Zhi Ming Cheah asked 4 years ago
1st question:
Which CAGR should i look? : year on year?, 3 year CAGR, 5 year CAGR? 10 year CAGR?
example: revenue growth: taking dufu as an example, year on year: 26.9%; 3 year: 9%; 5 year 18%; 10 years: 7.4%. which one should i look if i set my criteria as minimum 10% growth in revenue? depends on my investment time frame?( it is highly appreciated if you can cover all 6 types of growth, if each of them has different cagr to look upon)
2nd question
In general: what percentage/figure should i set for each growth type?
6 types of growth:
This is what i can dig out from the investment quadrant notes:
1) Revenue Growth
From your notes, a good growth company is able to grow its revenue 10% per annum on average.
2) Operating Profit Growth
?? it is not covered in the investment quadrant.
Is there a rule of thumb as to what figure i should look at? 10% .. or i should just compare with its peers, as long as it is better than majority of its peers and at a positive figure, it is good?
3) Net income Growth (ADJ.)
From your notes:Companies which grow their net profit at an average of 15% or more every year are known as growth stocks.
4) Diluted EPS Growth (ADJ.)
From your notes:
3 ways to interpret eps with net profit. Ideal situation= increasing eps and net profit.
5) Cash From Operations Growth
useful? in your notes, you mention it is better to look on cash flow to net income ratio as it is used to measure the quality of the company’s reported earnings. so should i ignore this?
6) Free Cash Flow Growth
Investors generally favour companies with at least a five-year track record of positive FCF.
Summary:
1) Revenue growth : > 10%
2) Operating Profit Growth: ??
3) Net Income Growth: >15%
4) EPS growth: ?
5) Operating Cash Flow growth: ??
6) FCF Growth: As long as 5 year FCF is positive?
Victor Chng answered 4 years ago
Hi Zhi Ming,
There is no fixed rule on using which growth rate years to use. Looking at your example, it seem that for the past 5 years they are going well but the recent 3 years is slowing down. The key is to find their sustainable growth which you need to understand the business first. Personally I have not analysed before this company but from the look I may want to take their 10 years growth to be conservative.
1) Revenue Growth
The 10% growth is just a rule of thumb, the most important thing is we want to see the revenue growing. Sometime a 5% growth is also ok.
2.Operating Growth
I think you are looking at too many growth in different area. It is best to focus on revenue and net profit growth as that is what the investor seeing.
3.Net income
You can look at least 10% growth will be good
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add on for 2nd question:
summary:
4) eps growth : As long as positive ?
5) Operating cash flow growth: Ignore this and look at CF to NI ratio?