CE Suppliers Get Report Cards
When you dig behind the snapshot relative total return numbers, you begin to understand the key drivers of value: margins, asset utilization and growth that eventually generates the net cash receipts investors value.
For companies early in their life cycle, such as EchoStar and Gemstar, growth and the expectation of future profits and cash receipts drive value. The HOLT framework reflects this by noting such companies high percent future. Percent futures for the 27 CE suppliers profiled in the DualGrade® table shown in Figure 5 range from a high of 94 percent for Gemstar to a low of -33 percent for Damark. Hewlett-Packard has a percent future of 60 percent, which is slightly higher than the median for the CE suppliers profiled and is fairly typical of a large capital growth company in today's market.
HP's success was not a result of any single thing. Its sales, for instance, have grown at an average five-year compound rate of about 18 percent, right at the median for the 27 CE suppliers profiled. Microsoft's sales have grown at a 34 percent rate, and Harman's at a respectable 12 percent. Double-digit top-line growth, by itself, is not enough.