How Sales and Earnings Growth is related to a Stock's Performance

If you go back through the history of the stock market there is a recurring theme among those stocks which have had some of the strongest price appreciation and it's related to their Sales and Earnings Growth.  If you plot a chart of Sales and Earnings Growth versus a companies Stock Price there is a usually a strong relationship between the two.

Here is a recent example during the past year.  USNA has been one of the strongest performing stocks during the past year and has been experiencing accelerating Sales and Earnings Growth over the past year.  A table of USNA Sales and Earnings Growth is shown below.

USNA 2Q 6/01 3Q 9/01 4Q
% Sales Growth -9% -3% -3% +4% +12% +19% +33% +43%
% Earnings Growth +25% +20% +17% +140% +220% +267% +357% +183%
Stock Price 1.75 1.70 1.60 1.60 5.59 6.61 10.89 16.22

Meanwhile if we take the table above and make a graphical plot of USNA's Earnings Growth versus its Stock Price shows a very strong relationship.  Notice how USNA's stock price (blue line) began to rise significantly as its Earnings Growth (red line) started to accelerate beginning in the Spring of 2002 (point A) and has continued through the Spring of 2003 (point B).   From March of 2002 until mid June of 2003 USNA has seen its stock price rise from $1.60 to over $50 a share for a return of over 3000%.

I first featured USNA as a Stock to Watch based on its accelerating Sales and Earnings Growth and Cup and Handle chart pattern in August of 2002 when it was trading around $7 a share.  If you don't believe it click here for the report.  Notice how USNA formed a 2 1/2 year Cup followed by a 3 month Handle before breaking out in October of 2002.

As this example shows regardless of market conditions companies which have accelerating Sales and Earnings Growth have the potential to perform very well until their Sales and Earnings Growth begins to decelerate.  If you don't believe this go back and research some of the best performing stocks of all time and a majority of them will exhibit similar characteristics.

The key is to recognize those companies which are starting to establish a trend of accelerating Sales and Earnings Growth before everyone else does which takes a lot of time and research.   This is what I do every week as I spend over 20 hours a week looking for companies that are starting to show signs of accelerating Sales and Earnings Growth.  This is how I found USNA well before its stock price took off.

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