Why Profitable Growth Matters (3 Of 5)

How to Become Financially World Class, Part 3

In this five-part video series Andrew Stotz, PhD, CFA walks you through all the basics you need to know about World Class Benchmarking and How to Make Your Company Financially World Class.

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Let’s answer the question: Why does Profitable Growth matter? We did a study to find out!

Global universe of stocks

  • 27,000 global companies over 20 years, 1997-2016
  • Removed financial companies, 23,500 non-financial companies remained
  • We removed 4,000 stocks that did not have the financial statement data needed for the study
  • We only included large companies, market capitalization greater than $500 million
  • We eliminated extreme outliers, excluded stocks that had a price rise of more than 500% or a loss of worse than negative 80% in any one year
  • This left us with, on average, 4,500 stocks per year, minimum = 1,500 and maximum = 8,400

High "Profitable Growth" companies yielded the highest average annual return

  • High profitability companies generated more than 2X market return over the past 20 years, 10% annual return versus market’s 5%
  • High growth companies earned more than 3X the market return at 13%
  • Prefer high growth companies over high profitability companies
  • High “Profitable Growth” companies generated 10X market return over the past 20 years
  • A portfolio of high “Profitable Growth” companies yielded the highest annual return of 19%, compared to 5% for the market
  • Prefer companies with consistently high “Profitable Growth” score

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About the Author

Dr. Andrew Stotz, CFA
Dr. Andrew Stotz, CFA is the CEO of A. Stotz Investment Research, a company providing institutional investors with ready-to- invest portfolios in Asia that aim to beat the benchmark through superior stock selection. The company also provides buy- and sell-side clients with financial models to value any company in the world and World Class Benchmarking to determine what companies are financially world class. Previously, as Head of Research at CLSA, Andrew was voted No. 1 Analyst in Thailand in the Asiamoney Brokers Polls for 2008 and 2009. He was also voted No. 1 Analyst in Thailand in the 2009 Institutional Investor magazine All-Asia Research Team Report. Andrew earned his PhD in finance at the University of Science and Technology of China in Anhui province, with a focus on answering questions raised by fund managers and analysts during his career about picking stocks and managing portfolios. In addition, Andrew has been a lecturer in finance for 22 years at various universities in Thailand. Since 2013, he has been the president of the CFA Society of Thailand. He is also the author of How to Start Building Your Wealth Investing in the Stock Market.