While some investors consider Internet stocks too risky or over-hyped, it is still an interesting category to follow, especially because many of these companies have become integrated into our lives and have developed into solid and well run businesses. With this in mind, we looked for Internet stocks with the following traits: minimal debt and strong profits. This is a combination that typically points to a company that has effective management in place and is not hindered by paying off debt which creates a clear path for growth and innovation. We think you will be intrigued by what we found.
The Operating Profit Margin is a profitability ratio that measures the effectiveness of the company's operating efficiency. This metric allows investors to see how much profit is left after all variable costs are covered. If the company's margin is increasing over time, this means that it's earning more per dollar of sales. Finding trends in the Operating Profit Margin helps investors identify companies that are improving profitability over time and managing the economic landscape better than competitors.
EPS growth (earnings per share growth) illustrates the growth of earnings per share over time. EPS growth rates help investors identify stocks that are increasing or decreasing in profitability. This profitability metric is generally a key driver in the price of the stock as it directly correlates to the profitability of the company as a whole.
The Debt/Equity Ratio illustrates how aggressively a company is financing its growth via debt. The more debt financing that is used in a capital structure, the more volatile earnings can become due to the additional interest expense. Should a company's potentially enhanced earnings fail to exceed the cost associated with debt financing over time, this can lead the company toward substantial trouble.
We first looked for Internet stocks. We then screened for businesses with strong profit margins (1-year operating margin>15%)(1-year fiscal EPS Growth Rate>10%). From here, we then looked for companies that have maintained a sound capital structure (D/E Ratio<0.1). We did not screen out any market caps.
Do you think these stocks have strong enough fundamentals to move higher? Use our screened list as a starting point for your own analysis.
1) Ancestry.com Inc. (ACOM)
| Sector | Technology |
| Industry | Internet Information Providers |
| Market Cap | $1.34B |
| Beta | - |
Key Metrics
| Operating Profit Margin | 23.98% |
| Earnings Per Share Growth Rate | 70.90% |
| Debt/Equity Ratio | 0.00 |
| Short Interest | 17.37% |
Ancestry.com Inc. operates as an online family history resource for subscribers worldwide. The company's subscribers use Web-based services and content collection to research their family histories, build their family trees, collaborate with other subscribers, upload their own records, and publish and share their stories. Its subscribers can search through its collection of various records that cover birth records, marriage and death records, census records, immigration documents, photographs, maps, military records, personal narratives, and newspapers. As of December 31, 2011, the company had 1.7 million paying subscribers. Ancestry.com Inc. was founded in 1983 and is headquartered in Provo, Utah.
2) OpenTable, Inc. (OPEN)
| Sector | Technology |
| Industry | Internet Information Providers |
| Market Cap | $988.98M |
| Beta | - |
Key Metrics
| Operating Profit Margin | 21.84% |
| Earnings Per Share Growth Rate | 51.12% |
| Debt/Equity Ratio | 0.00 |
| Short Interest | 40.02% |
OpenTable, Inc. provides restaurant reservation solutions in the United States, Canada, Germany, Japan, Mexico, and the United Kingdom. It offers solutions that form an online network connecting reservation-taking restaurants and people who dine at those restaurants. The company provides electronic reservation book (ERB) that combines proprietary software and computer hardware to deliver a solution, which computerizes restaurant host-stand operations. The ERB streamlines and enhances various functions and processes for restaurants, including reservation management, table management, guest recognition, and email marketing. The company also operates opentable.com, a restaurant reservation Website that enables diners to find, choose, and book tables at restaurants on the OpenTable network in real time. In addition, it offers Connect, a Web-based service that enables restaurants to accept online reservations from the OpenTable network, as well as through its mobile applications and restaurants' Websites. Further, the company provides POP program, which lets restaurants offer diners bonus Dining Reward Points for reservations at select times; and telephone reservation management services for restaurants. Additionally, it operates toptable.com, a restaurant reservation site; designs, builds, and operates the OTRestaurant Website, which serves as an information and services portal for its restaurant customers; and offers versions of the OpenTable Websites for use on mobile devices, as well as free mobile applications. OpenTable, Inc. was founded in 1998 and is headquartered in San Francisco, California.
3) Google Inc. (GOOG)
| Sector | Technology |
| Industry | Internet Information Providers |
| Market Cap | $221.33B |
| Beta | 1.09 |
Key Metrics
| Operating Profit Margin | 30.48% |
| Earnings Per Share Growth Rate | 13.10% |
| Debt/Equity Ratio | 0.10 |
| Short Interest | 1.50% |
Google Inc., a technology company, maintains an index of Web sites and other online content for users, advertisers, and Google network members and other content providers. It offers AdWords, an auction-based advertising program; AdSense program, which enables Web sites that are part of the Google Network to deliver ads from its AdWords advertisers; Google Display, a display advertising network that comprises the videos, text, images, and other interactive ads; DoubleClick Ad Exchange, a real-time auction marketplace for the trading of display ad space; and YouTube that provides video, interactive, and other ad formats for advertisers. The company also provides Google Mobile that optimizes Google's applications for mobile devices in browser and downloadable form, as well as enables advertisers to run search ad campaigns on mobile devices; and Google Local that provides local information on the Web. In addition, it offers Android, an open source mobile software platform; Google Chrome OS, an open source operating system; Google Chrome, a Web browser; Google+ to share different things online with different people; Google TV, a platform for the consumers to use the television and the Internet on a single screen; and Google Books platform to discover, search, and consume content from printed books online. Further, the company provides Google Apps, a cloud computing suite of message and collaboration tools, which primarily includes Gmail, Google Docs, Google Calendar, Google translate, and Google Sites; Search Appliance, a search technology for use within enterprises; Google Site Search, a custom search engine; Google Commerce Search for online retail enterprises; Google Maps Application Programming Interface for businesses; and Google Earth Enterprise, a firewall software solution for imagery and data visualization. Google Inc. was founded in 1998 and is headquartered in Mountain View, California.
4) Akamai Technologies, Inc. (AKAM)
| Sector | Technology |
| Industry | Internet Information Providers |
| Market Cap | $6.58B |
| Beta | 0.87 |
Key Metrics
| Operating Profit Margin | 22.55% |
| Earnings Per Share Growth Rate | 18.54% |
| Debt/Equity Ratio | 0.00 |
| Short Interest | 3.96% |
Akamai Technologies, Inc. provides content delivery and cloud infrastructure services for accelerating and improving applications over the Internet in the United States and internationally. The company offers application and cloud performance solutions to enhance the operation of the applications used by enterprises to connect with their employees, suppliers, and customers. Its solutions include Web Application Accelerator, which enables enterprises to run various applications; and IP Application Accelerator that is designed to optimize the performance, availability, and real-time sensitivity associated with IP-enabled applications delivered over Internet-related protocols. The company also provides video and software solutions that are designed to enable enterprises to execute their large file management and distribution strategies, which include media delivery solution to entertainment industry; and electronic software delivery solution that handles the distribution of software for its customers. In addition, it offers Website optimization services for accelerating business-to-consumer Websites that integrate collaborative content and applications into their online architecture; security and protection solutions that address the Internet security requirements; and network operator solutions, which provide custom solutions to commercial and government customers. Further, the company provides mobile content adaptation solution; and advertising decision solutions that enable advertisers, agencies, publishers, and networks to buy and sell advertising, as well as network data feeds, Website analytics, and business performance management services. It markets and sells its services and solutions through direct sales and services organization; and through active channel partners. Akamai Technologies, Inc. was founded in 1998 and is headquartered in Cambridge, Massachusetts.
*Company profiles were sourced from Google Finance and Yahoo Finance. Financial data was sourced from Finviz on 08/23/2012.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: This article was prepared for ZetaKap Media by one of our full-time analysts. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.
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