When stock prices are falling, the best mindset to have is a long term one. High quality stocks such as Penumbra Inc has fared well over time in a fickle stock market, which is why I want to bring it into light amongst all the chaos. Below I take a look at three key features of what makes a robust defensive stock investment: its size, financial health and track record.
See our latest analysis for Penumbra
Penumbra, Inc. designs, develops, manufactures, and markets medical devices in the United States, Europe, Canada, Australia, Japan, and internationally. Penumbra was formed in 2004 and with the market cap of US$4.6b, it falls under the mid-cap group. Typically, large companies are well-established and highly resourced, meaning that stock market volatility may impact some short-term strategic decisions but unlikely to matter in the long run. Therefore, large-cap stocks are a safe bet to buy more of when the general market is selling off.
Having high levels of debt can put pressure on companies during downturns since they have to continuously service their debt payments and interest costs. This means they need to maintain enough cash-on-hand for these expenses as well as maintain a cash cushion for unforeseen circumstances, which can get costly. In Penumbra’s case, they have no debt on the books, which eliminates short-term debt pressures highly-levered companies may face. Its current cash position of US$207m is enough to meet near-term liabilities, placing it in a financially robust standpoint in the face of uncertainty.
PEN’s profit growth over the previous five years has been positive, with an average annual rate of 54%, outpacing the industry growth rate of 12%. It has also returned an ROE of 5.1% recently, above the market return of 4.7%. Characteristics I value in a long term investment are proven in Penumbra, and I can continue to sleep easy at night with the stock as part of my portfolio.
Next Steps:
Based on these three factors, PEN makes for a strong long-term investment in the face of a fickle stock market. If you’re a risk averse investor, lining your portfolio with proven companies you’re willing to buy more and more of as the price falls, is a good strategy to build your wealth over the long run. This is the beginning of your research, but before you decide to buy PEN, I highly urge you to understand more about the company, in particular, in these following areas:- Future Outlook: What are well-informed industry analysts predicting for PEN’s future growth? Take a look at our free research report of analyst consensus for PEN’s outlook.
- Valuation: What is PEN worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether PEN is currently mispriced by the market.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.