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The Times 100: CALIFORNIA'S TOP COMPANIES

Blue Ribbons

Choose a financial yardstick and it's often surprising which companies place first. Some are familiar names, but many are not.

May 06, 1997|JAMES F. PELTZ | TIMES STAFF WRITER

Everybody likes to be first at something--at least once in a while.

For publicly held companies in California, there are lots of ways to climb to the top of the heap, at least for one year, because there are myriad ways to measure their financial performance.

Pick a category and who knows? In some cases, the blue ribbon goes to a big company with a household name. In others, the winners are fledgling outfits with names that are little more than unfamiliar jumbles of letters.

As in past years, The Times 100 includes charts ranking the companies by several venerable benchmarks, such as sales, earnings, return on equity and market capitalization. But this time, we also checked some less popular--yet still vital--gauges.

To find more names that placed first in some way, we ranked California companies in these other categories, based on data from the Market Guide for Windows, a CD-ROM product sold by financial services firm Market Guide Inc. and the main source of data throughout this section. The results are interesting not only for their diversity, but also because they highlight stocks that might be of interest to investors.

Some categories are variations of the familiar: price-to-earnings ratio, sales and earnings growth trends, insider ownership and the like. Others, though, aren't commonly talked about but can be useful in figuring a company's prospects. And a few are, well--let's just say they have their followers.

The usual caveats: No one measure is the only way to evaluate a company or its stock. And one year's results do not a whole picture show. A firm might be atop a category for last year simply because of some one-time event (special dividend, a merger or divestiture, floods that won't occur again this year). And where that's the case, we'll point it out.

So, having said that, let's see the best of show in 1996:

Five-Year Profit Margin and EPS Growth Rates

This is an excellent place to start because it illustrates how even bluebloods of financial analysis like these don't disclose the whole story.

The first category measures how rapidly a firm's profit margin--that is, how many cents per dollar of sales it's earning after taxes and all other costs have been paid--has been widening for the last five years. It's a good way to see which companies are squeezing more and more profit from their business.

The companion measure is fairly obvious, showing which companies have maintained the fastest-growing rate of earnings per share. (Be careful, though, because a company that routinely buys back its own stock can get a leg up in this category.)

And guess what? The winner in both rankings--KIT Manufacturing Co. of Long Beach--lost money in its fiscal first quarter ended Jan. 31. KIT makes fabricated houses and recreational vehicles, and it blamed the loss on bad weather in the period, which pushed RV sales lower. But management said it's "very optimistic" things will get rolling again. The future, of course, is always uncertain. But going back five years, KIT comes out first.

Historical Relative Price-to-Earnings Ratio

Here's one version of the commonly used P/E ratio, which divides the stock price by a company's earnings per share and effectively tells an investor how much they're paying for a company's earning power.

Take a company's annual P/E ratio for the last five years, find its mean, and you have the historical number. Translated: It shows which companies keep trading for long periods at very high prices relative to their profit.

First place goes to software maker Caere Corp. of Los Gatos, and it didn't win because Wall Street keeps bidding up its stock price well ahead of its earnings. No, Caere won because in the early 1990s, the company's stock was white-hot in anticipation of swelling profit, with shares soaring from $8 to nearly $25 each.

But when profit didn't surge, Caere's stock plunged in early 1993. Still, if you cover a five-year period you include that early excitement and Caere wins.

One-Year P/E Ratio

What if we go back just a year and see which company's stock had the highest price relative to its expected profit? For 1996, the winner is Petco Animal Supplies Inc., a San Diego-based retail chain.

Petco's stock jumped sharply in early 1996, sending its P/E soaring, then spent the rest of the year sliding back to about where it began.

But the stock's P/E remains at an exceptionally high level because Petco is expanding and spending money aggressively to buy other pet supply stores and new locations lately, especially in Rocky Mountain and Midwestern states. Petco bought P.T. Moran, Pet Nosh, Pets USA, Pet Food Warehouse and Pet Supply Warehouse. Indeed, it posted a $12-million loss in its fiscal year ended Feb. 1, although the P/E ratio is still positive because the merger costs are considered "extraordinary" and added back to calculate the ratio.

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