The Sales-Profit-Price Relationship
One of the very first things you learn about investing successfully in growth stocks is that:
| "Over the longer term, (1) growth in a company’s sales drives (2) growth in the company’s profits per share which drives (3) growth in the stock’s price." |
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| Successful investors, everywhere |
So, to find a stock with a price that can grow in the future, you must first find a company with a long history of growing both its sales and profits at a strong rate.
With the mentorship’s software it is fast and easy to literally see a company’s historical growth in sales and profits.
The historical sales trend (the solid blue line) in the accompanying chart is for one of the world’s largest manufacturers of artificial hips, knees and other orthopedic and medical products.
Strong Products
The software produces this simple visual so that you can quickly and easily see that this company
has been growing its sales
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at a high rate (a steep trend), |
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consistently (a straight trend) |
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for a long time (10 years). |
Such a strong sales trend indicates a company with high-quality products and steady growth in the demand for them. |
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Talented Organization
The green trend line shows the company’s profit per share closely tracking the company’s sales growth.
When both sales and profits show such coordinated growth, you have discovered a talented organization. One with management and staff operating so efficiently that it has delivered reliable growth, year after year.
See how fast and easy it can be to recognize a great company. |
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Great Stocks
After discovering a great company, it is prudent to confirm that
the stock’s price has kept pace with company’s growth in
sales and profit.
You can do that quickly with this next visual from the mentorship’s software. Here you can see the stock’s annual high–low price range moving up with company profits as required of every great stock. |
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Troubled Stocks
This next visual shows you why it’s prudent to confirm that a company’s stock moves up with its sales and profit.
Here you can see that sales and profits for one of the world’s largest retailers have a long history of steady growth but the stock price range has been static. In fact, for most of the last ten years, the price range has simply moved sideways.
Investors looking to grow their portfolio generally want to avoid such troubled stocks. |
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Troubled Companies
Of course, you want to stay away from companies that can’t grow their sales and profits
at positive rates.
The accompanying trends are for one of the world’s largest manufacturers of photographic equipment and supplies. Unfortunately for long term investors, its sales have been flat for a long time and profits have declined – and taken the stock's price with them. |
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Summary
It is difficult to imagine prudent, long-term investors purchasing or holding a stock without seeing its sales, profit and price trends presented in a coordinated visual.
Nevertheless, every day, tens of thousands of investors purchase stocks without first checking to see if they look more like a great stock than a troubled stock or troubled company.
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