Figuring out how sales growth a company has earned is very important for investors, but what exactly is it?
Grow, stock, grow!
For your investment to grow, the company’s sales have to grow.
And just like other criteria we use when looking at stocks to buy, we think it’s important to set a benchmark for the minimum year-over-year (YOY) sales growth.
While 12% is a pretty impressive number, we here at MyWallSt say shoot for the stars and scope out companies experiencing 15% YOY sales growth.
“How do I Figure out This Percentage?”
(Current Period Sales – Previous Period Sales) ÷ Previous Period Sales = Year Over Year Percentage Sales Growth
(Multiply that final number by 100 or just move the decimal point two places to the right to get the percentage)
“How Can I Use This Formula?”
Businesses can be seasonal, so if a company is doing more sales in June than they were the month before, don’t be fooled into thinking they are growing.
Take a look at how they were doing LAST June and use the formula above to calculate the percentage they have changed since the same time last year.
This is especially true when looking at automotive stocks like Ford (F) or General Motors (GM). If you compared April sales to May sales, you would probably see a huge spike.
Is that the sign of a huge growth trend that will continue? Probably not.
May is generally always the biggest car-buying month, because people like to use their tax returns to put a down payment on a new ride.
So the better way to check out growth is comparing this May to last May instead. Or even, as is often done, comparing this quarter to the same quarter last year.
“But, I’m no Good With Formulas!”
Often, you won’t even need to use this formula, because it’s already been calculated for you by company management. A good place to find it is to read the transcript of a company’s quarterly earnings call. They’re usually widely available online. Simply do an Internet search for “Ticker symbol + earnings call transcript.”
Remember, 12% is good… 15% is better… and if a company’s “growing season” is year-round, that’s the absolute best.
Sales growth is:
- Don’t compare this month’s sales to the previous, compare them to the same month last year.
- Scope out companies experiencing 15% year over year (YOY) sales growth.
- You can find YOY sales figures in a company’s quarterly earnings report.
MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here.