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.
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.
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