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Benefit #3. Earn superior returns by learning how to make better 'sell' decisions
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The Revenue-Earnings-Price Relationship
One of the mentorship's core teachings is the widely acknowledged relationship among any company's three growth fundamentals. This relationship dominates the market's determination of a stock's price.
Here's that relationship:
Over the longer term, (1) growth in a company's revenue drives (2) growth in the company's earnings per share which drives (3) growth in the stock's price. |
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Recognizing an overpriced stock
The accompanying chart displays the three growth fundamentals that occurred for a Canadian technology company.
The dotted red line - for the last two years - shows the stock's average price growing at a much faster rate than the company's earnings. This situation signals that the stock has become significantly overpriced.
While overpricing can persist for long periods, the stock market eventually returns a stock's price to the area of the earnings trend. That happened very quickly in this example; the company reported disappointing quarterly earnings and the stock declined sharply to the $20 level.
Stocks to avoid, or if owned, to sell
Investors seeking a superior rate of return avoid purchasing an overpriced stock. Owners of stocks that become overpriced begin selling shares to lock in gains. The Stock Study Guide software helps owners manage the delicate balance between liquidating their position in an overpriced stock too early, or too late.
Learn about selling stocks when there is a significant and enduring deterioration in their other growth, financial or operating fundamentals.
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