Q: I have a general question and am using CN Rail and CGI as examples.
These 2 companies have an average annual sales growth of less than 5% per year over the course of the last decade and their EPS is higher. In the last 5 years the average EPS growth has been in the double digits and their average sales growth less than 5%. I know they buy back shares every year but this can not account for such a large variance. I know they try to be more careful with expenses but you can’t cut expenses forever. You would normally think that EPS follows Sales (to some extent over the years). I know you like these companies and have a few questions.
1. Any idea what is behind the variance between sales and EPS. (Mid to low single digit sales growth and double-digit EPS growth.)
2. Considering such a variance, if average sales growth remains under 5% can these companies continue to compound our return in the double digits over time. Why would they continue to be good long term investments?
3. Anything else that may be worthwhile sharing.
Thanks.
These 2 companies have an average annual sales growth of less than 5% per year over the course of the last decade and their EPS is higher. In the last 5 years the average EPS growth has been in the double digits and their average sales growth less than 5%. I know they buy back shares every year but this can not account for such a large variance. I know they try to be more careful with expenses but you can’t cut expenses forever. You would normally think that EPS follows Sales (to some extent over the years). I know you like these companies and have a few questions.
1. Any idea what is behind the variance between sales and EPS. (Mid to low single digit sales growth and double-digit EPS growth.)
2. Considering such a variance, if average sales growth remains under 5% can these companies continue to compound our return in the double digits over time. Why would they continue to be good long term investments?
3. Anything else that may be worthwhile sharing.
Thanks.
5i Research Answer:
A few levers mature companies can take advantage of to grow EPS by double-digits over the years...