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How Sales and Earnings Growth is related
to a Stock's Performance
If you go back through the history of the stock market there
is a recurring theme among those stocks which have had some
of the strongest price appreciation and it's related to their
Sales and Earnings Growth. If you plot a chart of Sales and
Earnings Growth versus a companies Stock Price there is a
usually a strong relationship between the two.
Here is a recent example during the past year. USNA has been
one of the strongest performing stocks during the past year
and has been experiencing accelerating Sales and Earnings
Growth over the past year. A table of USNA Sales and Earnings
Growth is shown below.
| USNA |
2Q
6/01 |
3Q
9/01 |
4Q
12/01 |
1Q
3/02 |
2Q
6/02 |
3Q
9/02 |
4Q
12/02 |
1Q
3/03 |
| %
Sales Growth |
-9% |
-3% |
-3% |
+4% |
+12% |
+19% |
+33% |
+43% |
| %
Earnings Growth |
+25% |
+20% |
+17% |
+140% |
+220% |
+267% |
+357% |
+183% |
| Stock
Price |
1.75 |
1.70 |
1.60 |
1.60 |
5.59 |
6.61 |
10.89 |
16.22 |
Meanwhile if we take the table above and make a graphical
plot of USNA's Earnings Growth versus its Stock Price shows
a very strong relationship. Notice how USNA's stock price
(blue line) began to rise significantly as its Earnings Growth
(red line) started to accelerate beginning in the Spring of
2002 (point A) and has continued through the Spring of 2003
(point B). From March of 2002 until mid June of 2003 USNA
has seen its stock price rise from $1.60 to over $50 a share
for a return of over 3000%.
I first featured USNA as a Stock to Watch based on its accelerating
Sales and Earnings Growth and Cup and Handle chart pattern
in August of 2002 when it was trading around $7 a share. If
you don't believe it click here for the report. Notice how
USNA formed a 2 1/2 year Cup followed by a 3 month Handle
before breaking out in October of 2002.
As this example shows regardless of market conditions companies
which have accelerating Sales and Earnings Growth have the
potential to perform very well until their Sales and Earnings
Growth begins to decelerate. If you don't believe this go
back and research some of the best performing stocks of all
time and a majority of them will exhibit similar characteristics.
The key is to recognize those companies which are starting
to establish a trend of accelerating Sales and Earnings Growth
before everyone else does which takes a lot of time and research.
This is what I do every week as I spend over 20 hours a week
looking for companies that are starting to show signs of accelerating
Sales and Earnings Growth. This is how I found USNA well before
its stock price took off.
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