Understanding Growth Stock Data Trends

Upbeat music plays throughout.

Narrator: A potential growth stock should have a record of strong historical growth. 

You can often gain deeper insight by looking at the stock's actual data trends over time. Here's an example of where a little bit of extra legwork might pay off.

On-screen text: Disclosure: Examples presented are provided for illustrative and educational use only and are not a recommendation or solicitation to purchase, sell, or hold any specific security or utilize any specific strategy.

Narrator: I've pulled up the profile for Microsoft, symbol MSFT on schwab.com.

In the Statements section, I'll select the arrows to expand the page. Then select Income Statement to dial in on quarterly and annual data.

For a growth investor, growing revenue is an essential characteristic of a growth stock. 

Animation: Microsoft's income statement shows the total revenue increasing for the last five years from 2018 to 2022.

Narrator: In this case, you can see that the numbers have been getting larger every year, and that helps build confidence that the business is headed in the right direction.

While revenue can help gauge a company's profitability, remember that a rising profit doesn't necessarily indicate growth. For example, profits can be inflated if the company is granting a large amount of stock options. You may want to compare net income to earnings per share to ensure that if net income is high, EPS is high as well.

You might also want to look at the Cash Flow Statement. 

Animation: Microsoft's cash flow statement shows the total cash from operations, which has seen an increase over the last five years from 2018 to 2022.

Narrator: Unlike earnings, cash flow from operating earnings can't be distorted with accounting assumptions, so if revenue and EPS are growing, you might also want to determine if the cash flow is growing too.

Though you're looking for upward trends, not all growth will have such a clear-cut progression. 

Let's look at another company, such as Chevron. And then select the Cash Flow Statement. 

Animation: Chevron's cash flow statement shows the total cash from operations, which has seen a fluctuation from 2017 to 2022.

Narrator: Here, you can see how the cash flow fluctuates from year to year, but overall, we see a general upward trend.

Another area to examine is profit margins. Let's go back to the overall Chevron stock profile and scroll to Peers & Ratios Comparison and select Profitability.

Animation: Chevron's gross profit margin is 39.92% and net profit margin is 14.16%, which is higher than three out of the four compared industry peers.

Narrator: Here, one thing that stands out is that both the company's gross profit margin and net profit margin are high relative to most industry peers.

That might indicate that in addition to selling more every year, Chevron is able to keep more of those sales dollars as profits. It appears to be improving efficiency, or—to borrow an economic term—improving its economy of scale. 

You can see how examining data over time can sometimes tell a more complete story about a company's growth rather than looking at just average values. 

In addition to looking at a company's historical growth, you might also want to look at projections for a company's future growth.

Now I'll look at Expected Earnings. You can see estimates for the upcoming fiscal year and a breakdown of how Chevron's earnings have changed over time.  

By showing the price chart, you can compare analyst estimates to a company's actual earnings and see if the company's performance has been exceeding analyst expectations or if it's coming up short.

Charles Schwab also offers a wide variety of analyst reports in the Ratings section of a stock's profile. You can scroll through the list of research providers for a high-level overview of the ratings of the stock or open individual reports for a more in-depth analysis. 

Animation: Screen shows Charles Schwab Equity Ratings^® Report for Chevron Corporation.

Narrator: Analyst reports differ in their approach to research, and you may find that certain research providers are more relevant to you based on your investment style.

Growth investors should consider taking the time to research their potential growth candidates. Digging in to both the historical and the projected data can provide a comprehensive perspective that can help you make more accurate assumptions about a stock's potential for growth.

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