Dollar Tree, Inc. (NASDAQ:DLTR)’s consolidated net sales rose 8.1% year over year to $6.94 billion with the company’s Dollar Tree segment same store sales rising 8.6% year over year and the company’s Family Dollar segment same store sales increasing 4.1% year over year. Dollar Tree, Inc. (NASDAQ:DLTR) has relatively low debt with a debt to equity ratio of 0.46.
4. Salesforce, Inc. (NYSE:CRM)
EPS Next 5 Year Ratio: 18.30%
Debt-to-Equity Ratio: 0.18
Salesforce, Inc. (NYSE:CRM) is a leading cloud based software company that analysts expect will earn $4.69 per share in FY2022, $4.93 per share in FY2023, $5.86 per share in FY2024, and $7.06 per share in FY2025. For its third quarter fiscal 2023, which is the company’s quarter ended October 31, 2022, Salesforce, Inc. (NYSE:CRM)’s sales rose 14% year over year to $7.84 billion. Adjusted EPS was $1.40 per share. Salesforce, Inc. (NYSE:CRM) has substantial financial flexibility given its low debt to equity ratio of 0.18 and its profitability. In the third quarter, Salesforce, Inc. (NYSE:CRM) returned $1.7 billion to shareholders in the form of share repurchases.
3. The Walt Disney Company (NYSE:DIS)
EPS Next 5 Year Ratio: 20.64%
Debt-to-Equity Ratio: 0.50
The Walt Disney Company (NYSE:DIS) is an entertainment giant that has a debt to equity ratio of 0.5 and a fairly rapid EPS next 5 year ratio of 20.64%. In terms of yearly estimates, analysts see the company earning $3.78 per share in FY2022, $4.14 per share in FY2023, $5.49 per share in FY2024, and $6.72 per share in FY2025.
With the company’s expected future profitability and its relatively low debt, The Walt Disney Company (NYSE:DIS) has financial flexibility to potentially purchase more companies that might add value. The Walt Disney Company (NYSE:DIS) does not currently pay a dividend and thus has more cash flow to potentially improve its balance sheet further or to potentially buy back stock.
2. NVIDIA Corporation (NASDAQ:NVDA)
EPS Next 5 Year Ratio: 21.30%
Debt-to-Equity Ratio: 0.51
NVIDIA Corporation (NASDAQ:NVDA) is an AI stock given its leadership in GPUs which is used for some AI processing. As a result of the expected growth in AI processing in the next 5 years, demand for NVIDIA Corporation (NASDAQ:NVDA)’s GPUs could rise assuming that the company succeeds in maintaining its market share. In terms of estimates, analysts expect the company to increase its EPS by an average annual rate of 21.3% over the next 5 years. Some big tech companies may eventually design or produce their own chips that could reduce overall demand in the future. As a result, NVIDIA Corporation (NASDAQ:NVDA) will need to continue to innovate and the company is potentially riskier than some other stocks on this list.
1. ASML Holding N.V. (NASDAQ:ASML)
EPS Next 5 Year Ratio: 29.80%
Debt-to-Equity Ratio: 0.48
ASML Holding N.V. (NASDAQ:ASML) ranks #1 on our list of 10 High Growth Low Debt Stocks to Buy given analysts expect the company to grow its EPS by an average annual rate of 29.80% over the next 5 years. Given semiconductors are essential for many modern technologies that are growing at a fair rate, demand for ASML Holding N.V. (NASDAQ:ASML)’s leading semiconductor producing equipment is also expected to increase in the future. ASML Holding N.V. (NASDAQ:ASML) also has a strong balance sheet given its debt to equity ratio of 0.48.
Baron Opportunity Fund commented on ASML Holding N.V. (NASDAQ:ASML) in a Q2 2022 investor letter,
ASML Holding N.V. designs and manufactures semiconductor production equipment. It specializes in photolithography equipment, where light sources are used to photo-reactively create patterns on wafers that become printed circuits. ASML is the dominant leader across all types of lithography but, most importantly, is the only company selling equipment for extreme ultra-violet (EUV) lithography, the latest generation technology.
Indeed, because of the stalling out of Moore’s Law, advanced lithography of larger and multi-patterned silicon chips has been critical for leading-edge chip manufacturing and continued improvement in semiconductor chip performance over time. The company is well positioned to continue growing above industry rates as it rapidly adds capacity across its entire business to meet rising industry demand, especially from leading-edge customers continuing to invest to stay ahead of their competitors and drive chip performance forward.
Additionally, the introduction of high-NA EUV technology in the middle of the decade will add another leg to the growth opportunity.
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Disclosure: None. 10 High Growth Low Debt Stocks to Buy is originally published on Insider Monkey.
