Course 404:
Aggressive-Growth Stocks
In this course
1 Introduction
2 Is Cash Flow in Line with Earnings?
3 Has Growth Hurt the Balance Sheet?
4 What Are the Trends in Growth Rates?
5 How Consistent Is the Company's Growth?
6 Are Free Cash Flows Positive or Negative?
7 How Much Does the Company Earn on Its Capital?
8 How Has the Stock Performed?
9 How Expensive Is It?
10 How Does the PEG Ratio Compare with Those of Similar Firms?
11 Conclusion: Knowing the Odds

Aggressive-growth companies are the thoroughbreds of the equities universe. They have expanded both their sales and their earnings at more than four times the rate of the general economy. Unlike speculative-growth companies (those firms with blistering sales growth but mediocre, or negative, earnings growth), aggressive-growth companies have excelled at both the top and bottom lines. Because most of their value typically derives from potential profits many years in the future, these companies usually trade at rich earnings multiples. How rich? Between 40 and 100 times earnings is pretty common. In analyzing aggressive-growth companies, we must therefore focus on the confidence we have that a company can actually match the market's lofty expectations. The greater the confidence, the more palatable the valuations. Let's use Starbucks SBUX as an example. Starbucks is one of the standouts in the aggressive-growth group. By opening hundreds of premium-coffee shops in each of the past several years and addicting an ever-growing clientele to latte, cappuccino, and other concoctions, Starbucks has expanded even faster than the average aggressive-growth company. Both its one-year and three-year growth rates (through the end of 1999) easily exceeded the norm, even after a slight slowdown.

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