Black Friday Brings to Mind the Importance of Sales

 

 The day after Thanksgiving has widely become known as Black Friday, the kickoff to holiday shopping.  Retailers have embraced the opportunity to create a spike in their sales by slashing prices and opening their doors as early as possible. (In case you didn’t know, Black Friday coined its name from the mass traffic jams caused by the rush of shoppers on the day following Thanksgiving in Philadelphia; the ”Black Ink Theory” came about years later.)

 

As consumers pile on the purchases today, at MarketSmith we’re reminded of one of the most critical factors that we look for in growth investing: Earnings and Sales.  In his book, How to Make Money in Stocks, MarketSmith Founder William O’Neil, O’Neil states:

 

“…companies can inflate earnings for a few quarters by reducing costs or spending less on advertising, research and development, and other constructive activities. To be sustainable, however, earnings growth must be supported by higher sales.”     

 

To identify market leaders, we look for quarterly sales increases of at least 25% or greater . Sales not only lead to profitability for a company but also signify consistent demand for the product. To eliminate seasonal spikes in earnings and sales, caused by things like Black Friday, the charts we use in MarketSmith compare earnings and sales numbers from the same quarter of the previous year:


 

If you have any questions about how sales figures are used as one indicator of stock leadership, be sure to call us at (800) 424-9033 or email us at reachus@marketsmith.com.

 

Best returns,

 

 

The MarketSmith Team