QSII: This Company's 5-Yr. Growth Rate is 43%!

Quality Systems Inc (QSII) This Irvine, Calif.-based firm makes software for medical records and billings management. The company has had an enviable track record for almost a decade. After a loss in 1998, annual earnings have increased every year since and are expected to rise in 2008 and '09. The five-year earnings growth rate is 43%. The sales growth rate is 29%. Fast growth sometimes is cursed with volatility. The stock's beta of 0.62 indicates usually mild-mannered action. Margins also are strong. Pretax margin increased in each of the past eight years. In the most recent year, it was 35%. Among the 30 stocks in the Computer Software-Medical industry group, none equals that margin. Return on equity, a measure of management efficiency, also increased eight straight years. It was 41% in 2007. This small-cap stock's dividend yield is 2.9%. The payout ratio, though, is 69% of projected '08 earnings, perhaps a bit high. Because the U.S. health care system is a government-influenced construction ? as opposed to a pure free-market play ? medical stocks carry an additional risk factor. The uncertainty cuts two ways for Quality Systems. Regulations can create a need for the firm's software and they can impose costs on potential customers that cramp budgets. Quality's backlog in the recent quarter was more than $80 million. A second half rebound looks to be unfolding. Good Trading!