Growing Rich - Arabictrader.com

GROWING RICH WITH GROWTH STOCKS
the growth rate, regardless of what that was, it was OK. But the
higher multiple means the stock is more vulnerable to any downdrafts.
In addition, you have to question the sustainability of these highgrowth
rates. People throw huge numbers out, but a growth rate is
meaningful only if you can guarantee it will last for a long time.
Otherwise, it might be a short-term anomaly. I was ignoring the length
of these growth rates thinking they were symptomatic of the future.
I learned the hard way that’s not always the case. High-return and
high-growth businesses are great. But because of that, they attract
competition. High returns bring money toward the business, and highgrowth
rates tend to breed opportunity. However, it usually takes a
few years for this to show up, and that can catch novice investors off
guard. I’ve seen it with the fast-food restaurant chains, steak houses,
bowling alleys, hospital chains, nursing homes, and HMOs. Coffeehouses
could be next, unless Starbuck’s is the unique one. There’s
always the odd one that can make it. However, almost any highgrowth
group breeds imitators.”
THE BOTTOM LINE
Before buying any stock, you should first call the company’s investor
relations department and ask for the latest annual and quarterly
reports, forms 10-K and 10-Q, proxy statements, and any additional
research reports they might have. With these documents in hand, pay
special attention to the balance sheet. Is there plenty of cash on hand?
At what pace are sales and earnings growing? How much debt has
been taken on, and what is the money being used for?
You can use this information, not only to determine whether the
company is financially strong, but also to figure out whether its current
stock price is a bargain or too expensive based on the underlying
fundamentals.
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