With the relative youth of any green company, it can be difficult to discern the metrics that will be vital to the company’s future and more importantly if you are looking to invest the future stock price. The main focus you should look to in this case is earnings growth. This is what the stock price in the future will depend upon.
The stock price at any given time is what the market has determined the share of a company’s stock to be worth at a certain time through the ability to buy and sell at will. Therefore, if someone believes the company is worth less than the price they will sell at the current price, thus driving the price down until buyers believe that the price per share is valued lower than its actual worth when buyers will drive the price up. The catch in all of this is that the market acts in a very temperamental way. Companies with optimistic futures one day can be shadowy the next.
This is why as an investor looking to invest in the medium to long range future of any green company, you must focus on the earnings growth. When looking, we want to analyze two things; first, is it consistently positive? If it is, this means the company is expanding sales and bringing in more money. Should this trend continue. the stock price will reflect this higher growth with a higher price based on that added value.
Second and possibly more important, look to the companies projections. Are they projecting high, low, or dead on? Any company predicting earnings growth higher than what they return is likely not a place you would like to place your money. Optimism is good but not when you as an investor want the performance behind it. What would be ideal is to find a company constantly projecting slight lower growth than what they receive. For example, a growth rate of 3% and they are returning 4% growth.
These companies clearly have a handle on their operations; they are planning to grow showing an optimistic upper management, yet, working and striving to be better. Any company receiving earnings growth has to be happy with that, and as you look at companies you will see many that are likely complacent with that. Companies steadily overachieving are what matters. This reflects the hunger in leadership and will translate to passion for change and improvement in the future.
Questions such as what current ratio a company carries and what dividend do they pay out can certainly be valuable aids in selecting stocks. Yet, in this green revolution we find ourselves in placing investments for 10 years plus into the future we need to be concerned most astutely to the earnings growth numbers.
Written by: Benjamin H. Childers