I read all the time how a company’s stock price takes a hit because it didn’t grow as much as hoped or, even worse, its growth remained flat in a given quarter or year. But if a company has say $100M in revenue and $20M in profits (for example) and then does that year after year, why isn’t that viewed as fantastic? What’s wrong with having consistent revenue (and profits) year after year? Why does the market seem to demand growth? If I owned a company that had great sales and profits every year I imagine I’d be quite happy about it.
In: 11
> …its growth remained flat in a given quarter or year….
> …$20M in profits (for example)…
Well, what happened to it then? Where did that $20 million go? Profits either go into growth or dividends, and not putting anything into growth has some bad implications.
It means they don’t think they can generate a better return on that money than their shareholders investing it elsewhere. It means they don’t have any new ideas, any prospects of capturing more market share and obtaining more customers. It means their only plans are status quo or doing worse.
If reinvesting in the growth of the company isn’t more promising than paying dividends and investing that money elsewhere, then why should investors keep their money tied up with the company as it is now? If not even “what we do now, just more” isn’t that attractive then how lucrative is what they are doing now?
Latest Answers