To rank the Northwest’s publicly traded companies, we combined five measures of corporate performance into a single ranking using our proprietary formula.
If you’d invested at the end of 2013 in the five stocks that lead our Best of the Northwest rankings, a year later you’d have a 37 percent total return — nearly triple the S&P 500’s return.
But your investment would be highly concentrated: Except for insurer Symetra Financial and travel-agency Expedia, the other three — Microsoft, Micron Technology and F5 Networks — are technology firms.
To rank the Northwest’s publicly traded companies, we combined five measures of corporate performance into a single ranking using our proprietary formula.
Out of the 111 Northwest companies publicly traded on a major exchange at the end of 2014, we dropped any firms whose share price fell below $2 at any point during the year. That eliminated 13 companies from consideration.
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Also pruned from the list were six companies that went public in 2014. They’ll be eligible next year after they’ve traded for a full year.
In the end, 92 companies qualified for the rankings.
Companies were ranked on their return on invested capital, free cash-flow yield, stock-price appreciation, revenue growth and dividend yield.
• Return on invested capital gauges how well management is allocating capital to produce profits after taxes.
• Free cash-flow yield shows how much cash the business generates after covering operating expenses and capital investment, relative to the enterprise’s current value. Banks and financial firms generally do well on this measure.
• Stock-price appreciation is an indicator of Wall Street’s enthusiasm for a company’s future growth potential. Tech firms tend to dominate in this category, even ones that haven’t made a profit in years.
• Revenue growth is an important sign that there’s a sustainable market for a business. While we ranked firms on the year-over-year change, investors should check that the long-term trend is positive.
• Dividend yield is attractive to investors who rely on their stock portfolios for income. Our dividend yield compares trailing 12-month dividends per share to the stock’s price at the end of 2013. This shows which companies provided greater dividend yield based on the initial investment.
Of the five metrics, free cash-flow yield carried the most weight. We gave the least weight to stock-price appreciation and dividend yield. Companies that performed well in every category relative to the others rose to the top of our list.
We gathered the raw data from Bloomberg News, supplemented by company reports filed with the Securities and Exchange Commission. The companies were first ranked separately on each metric; the subscores were then weighted and combined into an overall score.
For revenue growth, small companies with robust growth got the most points if they outperformed other small companies. In the same way, large firms that outperformed other large firms ranked well.
To capture corporate performance in 2014, we used trailing 12-month data for the reporting period closest to Dec. 31. Companies whose stock lagged the Russell 3000 or that didn’t pay dividends got zero points in those categories.
While we’ve interviewed investment experts and put some thought into constructing the rankings, they’re no substitute for your own research and judgment. Consult your financial adviser before you make major investment decisions.