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So how do small companies become big ones? They grow; believe it or not. We want big, giant, colossal, hot, electric, explosive growth. There’s a catch though, the growth must be steady. We don’t want a company whose revenues and earnings are all over the place, that indicates bad management (more on that later).
A company that can grow its revenues and earnings consistently by at least 25% annually for the last three consecutive years is a company that we are interested in. Look at it this way, roughly every three years your company will double in size. In six years it will be four times larger. I like those numbers (and that’s just with a 25% growth rate).
When a company is growing immensely without negatively impacting other vital factors in its operations (such as increased debts or loss of profits) that means that management knows what they are doing.
The biggest problem that exists with high growth companies is the fact that they tend to finance their growth with debt…then again, we don’t buy companies with debt. Problem solved!
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