Analysis of Stocks with Consistent Growth and Acquisition Metrics

Examining three-year steady CAGR patterns alongside low EV/EBITDA acquisition multiples

Key Takeaways

Dual Criteria Complexity: Finding stocks that both display steady three-year CAGR and feature acquisitions with EV/EBITDA below 4 involves combining historical growth performance with specific M&A deal metrics.
Data Limitations: Public sources typically present performance data independently from M&A acquisition multiples, so obtaining an integrated list requires access to specialized financial databases.
Methodology and Screening: Advanced screening platforms and detailed financial analysis are essential, as various sectors and market conditions influence both growth and acquisition valuation multiples.

Introduction

When evaluating investment opportunities, investors often seek companies that have demonstrated consistent growth over recent years while ensuring that their acquisition activities are executed at attractive valuation levels. Two important financial measures in this context are the Compound Annual Growth Rate (CAGR) and the EV/EBITDA (Enterprise Value to Earnings Before Interest, Taxes, Depreciation, and Amortization) multiple.

The CAGR indicates how steadily a company’s revenues, profits, or stock prices have grown over a specified period, in this case, three years. It provides an averaged annual growth rate, smoothing out the variability seen in individual yearly performances. On the other hand, the EV/EBITDA multiple is a relative valuation metric that provides a clearer picture of a company’s operating performance by stripping out non-cash charges and capital structure effects. When buyers engage in acquisitions at low EV/EBITDA multiples – particularly below 4 – it often suggests that these deals were made at a discount relative to the general market benchmarks, which can sometimes occur in distressed situations or sectors with constrained growth expectations.

Understanding the Metrics

Compound Annual Growth Rate (CAGR)

The Compound Annual Growth Rate (CAGR) measures the mean annual growth rate of an investment over a specified period longer than one year. Rather than adopting a simple average that may be skewed by volatility, the CAGR provides a smooth annual growth rate that would lead to the end value if the investment had grown at a steady rate.

To calculate CAGR, the following formula is used:

$$ \text{CAGR} = \left( \frac{\text{Final Value}}{\text{Initial Value}} \right)^{\frac{1}{n}} - 1 $$

where “n” represents the number of years. For instance, if a stock price moved from an initial value and has doubled in price over three years, its CAGR would be approximately:

$$ \text{CAGR} = \left( \frac{2}{1} \right)^{\frac{1}{3}} - 1 \approx 0.26 \text{ or } 26\% $$

EV/EBITDA Multiple

The EV/EBITDA multiple is a valuation tool commonly used to compare companies within the same industry. Enterprise Value (EV) includes the market capitalization of a company plus its debt, minority interest, and preferred shares, subtracting cash and cash equivalents. EBITDA is a measure that focuses on a company’s operational profitability, ignoring the non-cash expenses that might obscure true performance.

A low EV/EBITDA acquisition multiple – particularly below 4 – is noteworthy because it implies that the acquirer paid a relatively low price compared to the operating earnings of the target. In practice, this scenario may occur in sectors with tighter valuations, turnaround situations, or in special circumstances where market sentiment drives a lower valuation.

Combining the Metrics

The Complexity of Dual Criteria

While finding stocks with a steady three-year CAGR has become increasingly manageable, combining this with low EV/EBITDA acquisition multiples introduces complexity for several reasons:

Separate Data Streams

Financial performance metrics, such as the CAGR, are typically reported in quarterly and annual financial statements and are tracked by market analysts using historical price data as well as earnings metrics. However, acquisition-related metrics such as EV/EBITDA multiples are often specific to individual transactions. They require access to detailed M&A databases or reports that isolate acquisition details from the overall market performance.

Sector Dependence

The likelihood of completing acquisitions with EV/EBITDA multiples below 4 varies by industry. For example, companies in sectors like utilities or mature industrials may occasionally have more attractive multiples due to stable, lower-growth environments. Conversely, high-growth sectors such as technology or pharmaceuticals tend to command higher multiples due to future growth prospects and competitive advantages.

Market Conditions and Deal Specifics

The EV/EBITDA multiples in acquisitions can also be influenced by prevailing market conditions and the specific circumstances surrounding the deal. For instance, a distressed asset or a turnaround situation may result in a lower multiple, while competitive bidding scenarios in a booming market might push multiples higher.

Review of Identified Stocks

Stocks Showing Steady Three-Year CAGR

A few companies have demonstrated impressive growth consistency over the last three years according to various performance reports. Notable examples include:

ADMA Biologics: Known for its strong performance, ADMA Biologics showed remarkable total returns over the past three years, indicating robust CAGR figures.
Limbach Holdings: With similar performance metrics close to ADMA Biologics in terms of overall returns, Limbach Holdings is noted for its consistent growth over the period.
Powell Industries: Demonstrated a solid performance by delivering appreciable total return percentages over the analyzed period.

It is important to note that these examples are derived from companies that have been reported to exhibit strong returns during the three-year window, implying steady growth either in revenues, earnings, or stock market performance.

Stocks with Low EV/EBITDA Acquisition Multiples

The EV/EBITDA multiples for acquisition deals are not as prominently publicized in broad stock screening reports. Nevertheless, the following points emerge:

Sector-Specific Scenarios: In sectors such as energy, certain industrials, or companies under financial distress, acquisition multiples sometimes fall below 4. For example, companies in the energy space, like some in the natural gas or utilities sectors, can occasionally present attractive low-multiple opportunities in M&A transactions.

M&A-Driven Strategies: Some companies strategically acquire targets at low EV/EBITDA multiples as part of a turnaround or consolidation strategy. Such scenarios are more likely to be documented within comprehensive M&A databases that track and analyze these deals.

Integrating the Two Sets of Criteria

Combining the requirement for steady three-year CAGR with acquisitions occurring at EV/EBITDA multiples below 4 is challenging mainly because the reported information on growth performance and acquisition specifics often comes from distinct segments of financial reporting. While the stocks noted above are recognized for their strong performance, detailed public information on the transaction multiples of their acquisitions is not always readily available.

For instance, although ADMA Biologics, Limbach Holdings, and Powell Industries have shown impressive cumulative return figures suggestive of good CAGR, the specifics of their acquisition multiples in recent transactions have not been uniformly reported for the EV/EBITDA metric below 4. Similarly, examples from other sectors such as technology (e.g., Microsoft) or healthcare (e.g., Eli Lilly) are known for stable performance, yet their acquisition deals usually command higher valuation multiples in competitive conditions.

It is also important to highlight that in many acquisition cases, especially those involving large-cap companies, the EV/EBITDA multiples tend to be higher because of the premium paid for strategic fit, market share, or anticipated synergies. Therefore, finding a clear instance where a company exhibits a steady three-year CAGR and has completed acquisitions at multiples below 4 is relatively rare without granular deal-level data.

Example Screening Methodology

Using Financial Databases and Screeners

To precisely identify companies that meet both criteria, investors are advised to use professional financial databases and customizable stock screeners. Platforms such as Bloomberg, FactSet, Capital IQ, or Refinitiv Eikon allow users to set filters based on historical growth metrics along with M&A-specific absorption details.

A typical screening process might involve:

Step 1: Filtering for companies that have maintained a steady three-year CAGR above a set benchmark. The definition of “steady” may vary depending on whether one considers revenue, earnings, or stock price performance.
Step 2: Applying additional filters to identify companies that have recently engaged in acquisitions. In this step, detailed data on the paid EV/EBITDA multiples are examined to filter those deals where the metric fell below 4.
Step 3: Verifying the integrity of the data by cross-referencing with investor reports, M&A commentary, and quarterly financial disclosures to ensure that the numbers are accurate and reflective of true market conditions.

A Hypothetical Illustration

To illustrate, consider a hypothetical screening process using Python code:


# Example: Hypothetical Python script for filtering stocks
import pandas as pd

# Sample dataset representing companies with three-year growth and EV/EBITDA metrics
data = {
    'Company': ['ADMA Biologics', 'Limbach Holdings', 'Powell Industries', 'Cheniere Energy'],
    '3Yr_CAGR(%)': [50.0, 48.5, 35.0, 10.0],  # Hypothetical values
    'Acquisition_EV_EBITDA': [6.0, 7.2, 5.5, 3.8]  # Hypothetical acquisition metrics
}
df = pd.DataFrame(data)

# Apply filter: CAGR > a chosen threshold (e.g., >30%) and Acquisition multiple below 4
filtered = df[(df['3Yr_CAGR(%)'] > 30) & (df['Acquisition_EV_EBITDA'] < 4)]
print(filtered)

In this simplified example, while the screen might highlight companies with strong CAGR, only if an acquisition multiple below 4 is present would the stock qualify as meeting both criteria.

Consolidated Insights and Market Recommendations

Practical Implications for Investors

The main takeaway for investors aiming to identify stocks with both steady three-year growth and acquisition deals executed at low EV/EBITDA multiples is that, while some companies might exhibit strong standalone performance metrics, public information regarding the specifics of acquisition deal multiples remains fragmented. Thus, any list generated purely from secondary research must be viewed as indicative rather than definitive.

Investors are encouraged to:

Consult Specialized Platforms: Use advanced screening tools that combine historical performance data with detailed M&A transaction databases.
Engage Financial Professionals: Collaboration with investment research analysts or financial advisors can help refine your search criteria and interpret broader market conditions.
Monitor Sector Trends: Focus on sectors where market dynamics naturally favor lower multiples – such as certain energy segments, mature industrials, or distressed sectors – while also ensuring that underlying growth fundamentals remain strong.

Potential Stocks for Further Research

Drawing from available market discussions and examples, potential candidates that have been highlighted for steady growth over the past three years include:

ADMA Biologics: This company has recorded remarkably high returns over recent years, although detailed acquisition metrics specific to EV/EBITDA multiples remain less documented in public sources.
Limbach Holdings: Known for its robust performance, it is similarly classified as a growth stock, with investor interest centered on its operational consistency.
Powell Industries: Another example of a stock achieving significant total returns, indicative of solid underlying performance. However, like the other examples, granular M&A details on acquisition multiples may need further deep-dive research.
Cheniere Energy (example from energy sector): Although primarily recognized for operating in a sector where EV/EBITDA multiples can be lower, especially during specific market conditions, it illustrates the importance of sector context when evaluating acquisition deals.

Caution is warranted when interpreting these examples. Even though these companies are noted for steady growth, acquiring detailed transaction-level data directly indicating that their acquisitions were done at an EV/EBITDA below 4 is challenging without access to specialized and updated financial platforms.

Ultimately, while the presented examples may not perfectly satisfy both criteria in a definitive public list, they highlight the need for investors to combine qualitative assessments and quantitative screening tools for a holistic evaluation.

Comparative Table of Selected Companies

Company Name	Three-Year CAGR (Indicative)	Acquisition EV/EBITDA Trend	Remarks
ADMA Biologics	Strong Growth	Data Inconclusive	Notable for impressive returns; further deal detail needed
Limbach Holdings	Robust Return	Data Inconclusive	Exhibits steady performance; M&A metrics require deeper access
Powell Industries	Consistent Growth	Data Inconclusive	Solid total returns; acquisition multiples not clearly documented
Cheniere Energy	Moderate Growth	Potential for Low Multiples	Represents sector cases where EV/EBITDA can dip below 4 under specific conditions

Conclusion and Final Thoughts

In summary, while there is clear evidence of stocks that have posted steady three-year CAGR figures, aligning this growth with documented acquisitions at EV/EBITDA multiples below 4 requires access to detailed M&A data. The companies discussed—ADMA Biologics, Limbach Holdings, and Powell Industries—exemplify strong growth patterns, yet the available public reports do not always offer definitive insights into their acquisition multiples.

Investors focused on this dual approach should consider leveraging professional financial databases and consulting investment research professionals to obtain a more granular view. Sector-specific analyses also play a crucial role, as industries such as energy, mature industrials, or distressed sectors may offer the opportunity for lower acquisition multiples even when broader performance metrics are positive.

Ultimately, a holistic approach that scrutinizes both historical growth trends and acquisition deal specifics will better position investors to identify companies that not only grow steadily but also execute acquisitions at attractive valuation levels. As always, due diligence and comprehensive analysis are critical in making well-informed investment decisions.

References

How can I combine technical analysis with M&A metrics for stock selection?

What sectors typically offer low EV/EBITDA acquisition multiples?

What are the best financial databases to screen for dual criteria stocks?