Friday, 30 December 2011

Speculative-Growth Stocks - Is Sales Growth Outpacing Asset Growth?

The speculative-growth market is full of companies that are doubling their sales by doubling their assets.

This is a legitimate way to expand.  Investors pour additional capital into the business, which drums up new sales.

Eventually (we hope), the company reaches a critical mass at which it becomes a big moneymaker.

But to limit risk, we can focus on companies that are making more efficient use of their assets as they expand, generating rising sales on each $1 of capital.

Yahoo has done pretty well on this front.

  • Between 1997 and 1998, its sales grew 18%, but its assets grew even faster, at 333%.  
  • In 1999, though, Yahoo's sales started to grow faster than its assets, indicating that it's starting to squeeze more growth out of its assets.  
  • That tells us that Yahoo is growing quickly, but prudently.

Life Cycle of A Successful Company

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