Growth
The following graphs provide a ten year historical look at two different companies. A quick glance tells us if sales are growing and if management is able to translate sales growth into a corresponding earnings growth. Past performance does not guarantee future performance but experience has shown that if we pick five growth companies of good quality, four will continue the upward trend. We use diversification to protect our portfolio from the one that disappoints.
Look at the two graphs below. Which company would you rather own?
| Green Line = Sales | |
| Fuchsia Line = Profits | |
| Blue Line = Earnings per Share | |
| Black Vertical Bars = One Year Share Price Ranges | |
 Company A |  Company B |
Value
Before adding shares of good quality growth companies to our portfolio we make sure the current price is fair and that our long term return goal can be achieved. We consider the current price to be fair if a historical PE (price to earnings) analysis shows the current PE to be close to the stock’s average. We then conservatively estimate what we think the company will report for annual earnings five years into the future. Using this earnings estimate and historical PE’s, we estimate what future investors might pay for a share of ownership. If this results in a return that meets our objective with little downside risk, we buy. The following example shows the results graphically.
| Green Line = Sales |
| Fuchsia Line = Profits |
| Blue Line = Earnings per Share |
| Black Vertical Bars = One Year Share Price Ranges |
| Red Horizontal Bars = Current Price ($19) and Estimated Future Price ($52) |
 Company B with Projections |
More Information
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Less than $10! This could be your best investment! |
