See also Beware of Perfect Earnings
[9/17/05] Out of 1920 firms, Morningstar found 316 of them (16.5%) were able to grow revenue 10 years in a row. Earnings? 61 (3.2%). Free cash flow? 3 (0.2%). Which are the three? BRO, UNH, DHR.
Going further, how many companies have had 25% ROE ten years in a row? 23 (1.2%). How about 20% revenue growth ten years in a row? 2 (APOL, RGF).
[10/14/05] I'm looking at some old notes. Here's one from an old 1999 FDGFX report.
A company's ability to consistently grow its earnings over time is key to stock performance. When certain market sectors are performing well, however, it's easy to get caught up in a state of short-term euphoria.
... When I read that a company expects to generate 20% earnings growth annually over a five-year period, I'm very skeptical. ... In looking at companies that grew their earnings by 20% or greater in 1998, only 1% of those companies would have been able to grow at a minimum of 20% over the next four years. Also past earnings growth is no guarantee of future earnings growth. Of the companies that grew their earnings by 20% or more in each of the last five years, for instance, studies show that only 2% will sustain that level for the next five years. [I wonder what that chances of the sixth 20% year after having done the first five in a row, though.] When a stock has a projected growth rate of 20%, the market typically bids that stock up to a level that is unrealistic. When reality sets in, that stock usually falls out of favor.
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