What is Growth?
Webster defines growth as an increase in size, quanity or degree.
BetterInvesting is looking for an increase in Sales, Pre-Tax Profit, and EPS
Where does growth come from?
- Selling more of the same goods or services
- Raising prices
- Selling new goods or services
- Buying companies – Acquisition & Merger
Types of Growth
Organic
Selling more of the same goods or services
- Increase market share
- Increase demand for product
Raising prices
- Unique product - few substitutes
Selling new goods or services
- Understanding comsumer's needs
- Research & development
Acquisitions - Non Organic
Buying companies
- Acquisitive firms are often the darlings of Wall Street becasue they are major consumers of investment banking services.
- Most acquisitions fail to produce positive gains for the shareholders of the acquiring firm.
- From the investor's perspective the biggest reason to be leery of an acquisition is that they make the company more difficult to understand.
- An unscrupulous management team can use the fog created from an acquisituion to artificially juice the results.
- The true growth rate of the company may be impossible to figure.
- Bottom Line: If you don't know how fast the company would have grown without the acquisitions, don't buy the shares - because you never know when the acquisitions will stop!
- The goal of a successful investor is to buy great businesses, not successful merger and acquisition machines.
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