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One of my favorite "watch list" stocks reported earnings yesterday. Patterson Companies (PDCO) earned 39 cents a share, which was inline with Wall Street’s estimates. Last year, Patterson earned 36 cents a share.

If you’re not familiar with Patterson, it’s a dental, pet and rehabilitation supply distributor. Don’t laugh, it has one of the best records for long-term growth. For several years, Patterson consistently delivered 20% earnings growth quarter after quarter.

But year last, that streak abruptly came to a halt. For two straight quarters, Patterson increased its EPS by just one penny. I find that pretty unnerving since I place a lot of emphasis on a company’s consistency (just look at our Buy List).

Companies aren’t like athletes that hit slumps. They also don’t turn things around so easily. It does happen, but it’s much less frequent than most people imagine. High-quality companies usually stay high quality, and low-quality ones stay low quality. The reason I like to focus on numbers like return-on-equity is that it tends to be a fairly consistent metric for a company.

For whatever reason, Patterson has lost its mojo. The company just lowered its guidance for this year to $1.42 to $1.44 a share, from its earlier forecast of $1.44 to $1.46 a share. That may seem small, but it shows us that the company is not moving in the right direction. It also means that shares of PDCO are going for about 25 times next year’s earnings. I can find better growth for less elsewhere.

Posted by edelfenbein at February 24, 2006 10:06 AM