Finding a good growth stock

What we all want to find is a company that will show steady growth numbers for many years. It is easier said than done.

Here is one that I would suggest qualifies:

Tetra-Tech (Nasdaq: TTEK), a Pasadena California-based company that operates in 3 areas: resource management, infrastructure and communications.

For the 3-month period ending Dec. 31, 2000, Tetra-Tech saw revenues grow 29 percent to $167 million, and earnings grew 24 percent during the same time. Tetra-Tech has shown consistent earnings growth of 23 to 25 percent, year after year.

For many years Tetra-Tech’s main source of income was from the water area. If you believe (as I do) that the world has a lot of dirty water that needs cleaning up, then a company you should pay close attention to is TTEK.

In recent years the company has moved aggressively into the infrastructure-building area of communications. Even with the current chaos in this industry, TTEK is showing impressive growth numbers in this sector.

Resource management

TTEK is well known within the industry as one of the top dogs in the water resource management business, and they pretty much do it all. Management of new water projects, cleaning up fouled water resources, comprehensive management of water projects after the clean-up, TTEK runs the gamut. If you want to do something in water, it is a good bet that TTEK can do it better than anyone else can.

TTEK has important contracts with Uncle Sam, state and local governments, the EPA, the Defense Department and numerous Fortune 500 companies.

To give you an idea of what an excellent company TTEK is, it recently bid on nine regional water projects put out for bid by Uncle Sam — and won eight of them. Everyone I talk to in this business tells us that TTEK sets the standard by which others are judged.

Infrastructure

TTEK develops commercial projects in the water business, such as many of those aquariums you see going up all over the world, and much more. They provide engineering, consulting and architectural design for wastewater treatment plants, and other water-management projects. The client list includes names like Boeing, the government of Taiwan, Chrysler, Marriot, United States Army and many other top-rated companies.

Communications

With the acquisition of Whalen Engineering back in the mid ’90s, TTEK moved into a new direction. TTEK provides technical communications solutions for rapid information transmittal in the broadband and wireless business. The client list, again, is impressive with names like AT&T, Nextel, Motorola, Sprint and numerous others in the communications area.

Recently this has taken them into the area of indoor and outdoor communications. On April 26, TTEK announced they would be constructing in-building communications systems for JP Morgan at its mid-town New York City offices, which will involve advanced electronic transaction security protection and integrated communications.

TTEK was also recently selected to build wireless projects for the Las Vegas Convention Center, Mandalay Bay, the MGM Grand, and Caesar’s Palace in just Las Vegas alone.

Tetra-Tech has been hinting that somewhere down the line it plans to spin-off the communication sector into a stand-alone company. That should enhance shareholder value.

I used to live in Pasadena in the ’70s and it was at this time that I started following TTEK. From long-term observation I can tell you this company is well run, has an outstanding balance sheet, and the current CEO, Dr. Li-San Hwang, is a very high-class gentleman with a long track record of excellence. Dr. Hwang’s word is his bond, and I can vouch for his honestly and reliability.

Tetra-Tech has grown over the years by acquisition, and this strategy has and will continue to be important to the company’s future. The business is very fragmented. During the last 10 years TTEK has done over 35 acquisitions and has been very successful in this area, which is critical to future growth.

Tetra-Tech uses a lot of subcontractors in their business. Most of the acquisitions made by TTEK are small regional engineering firms with whom they have worked — before they buy them. This gives TTEK a good insight into what is going on at these companies before acquisition. It also offers the company being acquired a chance to cash out with some money and get TTEK stock in return, which adds liquidity to their estate. It has all worked out very well in the past, and I believe it will work in the future.

One of the keys here is human talent, and Tetra-Tech has loads of it. Every spring they go down the street a few miles to Cal-Tech and lasso new talent to add to the already impressive TTEK ranks. There are numerous Cal-Tech grads currently in the ranks at TTEK.

We are dirtying our waters faster than they can be cleaned up, and in that sense I think that this stock has huge potential for future growth in the next 10 to 20 years.

Tetra-Tech went public in an IPO in late 1991 and since then, the stock has given (patient) shareholders a return of about 25 percent a year. That is an impressive number and I think that in the future the company can at least match that number, and very likely exceed it.

Below the $25 area I find TTEK very attractive. But be advised that this stock is not for the faint of heart. It is very volatile, and we would suggest nibbling a bit here and there with an eye on taking a full year to get invested in this high-quality growth.

Bottom line: This stock has been very good to my clients in the past, and I do think TTEK still has lots of good years ahead of it. For those looking for quality growth stocks, this one is worth your closer inspection.

Bob Howard

Bob Howard has been in the stock market game for over 23 years. Since 1992 he has written the "Positive Patterns" newsletter, valued by money managers and stockbrokers for its take on long-term investments. Free samples of his newsletter are available by request. Read more of Bob Howard's articles here.