As you're getting your feet wet in the vast lake of growth stocks, you need to look at and understand statistics, pay attention to management and look for companies that are committed to research. This historical look will give you food for thought for what the future holds in this market.
One of the most far-reaching changes in the concept of growth stock evaluation has been the recent emphasis on the inexplicit or intangible. There was a time when a potential investor could find everything he had to know about a company in its balance sheet. Today, however, security analysts speak of management caliber, quality of research and other intangibles that are not measurable in dollars and cents.
Take Geophysics Corporation of American as an example. The company "went public" in 1960 at $14 per share. This was a pretty high price according to any traditional standard, since the offering price meant 87 times the l6 cents per share the company earned in the fiscal year ended Sept. 30, 1960. However, the stock reached the 50 level by April 1, 1961.
Of course, you couldn't find anything in Geophysics' balance sheet or earnings statement to account for this hefty market quotation. Its attraction lay somewhere else. For one thing, it is backed by the fabulous Laurance S. Rockefeller and the equally fabulous Itek Corporation. The fact that Mr. Rockefeller is Geophysics' largest individual stockholder made some "venture" investors more willing to pay $50 per share; it seemed immaterial to them that Mr. Rockefeller had paid only $2.62. The stock was $21 on March 30, 1962!
In these days even professional security analysts feel helpless in evaluating companies like Geophysics. Surely, for instance, it would be an intelligent guess at best as to the value added by Laurance Rockefeller's backing.
Another factor, which has carried increasing weight with the market in evaluating equities, is management caliber. And for a good reason too!
That's why investment companies have paid increasing attention to "on the spot" evaluations of managements of companies in which they are interested. For instance, on a trip to Chicago in July 1961, an analyst visited not only Max Swiren, president and board chairman of MSL Industries, but also Arnold Meyer and Norman Sackheim, presidents of MSL's Universal Screw division and Heads & Threads division respectively.
It is only through such personal contacts that you will be able to get first hand information to appraise management performance and companies' facilities. MSL is in a good position to acquire other companies because of its good cash position in addition to its large tax loss carry forward running out in 1962.
Despite the "inexplicit" nature of management caliber, you can gain a good insight into it from a careful study of the company's income accounts and balance sheets. Although the picture these statistics provide is only partial, financial reports are still a valid reflection of how judiciously the management employs the stockholders' money.
In addition to backing and management caliber, another major inexplicit which has weighed heavily with the market in evaluating growth equities is research caliber. This is particularly true of companies operating in scientific and technological fields.
As with any investment, careful consideration of the people behind the business often has a significant impact on results.