Step 8: Profitability
Successful growth investing hinges on identifying candidates that will meet, and hopefully beat, the market’s earnings growth expectations for the company. Step 7 stressed mostly balance sheet factors to ensure that your candidate is financially sound. In this step, you will analyze factors that will help you assess your candidate’s earnings prospects.
When you research a stock, everything about the company’s past performance—sales growth, earnings growth, earnings per share, profit margins, earnings surprises, and so forth—has already been factored into earnings growth expectations.
Those expectations are probably wrong! Your job is to figure out which way. If the expectations are too low, the stock price will rise when ...
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