Yesterday, I covered the first two "numbers" that Louis Navellier outlines as important in his book The Little Book That Makes You Rich. Today, we'll cover 3 more important numbers in choosing a great growth stock.
3. Increasing Sales Growth
If sales for a company are increasing year over year, quarter over quarter (adjusting for seasonality), that is a very good sign. However, it is a REQUIREMENT for a growth stock because… well… the entire definition of a growth stock is that the company is actually growing.
4. Expanding Operating Margins
Operating margins are the company's operating margin divided by the company's sales. Navellier prefers operating margins over net incomes because net incomes often include "special" one time items. An expanding operating margin means that with every incremental sale, the company makes more money per sale.
Looking at 3. Increasing Sales Growth without 4. Expanding Operating Margins is very dangerous. Why? Because I can sell a lot more product below cost but I wouldn't be making much money, would I?
5. Strong Cash Flow
You've heard my (very strong) feelings on cash flow. Cash flow is king. Cash flow means that expenses are being paid, that a financial buffer is being built, that money for opportunities will be there when needed.
Note: Again, I'm simply skimming the chapters. If you wish more, check out The Little Book That Makes You Rich.