These 4 key metrics will help ensure that you invest in a company that’s headed for major growth.
1) Dividends History
Look for a company that are committed to retaining the cash they need to solve unexpected problems and invest in growth while at the same time distributing profits to shareholders as often and as generously as they can. The history of paying dividends to shareholders is very important.
2) Earnings History
Look for a company with steady growth in revenues. A steady increase in revenues is an indication that the people managing the business understand how to make it grow. The rate of growth is important too.
For small companies, look for faster growth. After the first years of operating, growth should reach 30%-50% a year. Thereafter, a growth rate 20%-30% is acceptable. With larger and mature businesses, feel comfortable with 10%-20%.
Only make exceptions to these expectations when you clearly understand why growth was less and how it will recover.
3) Recent Sales
While the history of earnings is very important, we also want to see how sales have been doing recently (past 6-12 months). This is significant for the most obvious reason: to be sure that nothing bad has happened since the company’s last annual report.
4) Current Industry Status
As a general rule, it is better to invest in a solid but unexciting company in a fast-growing industry than to put money into a business with an exciting story in an industry that is on decline.
Look for quality in the company’s financials, management, products and customer relations. Invest in companies that have a proven growth strategy, a sufficient cash flow, a commitment to employees, customers/shareholders and a company that plays a prominent role in an industry that is growing.
These 4 metrics alone will not guarantee success in stock investing, but for the typical private investor, to follow them is already a very good start.
Sven Franssen