Why Growth Is Not Enough
Revenue growth is a huge part of finding market-beating stocks. But if a company can’t turn revenue growth into profits, there’s no sustainable business.
A perfect example is $Plug Power(PLUG)$ , which has been among the hottest stocks in the market in 2014 and 2020. But the company never made money.
And without profits and cash flow, the company needed to fund operations with growing levels of debt offerings and stock sales. Over the past decade, shares outstanding have risen 19% annually, and the stock has plunged, despite growing revenue.
Is it different this time? $IONQ Inc.(IONQ)$ thinks it can be bigger than $NVIDIA(NVDA)$ , but the numbers don’t back up those claims. And at this rate, the company will need to continue issuing shares to stay afloat.
$AST SpaceMobile, Inc.(ASTS)$ has been incredibly hot this year, but it hasn’t proven a business model or even revenue generation. Yet, this is a $13 billion business.
When you’re looking for asymmetric stocks, revenue growth is great. But if that revenue growth isn’t eventually followed by profits, the business won’t be sustainable.
I have a feeling that a lot of investors will find that out the hard way in the next few years.
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- Ah_Meng·10-16TOPI agree totally with your assessment. There’s just one wildcard to all these, American government, or should I put it as Donald Trump? Like Tesla, which probably couldn’t have survived till now with the US government subsidies, all those companies you listed might still have a chance to turn around if the same government throws money at them… free money adds up to nothing… especially those who hold the printing power… [Tongue]LikeReport