Growth and Analysts
Growth
Growth is possibly the most important part of any investment. If there is no growth in a company, there will be no increase in the share price (and maybe even a decrease). There are multiple ways to measure growth. You can look at growth of revenue, sales, or earnings. Earnings growth is the most important because it usually drives the stock price. You can easily calculate past growth rates using the Income Statement (see next section). Even though that past growth rates give us an idea of how the company may perform in the future, they are definitely no guarantee. When thinking about growth it is important to consider what will accelerate or continue growth in the future. Can Starbucks open up enough new stores to increase earnings significantly? If the answer to questions like these is positive then you might have a great investment on your hands. The most useful information about future growth prospects can be found in the annual report. Most of the time you won’t find exact estimates but usually you will find management’s plan to increase earnings. If you understand the business you will be able to assess the quality of management’s strategies. Remember that the more complicated the plan, the harder it is to pull off.
Analysts
Analysts are people who work for brokerage firms and investment banks and follow certain companies. Usually these analysts make buy and sell recommendations on the companies that they follow. At StockBoxFinancial, we usually don’t look at these recommendations since most professional investors fail to outperform the market (see the section of this guide on Mutual Funds). However, some of these analysts provide useful information. The only information we really like to look at is the analysts’ estimates for growth (of earnings) over the next five years. These numbers are available through Yahoo Finance under the "Analysts' Estimates" tab. We don’t invest in companies simply because of these numbers, but we do consider them in our research.