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How Sales and Earnings Growth is related
to a Stock's Performance
If you go back through the history of the stock
market there is a recurring theme among those stocks which have
had some of the strongest price appreciation and it's related to
their Sales and Earnings Growth. If you plot a chart of Sales
and Earnings Growth versus a companies Stock Price there is a
usually a strong relationship between the two.
Here is a recent example during the past year.
USNA has been one of the strongest performing stocks during the
past year and has been experiencing accelerating Sales and
Earnings Growth over the past year. A table of USNA Sales and
Earnings Growth is shown below.
|
USNA |
2Q 6/01 |
3Q 9/01 |
4Q
12/01 |
1Q
3/02 |
2Q
6/02 |
3Q
9/02 |
4Q
12/02 |
1Q
3/03 |
|
% Sales Growth |
-9% |
-3% |
-3% |
+4% |
+12% |
+19% |
+33% |
+43% |
|
% Earnings Growth |
+25% |
+20% |
+17% |
+140% |
+220% |
+267% |
+357% |
+183% |
|
Stock Price |
1.75 |
1.70 |
1.60 |
1.60 |
5.59 |
6.61 |
10.89 |
16.22 |
Meanwhile if we take the table above and make a
graphical plot of USNA's Earnings Growth versus its Stock Price
shows a very strong relationship. Notice how USNA's stock price
(blue line) began to rise significantly as its Earnings Growth
(red line) started to accelerate beginning in the Spring of 2002
(point A) and has continued through the Spring of 2003 (point
B). From March of 2002 until mid June of 2003 USNA has seen
its stock price rise from $1.60 to over $50 a share for a return
of over 3000%.
I first featured USNA as a Stock to Watch based
on its accelerating Sales and Earnings Growth and Cup and Handle
chart pattern in August of 2002 when it was trading around $7 a
share. If you don't believe it click here for the report.
Notice how USNA formed a 2 1/2 year Cup followed by a 3 month
Handle before breaking out in October of 2002.
As this example shows regardless of market
conditions companies which have accelerating Sales and Earnings
Growth have the potential to perform very well until their Sales
and Earnings Growth begins to decelerate. If you don't believe
this go back and research some of the best performing stocks of
all time and a majority of them will exhibit similar
characteristics.
The key is to recognize those companies which
are starting to establish a trend of accelerating Sales and
Earnings Growth before everyone else does which takes a lot of
time and research. This is what I do every week as I spend
over 20 hours a week looking for companies that are starting to
show signs of accelerating Sales and Earnings Growth. This is
how I found USNA well before its stock price took off.
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