Investors often focus on Growth and Value, but at Inovestor, we believe Quality is the most crucial factor when evaluating companies. Quality serves as the foundation for long-term success and resilience, making it superior to Growth and Value. That said, companies with strong metrics across all three categories can present excellent investment opportunities.
Today, let’s explore stocks that combine the best of all worlds: Quality, Value, and Growth.
Dundee Precious Metals Inc. (DPM) has maintained an unchanged SP score of 76, supported by an impressive performance score of 77.8 and a risk score of 24.4. The company has high scores in five areas, most notably Value (78), Quality (69), and Growth (59). Let’s begin by analyzing DPM’s Value.
DPM’s Price to Book value (P/B), an indicator that measure how expensive a stock is, stood at 1.04, up slightly from 0.92 in 2023 but still below the five-year average of 1.218. A similar indicator, Price to Earnings (P/E), was at 6.15, down from 25.29 in 2023. These two indicators suggest that DPM is priced attractively for investors.
Market Value Added (MVA) shows how much value a company has created for its shareholders by comparing its market value to the money invested by its owners. DPM’s MVA turned positive in 2024, with a value of 18%, up from -23% in 2023.
Looking at Quality, DPM’s Net Income has rebounded since its dip in, reaching a five-year high of $284,016. Impressively, despite fluctuations in sales and costs of goods sold, DPM has continued to improve its margins and deliver higher Net Income.
DPM’s Cost of Capital (COC), the minimum return a company needs to generate to cover its financing costs, has steadily declined over the past four years to 10.3% in 2024. Meanwhile, its Return on Capital (ROC), which measures how efficiently the company generates profits, has historically remained above the COC (except in 2022 due to COVID). When ROC exceeds COC, it indicates the company is creating value for investors. DPM’s consistent ability to maintain a positive spread between ROC and COC underscores its profitability.
Looking at Growth, DPM’s Earnings per Share (EPS) has increased over the past five years to its current high of $1.56.
Interestingly, DPM’s Future Growth Value (FGV), which shows how inflated the stock price is compared to its operational value without growth which is called the Current Operations Value (COV), turned positive in 2024 to 13%, compared to a five-year average of -0.34%. This shift suggests that investors are now willing to pay a premium for DPM shares, reflecting their confidence in the company’s growth potential.
Overall, DPM’s fair valuation is accompanied by profitable business that shows growth qualities. DPM is a good purchase for those seeking a stock well balanced in Quality, Value and Growth.
Nuvista Energy Ltd. (NVA) has an SP score of 66, a one-point decrease from 67. NVA has a Performance Score of 62.8 and a Risk Score of 24.2. NVA excels in the dimension of Value, with a score of 82. This paired with high scores in Growth and Quality at 70 and 62, respectively.
Looking at Value, NVA’s intrinsic value per share (IV), which estimates what each share of a company is truly worth, has increased to $28.99, more than double the market share price of $13.55. Despite the IV increasing in the past two quarters, the market share price has decreased during the same period. This divergence between the share price and the IV may indicate that the market is not yet recognizing the company’s improving fundamentals. This makes NVA an attractive option for value investors.
However, the reason why NVA’s price is discounted can be explained by weaker earnings. Net Income decreased 32% from 2023 to 2024. EPS also took a hit in 2024, dropping to $1.42 from $2.00 in 2023.
Looking beyond the weaker earnings, NVA’s FGV decreased to -29%, reflecting a very attractive discounted price for investors willing to wait for earnings to recover.
NVA’s Quality aspects are eclipsed by its low price, which highlights its Value, but they are tempered by its weak Growth.
Brookfield Business Partners LP (BBU.UN) has an unchanged SP score of 63, a performance score of 73.5, and a risk score of 40.1. BBU.UN has strong scores in Value (79), Growth (73), and Quality (70). Looking first at Quality, BBU.UN has a ROC of 12.1% and a COC of 5.3%. This equates to an impressive 6.8% spread between its ROC and COC. Return on Equity (ROE), which measures how effectively a company uses its shareholders’ equity to generate profits, increased to an impressive 25.25%, up from 2.17% in 2023 and a five-year high. This all suggests that BBU.UN is efficiently generating strong profits from its equity while creating significant value by earning returns well above the cost of funding its operations. These are signs of a good Quality stock.
Moving on to Value, BBU.UN’s spread between its ROC and COC culminates in a very high IV, priced at $435.87 at the end of 2024. Compared to the stock price of $31.21, this suggests a massive undervaluation by the market. Furthermore, BBU.UN’s low P/B of 0.8 confirms the shares cheap valuation.
Lastly, looking at Growth, BBU.UN’s EPS has increased to $10.99 at the end of 2024, reflecting its Net Income jump to $818,500 compared to 2023’s Net Income of a minor loss of $50,000. This shows BBU.UN’s improving financial health and potential for growth.
What makes BBU.UN very attractive besides its resilient Quality aspects is its massive undervaluation and Growth prospects. BBU.UN demonstrates a solid Quality stock on a substantial sale that would satisfy any investor type.
In conclusion, by prioritizing quality as a foundation and then layering in elements of value and growth, we can identify compelling investment opportunities. The analysis of Dundee Precious Metals Inc. (DPM), Nuvista Energy Ltd. (NVA), and Brookfield Business Partners LP (BBU.UN) demonstrates this approach. DPM highlights a balance of value, quality, and emerging growth, evidenced by its improving profitability. While NVA presents a compelling value proposition due to its significantly discounted price relative to its intrinsic value, investors should carefully consider the recent dip in earnings. Finally, BBU.UN exhibits strong characteristics across all three dimensions: quality, value, and growth, with particularly compelling undervaluation metrics. These examples highlight the importance of a holistic investment approach, one that considers the interplay of quality, value, and growth to uncover opportunities for long-term success.
If you have any questions about the article, feel free to contact Anthony:
amenard@inovestor.com
amenard@inovestor.com
