Collection: Peter Lynch - #39 'First Category of Stocks; Fast Growers'
[Transcript]
PETER LYNCH 00:00
When most people think about investing in stock market, they dream about investing in a fast grower. A company that is growing at over 25% a year. At 25% a year a company’s profits will double in 3, they quadruple in 6, go up 8 fold in 9 years. That is how you get a huge stock in a decade.
There is not a lot of these, but they are very powerful, and the best part is, you don’t have to catch them just as they are taking off. The beauty of growth companies is you have plenty of time.
If you think they grow for 5, 10, 20, 30 years, you don’t have to be there for the first year or the second year. You could have bought Walmart Inc. (NYSE:WMT) 10 years after they went public and made 30 times your money.
What makes a company grow earning so quickly? Either it is a rapidly growing industry, or it is a rapidly growing company in a slow growth industry. Rapid revenue growth and rapid earnings growth are the hallmarks of a fast grower. You just can’t buy any stock with hot earnings and hot sales. You have to check the balance sheet to make sure the company can keep growing.
One way you can look at growth companies is to think of baseball. Normal baseball game has 9 innings. You should look at a growth company and say I don’t want to buy it when they are in the first inning. I want to buy it when they are in the second or third inning. They have got the formula right, they got lots of room to go.
So you want to say to yourself this is a company that is very early in its cycle, like a McDonald’s when they’re only in a few stores or a Limited when they were only in hundred stores and they had lots of malls to go to.
Microsoft Corporation (NASDAQ:MSFT) was a company you could have bought 3 years after it went public. It made over 20 times your money. Sales and earnings were growing at several times the rate of the companies in the S&P500, in an industry that was exploding by leaps and bounds and it had a lot of potential both overseas and domestically. This was only the beginning of a 15 to 20-year growth cycle. You had plenty of time to get involved.
There is this amazing company called Superior Industries International (NYSE:SUP). I think the stock went up over a hundred-fold. They were very good at making aluminum wheels. A lot of car companies went to aluminum wheels. The industry for autos wasn’t growing, aluminum wheels were growing dramatically, and they were the best at it.
(Source: https://youtu.be/cRMpgaBv-U4)
