The 5G sector is big business.

It’s projected to grow at a 50% clip each year, from a $50 billion industry in 2021 to a $1.7 trillion industry by 2030.

That means the profits are ripe for the taking… if you can find the right company.

And that’s what I’ve got for you in this week’s Stock of the Week.

It’s a fiber optics services provider. It does it all… everything from maintenance and upkeep to cabinets and hardware.

And considering that 5G and fiber optics go hand in hand… it should come as no surprise that there will be more demand for fiber optic cable over the next five years than in all previous years combined.

But here’s what’s key. Not only is this company a big player in a fast-growing industry… but it also has a very smart management team.

That team is focused on growth… and has the discipline to keep costs down. That’s what will set this stock apart.

Get all the details on the company – and its ticker – in this week’s Stock of the Week.

Click on the image below to watch the video.

Note: Manward is doing something HUGE… and I’m thrilled to be a part of it. Click here to be one of the first on Monday to get all the details.

Transcript

I’ve got an exciting little Stock of the Week for you. This is all part of showing you, or giving you, a little taste of what we do in GVI Investor, that my team at my hedge fund puts together, and how we pick stocks. So it’s educational for you as well.

And this week’s Stock of the Week really is going to teach you a lot about what’s going on in the world, as well as the processes we use – and I think you should use – when you are looking at stocks so you don’t fall foul of market noise and the latest fad… but you can hold strong through all of the headwinds and tailwinds of the market knowing that, actually, I’ve looked at all my due diligence criteria of valuation, growth and so on.

So the Stock of the Week is Clearfield (CLFD). Why? Well, it’s in fiber optic services. That’s one reason. Fiber optics is rapidly growing and set to continue to grow, at least for the next five years.

Here’s one important statistic: More new fiber is expected in the next five years than all the years to date.

And Clearfield’s in this field. It’s also involved in 5G because 5G and fiber go hand in hand. And Clearfield provides everything – everything from the maintenance, the upkeep, the cabinets, the hardware, the services around it all.

But not just that. Not just is it in a growing field – that doesn’t guarantee anything. It’s also very much focused on using all its skills and innovation to make sure that costs are kept down. That means lower labor costs and less need for highly skilled labor, which means more bottom line. And I like that.

It’s focused on the growth and on keeping costs down because a lot of companies lose that discipline when they know they’re in a really growing field.

Here are the kinds of numbers that really got me excited. Gross profit – quarterly gross profit – just keeps on going up, actually 102% gross profit increase, year on year, in their latest figures.

Quarterly revenue… 89% was the rise there. 89% first quarter 2022 growth rate. An 89% growth rate – who has that? First quarter of 2022… $51 million was quarter one 2022 revenue. It’s going up like this. That’s what I like – steady rises and increases.

When I look at the financials… yeah, last year the company was up 241%, and then you might think, “What the heck, Alpesh?”

And the year before that… 77% up. And the year before that… up 40%. And it’s down 20% this year. Well, I think the 20% drop so far this year is what’s given us a good opportunity to look at the stock, because with the rest of the market, as it’s fallen, it’s given that opportunity to come in and look at it afresh because it’s not at all-time highs.

So let’s go through that. Let’s look at some of the numbers.

In terms of my value-growth-income criteria, it’s a 7 out of 10, which is good. Value-growth-income looks at the share price relative to profitability, looks at revenue growth, looks at the dividend yields, looks at cash flow, looks at a whole lot of things.

Cash return on capital invested… 9.2%. Not the highest, but fair. That cash return on capital invested (as my GVI Investor followers will know)… The reason that number is so important is that it’s the figure Goldman Sachs Wealth Management uses to pick companies for its richest clients around the world. They look for companies that are in the top quartile, or the top 25%, of all companies by cash return on capital invested. It’s a really useful metric of a company’s ability to convert spend into profit, which is what it’s all about.

The price six months ago… well, yeah, it’s up 51% since then. But this recent drop, as I said, with the rest of the market, has helped.

Sortino, a measure of reward versus risk (I told you we do a lot of due diligence. We’ve got a lot of things. This is just the tip-of-the-iceberg taster for you)… The Sortino, 0.9, means a lot of reward for the risk, or volatility of the share price. So that’s good.

Alpha… Alpha performance on the market… significantly outperforms the market.

So all of those things… really good.

Volatility… above 20%. I’d prefer it to be below 20%, but it’s only a smidgen over 20%. So I’m going to let that ride, given all the other factors that I’ve mentioned.

Okay, some more data that caught my eye… not just the cash return on capital invested, return on capital employed, return on equity… Those are all measures of the quality of a company. How is it generating returns for shareholders, and for the company, based on the capital that it’s deploying, the access to capital it has?

I look at borrowing – not something I’m particularly worried about. I look at operating cash flow – strong.

Turnover being boosting up… net asset values going up… earnings shooting up… total assets increasing… pre-tax profits going up.

It does look like it’s increased borrowing in order to facilitate investment to boost pre-tax profit. I can live with that.

The gearing, the borrowing, is not, from what I can see, out of whack. It’s not something to be particularly worried about.

Valuations… yes. It’s a bit steep, okay, but that’s forecasting in the growth that is anticipated in this company. So that’s why valuations, this share price, is even at a future forecasting at a 30 multiple. Well, it’s forecasting a heck of a lot of good growth in the company, that’s why.

So that gives you an insight, a smidgen of an insight, the tip of the iceberg of the kind of research we go into for GVI Investor that I and my hedge fund team do.

Thank you very much. My name’s Alpesh Patel. Hope you found that instructive and it was educational for you.

Thank you very much.