Quality compounders are well-oiled machines. Their competitive advantages allow them to make profits consistently and reinvest them into projects that generate even more profits, creating a virtuous cycle of returns.
Companies with these characteristics are our definition of a "blue-chip". That said, here are three quality compounders that deserve a spot on your list.
Texas Roadhouse (TXRH)
Market Cap: $11.85 billion
With locations often featuring Western-inspired decor, Texas Roadhouse (NASDAQ:TXRH) is an American restaurant chain specializing in Southern-style cuisine and steaks.
Why Are We Bullish on TXRH?
- Offensive push to build new restaurants and attack its untapped market opportunities is backed by its same-store sales growth
- Average same-store sales growth of 9.1% over the past two years indicates its restaurants are resonating with diners
- Free cash flow margin jumped by 2.7 percentage points over the last year, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends
Texas Roadhouse’s stock price of $178.33 implies a valuation ratio of 24.8x forward price-to-earnings. Is now a good time to buy? See for yourself in our full research report, it’s free.
Vertiv (VRT)
Market Cap: $29.71 billion
Formerly part of Emerson Electric, Vertiv (NYSE:VRT) manufactures and services infrastructure technology products for data centers and communication networks.
Why Will VRT Beat the Market?
- Average organic revenue growth of 19.7% over the past two years demonstrates its ability to expand independently without relying on acquisitions
- Incremental sales significantly boosted profitability as its annual earnings per share growth of 131% over the last two years outstripped its revenue performance
- Free cash flow margin increased by 10.4 percentage points over the last five years, giving the company more capital to invest or return to shareholders
At $77.96 per share, Vertiv trades at 21.8x forward price-to-earnings. Is now the right time to buy? Find out in our full research report, it’s free.
Cintas (CTAS)
Market Cap: $80.95 billion
Starting as a rag-cleaning business during the Great Depression before evolving into a corporate giant, Cintas (NASDAQ:CTAS) provides corporate identity uniforms, facility services, and safety products to over one million businesses across North America.
Why Are We Backing CTAS?
- Annual revenue growth of 8.9% over the last two years beat the sector average and underscores the unique value of its offerings
- Adjusted operating profits and efficiency rose over the last five years as it benefited from some fixed cost leverage
- Strong free cash flow margin of 16.2% enables it to reinvest or return capital consistently, and its recently improved profitability means it has even more resources to invest or distribute
Cintas is trading at $200.61 per share, or 45.1x forward price-to-earnings. Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.
Stocks We Like Even More
With rates dropping, inflation stabilizing, and the elections in the rearview mirror, all signs point to the start of a new bull run - and we’re laser-focused on finding the best stocks for this upcoming cycle.
Put yourself in the driver’s seat by checking out our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.
Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Sterling Infrastructure (+1,096% five-year return). Find your next big winner with StockStory today for free.
