Following is Part One of a recent article from the Small-Cap Informer Newsletter.
As a company succeeds and grows, it gets harder and harder for it to maintain the high growth rates it may have enjoyed when it was a much smaller business.
For this reason, it is very important for investors to understand where a company stands in its life cycle to gauge its past results and likely future growth.
As a company succeeds and grows, it gets harder and harder for it to maintain the high growth rates it may have enjoyed when it was a much smaller business. For this reason, it is very important for investors to understand where a company stands in its life cycle to gauge its past results and likely future growth.
A successful company typically passes through several growth phases. The Startup Phase is when earnings are below the break-even point (the company is losing money). Explosive Growth is when the percentage increase in sales and earnings tends to be spectacular, often approaching or exceeding 20% annually. SmallCap Informer typically spotlights companies in this phase. The Mature Growth period is when revenue becomes so large that it is difficult to maintain consistent growth rates. And when companies do not continue to rejuvenate their product mix and fail to expand their target markets, they can go into a period of Stabilization or Decline.
Investors using the BetterInvesting approach focus on companies that are into their explosive growth period and are not yet past their primes. Small and midsized companies typically are entering their explosive growth phases.
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