Growth is one of the key element that investors should study carefully when they are investigating company’s financial records. It can be used as leading indicators that company earning will increase in forthcoming future. That simply because company’s growth has an ability to increase its earning, which means its earning per share (EPS) will increase and there will be a lot of demand on its stock on the market.
For example, if Company X has increase in growth like opening new stores every year in new different places, that means its sales will increase because products of that company which used to be sold in one place, now it sold in multiple places which means its sales will go up. Once sales increase the profit will increase too. And when the profit increase the earning per share of company’s stock (EPS) will increase, which make company’s stock on high demand for many financial institutes and big banks and others who want to have some of that company, that eventually make its stocks start going up in its price and start its bullish wave.
Growth is not something like earning once it released today its effect can be seen tomorrow in company’s stock price. However, when company’s growth increase for at least 25% you have to wait for the next two quarter earning reports. When you see improvement in (EPS) in the first quarter wait for the second quarter for confirmation or more better to wait for the third quarter, because this increment in (EPS) which happen in first earning report after increase in growth might be temporary but once you get confirmation on that you can invest in that company. So to make it clear:
you have to wait until you see improvement in company’s sales and earning for at least 3 consecutive quarters after an increment in its growth by 25% or higher.
But what if a company increase its growth and there was no improvement in its sales or earning for at least one year or five consecutive quarters, here the company’s growth did not reflect in its earning and/or sales which means there is something wrong in this company, and once you find something wrong in any company, that discovered by linking facts from company earning report, the smarter and wiser thing to do is to run a way and don’t invest in such company.