One way you can look at growth companies is to think of baseball. Normal baseball game has 9 innings. You should look at a growth company and say I don’t want to buy it when they are in the first inning. I want to buy it when they are in the second or third inning. They have got the formula right, they got lots of room to go.
So you want to say to yourself this is a company that is very early in its cycle, like a McDonald’s when they’re only in a few stores or a Limited when they were only in hundred stores and they had lots of malls to go to.
Microsoft Corporation (NASDAQ:MSFT) was a company you could have bought 3 years after it went public. It made over 20 times your money. Sales and earnings were growing at several times the rate of the companies in the S&P500, in an industry that was exploding by leaps and bounds and it had a lot of potential both overseas and domestically. This was only the beginning of a 15 to 20-year growth cycle. You had plenty of time to get involved.
There is this amazing company called Superior Industries International (NYSE:SUP). I think the stock went up over a hundred-fold. They were very good at making aluminum wheels. A lot of car companies went to aluminum wheels. The industry for autos wasn’t growing, aluminum wheels were growing dramatically, and they were the best at it.
Peter Lynch, Fast Growers
Companies that are growing earning at more than 20-25% ?
Companies are in multi year growth cycles …. They found the right formula
Fundamental Valuation Metrics:
- Market Capitalisation : Smaller companies because their growth cycle is still long. ( 25 Mil to 500 Mil or even some cases 1 bil )
– The market cap is related to its specific industry and the Total Addressable Market or TAM ( Its potential)
– A PawnShop probably at its best a TAM of 500mil , so u want to get into when it is at the 100-200mil phase
– A Microsoft could be at 40 bil TAM , so getting it at 1 bil would have been a wonderful bet. - PE Ratio Over Many Years : Lower then Hisotrical Industry and Historical PE
- Revenue/ Gross Profit/ Earning Growth : 5 years NetProfit CAGR of 15-25%
- PEGY: Price Earning / (5 years NetProfit CAGR + 5 years Dividend Yield)
- Low Debt/Equity: less than 100 % , lower is better
- Dividend : Most Fast grower do need to cash to expand .
– Early Stage Fast Grower: CrowdStrike Massive Cash Burn / BestWorld at 100 -150 stores
– Mid Stage Fast Grower : BestWorld at 500 stores , start paying a lower dividend yield of 1-3%
– Late Stage Fast Grower: Microsoft at 48bil marketcap/ BestWorld at 900 stores, growth is maturing and dividend yield will go up
Some of the ShortList:
Best Mart 360 Holdings Limited (SEHK:2360) ( Best Quality, Best Price… similar to Costco Strategy …. , low margin play of 5-10%)
IH Retail(1373): Retail stores (they own Japan home in Singapore, similar but many stores in HK and Macau)
Plover Bay Tech(1523): SD-WAN Router sales. Speciality Communications.
Perfect Shape(1830):Slimming and beauty Services.
PAX Global Technology Limited SEHK:327
Best world ( SGX: CGN ) : A SChip Beauty Darling that shown massive growth and outperformance but was suck into a short seller attack. To date the company has progressed significantly yet remains deep value after its reputation was hurt after short seller attack. It remain an interesting turnaround fast grower play?
Games Workshop Group PLC
Valuation:
Peter Lynch Popularize PEG and PEGY
– Price Earning / (Growth rate + Dividend Yield)
After charting it in a graph in Finbox , the default metric does not seen well constructed thus i created my own
Following popular PEGY:
- Price Earning / ( GrossProfit 5yrs CAGR + Avg 5yrs Dividend Yield)