It's one thing to report a high return on equity in a single year; accounting flukes and one-time events can seriously skew a public company's numbers. The real cream of the crop is made up of companies that, over a long term like three or five years, continue to post strong profits.
One such L.A. County stalwart is jeans maker and retailer Guess Inc. Though the company suffered a couple of lean years in the mid-1990s, when its sales slumped and its share price fell into the single digits, it has since become one of L.A.'s most consistent performers. It is one of only four companies that place among the top 10 in the county in one-year, three-year and five-year ROE.
Last year, Guess reported net income of $51.9 million ($1.20 per share), more than double the $25.1 million (59 cents per share) in 1998. Revenues rose to $599.7 million, vs. $471.9 million in 1998.
Now the company's shares are trading in the high $20 range, a far cry from the bargain-basement price of $7 in the mid-1990s.
"They had made some mistakes a few years ago and were coming out with too many products," said Darren Barker, an analyst with Wedbush Morgan Securities. "Since then, they have refocused their product line and they have been able to draw people into their stores."
Guess' five-year average ROE is by far the highest among L.A.-based companies. This is partially due to the very low net worth of the company in 1995 and 1996, which exaggerates the company's return on equity because the statistic is calculated by dividing net earnings by shareholders' equity.
Nevertheless, Guess' earnings were solid even when its sales were declining, and its annual ROE never fell below 25 percent during the last five years. The company cut costs in recent years by outsourcing to low-cost manufacturers in Mexico and by setting up new warehousing and distribution facilities in Louisville, Ky.
Like Guess, the other local companies that have been consistently profitable have a strong product and know how to sell it.
Biotech giant Amgen Inc. has been making huge profits on sales of its Epogen and Neupogen drugs. Last year, the company reported net income of $1.1 billion ($1.02 per share), up sharply from $863.2 million (82 cents per share) in 1998.
Over the last five years, Amgen's ROE has been consistently above 30 percent as its revenues and earnings increased year after year.
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