Course 203: Different Types of Growth Rates
Sales Growth
In this course
1 Introduction
2 Sales Growth
3 Earnings Growth

One common measure of growth is sales, or revenue, growth. This measures how fast a company's annual revenues have been increasing over some period of time, usually one to five years. New companies in hot industries can see their revenues increase at eye-popping rates. For example, many Internet companies sport triple-digit revenue growth; between 1995 and 1998, AMZN grew its revenues at an annualized pace of 960%. But such extreme growth can't last forever. Growth naturally slows as a company gets bigger and is thus less able to grow quickly. As of November 1999, about 6% of the small- and mid-cap stocks in Morningstar's database had seen their revenue grow at least 100% annually over the previous three years. Fewer than 2% of large caps (eight out of 452) had grown that fast, and most of those 2% (including Amazon and Yahoo YHOO) were small caps three years ago. But revenue growth isn't enough; a company also has to make a profit. Even if revenue is increasing at a torrid clip, it is entirely possible for a company to grow itself out of business if it's losing money faster than it can replace it through borrowing or issuing more equity. Many Internet companies are in danger of falling into this trap, and some already have. For example, between 1997 and 1999, online sporting-goods retailer Genesis Direct PRTMQ grew its sales from $19 million to $252 million--but its losses grew from $14 million to $156 million. The company filed for bankruptcy in August 1999 and was delisted by Nasdaq the following month.

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