Death and taxes…

January 15, 2004

Funeral services giant Stewart Enterprises (STEI) has an unusually low effective tax rate in the 10-K it filed yesterday: 5.75 percent. Numerous studies, including one from institutional money manager New Amsterdam Partners demonstrate that an unusually low effective tax rate — most companies pay between 30 and 40 percent — can often predict an under-performing stock. As I note in the book, companies whose ETRs fall below 30 percent tend to perform much worse than those that fall within the 30-40 percent range and even those that are above 40 percent. Unfortunately, few individual investors tend to pay attention to the tax footnote because it can be pretty confusing. But savvy pros often use this as a quick litmus test.

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