Investing: Identifying A Growth Situation

How may we identify a "growth" situation? There is no accepted formula for so doing, and the problem is quite difficult because the seeming growth of today may not be a continued growth tomorrow; however, there are certain signs which indicate that which we seek: a steadily increasing trend of earnings over a long period of time; continued or even increasing financial soundness; successful expansion of gross sales; continued ability to show consistent and even increasing profits; successful marketing of new or improved products; development of larger and more valuable sources of raw materials; vigorous, farseeing, and aggressive management (this last is perhaps the most difficult to appraise).

It may be supposed that the extremely youthful company will be what we are after; but this is not usually true, because such younger ventures are not always firmly established, are untried in the face of severe competition, are uncertain as to the continued acceptance of their products, and sometimes lack the "know-how" which is so necessary for continued success.

To the contrary, the well-established company, having gone through its initial "growing pains," may and often does present the best opportunity for further growth. It sometimes requires the services of an investment analyst, counselor, broker, or investment service to find such a situation.

Since these situations are often recognized by many, the chances are that the demand for the shares of such corporations will be reflected in their price; consequently, the shares of many a true growth stock will often prove to be high priced, or even overpriced. Dividends may be very small, or even lacking entirely, since the management may wish to make use of surplus funds as far as possible and plow back all such earning potential. In addition, a considerable amount of expensive research is necessary to develop new products and new processes, so that expenditures of this type are sometimes an indication of growth.