Have you heard of this (boring) company? APH

From time to time, we publish a brief highlight of a company that we own on behalf of our investors, in order to provide an example of the investment philosophy that we practice and that we try to explain to the world in the pages of this blog. In the past, some of the companies highlighted have included:

These short overviews are meant to provide some concrete examples of the investment principles we follow, and to counteract some of the incorrect understanding of "growth stock investing" that began in the 1990s and persists to this day (for more discussion of our understanding of what we might call "true" or "classic" growth stock investing, see previous posts such as this one and this one).

This time, we'd like to briefly discuss a company that may not fit the stereotype of a "hot growth stock" as portrayed by the often-unhelpful financial media, but a company that we believe fits the definition of a true "Taylor Frigon growth company," and that is electronic-equipment manufacturer Amphenol Corporation, of Wallingford, Connecticut*.

Founded in 1932, Amphenol is one of the largest manufacturers of electronic connection products in the world, including fiber optic connectors, busbars, backplanes, specialized cable assemblies, and other parts that enable the ongoing demand for electronics and automation in industrial equipment and automobiles. Many of their parts are designed for harsh environments and the rugged use-cases encountered in the aerospace, mining, and defense industries, often involving waterproofing, vibration-resistant connections, and the ability to withstand high pressure, extreme temperatures, and corrosive materials.

Many Amphenol products (some of which are pictured above) may not be as sleek-looking or ultra-modern in design as the consumer devices that many investors think of first when they hear the words "high-tech," but Amphenol components are critical connections inside many mobile connected devices, fully 50% of which contain Amphenol products in the form of antennas, microphone and speaker connectors, camera sockets, battery connectors, charger connectors, and so on.

Furthermore, Amphenol is a leading provider of electronics solutions that connect the "guts" of the communications networks that make those mobile devices possible, with products that go into cellular base-stations, wireless routers, cellsite antennas, and fiber-optic backhaul interfaces.

And, in case you think that the industrial-strength connections that Amphenol has successfully manufactured for decades are getting ready to be replaced completely by wireless RF connections, Amphenol offers a complete line of RF products which enable connection of devices through wireless RF technology. In fact, Amphenol engineers invented RF technology in the 1940s in conjunction with the US military.

Amphenol has a long history of steady earnings growth (interrupted by periods of earnings declines in 2001-2002 and 2008-2009, each period of decline lasting for about five quarters), and their most recent 5-year operating earnings growth has been at a compound annual rate of 13.3%. Their most recent 3-year operating earnings growth has been even faster, at a compound annual rate of 26.7%. The company's current return on equity (defined as current earnings available to common shareholders divided by common equity) is 21.8%. The company also instituted a modest dividend in 2005, which continues to the present and has grown at an annual rate of about 42.6% in the past five years.

In short, Amphenol may seem on first glance to be a somewhat "boring" company, involved in the unglamorous business of manufacturing the connectors and components that undergird the modern electronic world. In reality, the company is a textbook example of what the late Dick Taylor would call a "stable grower" and what Thomas Rowe Price might have described as a "successful business enterprise which continues to grow and prosper over a long period of years."

We believe that Amphenol exemplifies the kind of company that investors should consider as a destination for investment capital (as part of a well-rounded investment strategy constructed in conjunction with their objectives and constraints), and we highlight it here in order to illustrate the application of some of the general investment principles that we discuss here in the Taylor Frigon Advisor.

Perhaps most importantly, it serves to demonstrate that a "growth stock" may look very different from the companies that you hear being breathlessly ventilated night and day in the financial media.

* At the time of publication, the principals of Taylor Frigon Capital Management owned securities issued by Amphenol Corporation (APH), EZchip Semiconductor (EZCH), Panera Bread (PNRA), Tractor Supply Company (TSCO), and ResMed Inc. (RMD).