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Graphics courtesy Ellis Traub's book, Take Stock

                              For more detailed info see the book, click here.

Line represents earnings.

Cycle of Life

Companies go through a lifecycle just like humans do.

Just as we are more likely to do certain things at certain times in our lifecycle, companies are more likely to do certain things at certain times in their lifecycle.

Most notably is the growth rate.

Below are examples of representative companies' SSG's.

Other samples can be seen here.

Speculative Phase

Companies start out with no sales, just a good idea, and a sales pitch to to a venture capitalist.

Rapid Growth Phase

Finally they start selling products or services. Since they sell such a small amount at first, rapid growth is possible.

The test now is to see if management can translate these sales into a profit.

Mature Growth Phase

As they sell more and more the growth rate slows. Excess cash beyond that needed for funding growth may be generated and the company may return this excess cash to the shareholders in the form of a dividend.

Stabilization or Declining Growth Phases

Growth slows even more and may stabilize at this slower rate, become flat,(no growth) or even worse, have negative growth rates.

Typically stocks in this phase may generate more cash than is needed to fund growth and the company may decide to return this excess cash to the investor as a dividend. Stocks with growth in sales, EPS and a dividend are called Growth and Income stocks. Stock without growth, but a dividend are called Income stocks.

Stabilizing Growth Rate

Declining Growth Phase