As investors, we need to qualify the companies in our portfolio.
If they don't meet our cut, we don't invest in them.
Apart from the eventual/current profitability and strong balance sheet, growth is my top requirement.
Here's why:
1/ If a business does not grow, its share price will not grow.
In a corporate lifecycle, a company experiences most growth during its expansion phase. That's where most returns are being created.
This is why high growth companies deliver huge returns.
source: Ravi Kumar
2/ The compounding of growth rates is often underestimated.
It can do wonders for your company.
Growing at 30% turns $1 to $13.79 by Y10.
Growing at 10% turns $1 to $2.59 by Y10.
The share price returns a company can generate based on this is significant.
3/ Here's an example: Crowdstrike $CRWD
It grew its ARR from $71 million in 1Q 2018 to $1,731 million in 4Q 2022.
The magic of compounding.
4/ Simple Back Test
I used my Capital IQ to find out what are the stocks that delivered more than 10x returns in the past 5 years and have at least a market cap of $600m USD.
There are 13 companies.
$APPS $XPEL $TSLA