Earnings Growth

Everything is about earnings in stock investing. Companies with good earnings are rich in valuation and stocks with the greatest future profits potential will be rated the best. And sometimes, the individual stock's Price-to-Earnings Ratio (PER) as compared to its competitor reflect its value.

But, which stocks are most probably growing in the next five years or so?

None of us have the crystal ball. Neither you nor any fund manager can predict what is going to happen in the future. However, historical data can show us how the stock had performed previously, and if nothing changed fundamentally, it will most probably continue to grow in the future.

Sales Growth

Consistently growing earnings is not good enough. You need to verify the growing earnings with sales growth. The reason is simply because profit by itself can be manipulated by so called 'accounting engineering', but not the sales figure. This can happen especially when a stock keep on reporting record breaking earnings growth but sales did not came along.

Be careful with these stocks.

Nevertheless, it is possible to have growing earnings with constant sales if the company able to reduce operating cost by improving its operational efficiencies. However, the stock will not grow much as the cash flow generated is required to be reinvested in its operational efficiencies than to introduce another profitable product.

Operating Cash Flow

Operating cash flow is the actual money that the company is making from its business operation. It tells you how effective the company is in managing its customer and contractors.

Growing sales and earnings without operating cash flow growth is disaster.

This can happen if the company is focusing too much on sales but forget to collect cash from its clients. And the worse thing is, if the company unable to collect money owed to them but still have to pay to creditors or suppliers on time.