Skip to main content
Message Font: Serif | Sans-Serif
No. of Recommendations: 2
Hi Rich:

Excellent post!

How does one then look at "S" curves?

I think one should look at the revenues and the earnings over time...not the changes in stock price over time.

I have a company I'm investigating now, Par Pharmaceuticals (PRX), that has been beaten up of late because analysts revised their growth prospects for the company (of course, they were surprised when PRX turn in some respectable numbers last month).

On first glance, PRX does appear to be an attractive purchase at this time. As you know, they have experienced rapid growth in both revenues and earnings over the past three years. During 2003, they took on a pretty large amount of long-term debt which suggests that management is anticipating future growth and the debt will help to finance that growth. As a value investor taking a longer term time horizon, it really comes down to whether you agree with management's view about the anticipated business expansion. Taking on debt is not a bad thing if the company experiences higher revenues (with reasonable margins) in the future. If returns on the marginal increase in business activity exceed the cost of additional debt, then such a management decision is wise and the financial leverage works effectively. On the other hand, if margins shrink and/or business volume drops off such that the company becomes burdened in servicing the additional debt, then the decision would not appear to be very wise.

Yes, significant business expansion is risky business and that is what you face with "growth investing." It is the old trade off between risk and return.

Best regards,

LeBean :-)

Print the post  


When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.