How To Use The Net Profit Growth Rate To Select Black Horse Stocks

When selecting high growth stocks in fundamental analysis, the growth rate of EPS is generally used as reference index in textbooks abroad.

As the total capital stock of Listed Companies in China is constantly changing, earnings per share is not accurate as a criterion.

It is one of the most widely used methods to judge the growth of a company with the rate of net profit growth.

When we use the net profit growth rate to judge the growth of a company, we should pay attention to the following points:

1. Growth rate of main business revenue

The main business income, also known as the basic business income, refers to the company's revenue in its main business or main business activities.

It occupies a large proportion in the company's operating income and directly affects the economic interests of the company.

Therefore, in general, net profit growth rate and main business growth rate will maintain a positive correlation. However, because some companies gain more profits in investment income, especially in securities investment income, you will see net profit growth very fast, but the growth rate of main business revenue is very low.

Such a situation does not mean that the company has a good growth expectation, because its long-term investment earnings are unpredictable.

For example, G Haihong (000503) has a year-on-year growth rate of 1161% in the first quarter of 06, but the growth rate of main business income is -18%.

Looking at the first quarter quarterly reports of 06 years, you will find that the investment income in the same period of 05 years is -2237841.46 yuan, while the investment income in the first quarter of 06 is 124004720.74 yuan, which makes the net profit increase considerably over the same period of 05 years, but this growth is not sustainable.

Therefore, when we choose growth stocks, while paying attention to the growth rate of net profit, the growth rate of the main business should be consistent at the same time, preferably a little higher.

Two. Annual growth rate of net profit

Because we are looking for the best growth stocks, so the expected period of operation should be more than one year.

Therefore, when the net profit growth rate is used, the annual growth rate of net profit is excellent.

This is a good way to get rid of the problem of larger quarterly net profit in some cyclical industries.

Real estate, department stores and other industries are quarterly industries. In the off-season sales or in the off-season financial recovery, quarterly net profit is very low, and net profit growth rate may be negative.

Therefore, it is meaningful to make vertical or horizontal comparison with annual growth rate of net profit.

Taking G pioneer (600246) as an example, the net profit of the company in the 05 quarter of third quarter was -13090190.03 yuan, but the 05 annual report shows a net profit of 40402920.94 yuan.

The net profit of 04 years was 34307300 yuan, while the net profit of 04 quarter third quarter was 670026.01 yuan.

Because the real estate industry's capital return is concentrated in the fourth quarter, so if you only use the net profit quarterly growth rate to make a vertical comparison, you will find that the stock has no continuous and stable net profit growth rate, and does not have growth.

But if you use the annual growth rate of net profit to make a vertical comparison, you will find that this is an excellent growth stock: annual net profit growth rate of more than 15% for 5 consecutive years.

Therefore, when the net profit growth rate is used, the choice of net profit calculation cycle is critical.

The general company's cyclical selection suggests using annual net profit as a benchmark. At least three years of continuous vertical comparison can better reflect the company's continuous profitability, and it can be used to judge the growth of the company accurately.

Three, net profit quarter growth rate

The quarterly growth rate of net profit will normally be more appropriate in two cases. First, the company's new listing may not be used for reference for three consecutive years, and the growth rate of the net profit quarter is used to judge whether the company has high growth. Two, when the listed companies turn around and gain profits, there is no positive growth in net profit for three consecutive years.

If you want to be a foresight, you must realize that the company will have high growth potential in the future before the listed companies become known blue chips.

Therefore, at some point, using net profit quarterly growth rate is also a viable option.

For example, G Print-Rite (600550), the annual growth rate of net profit from 01 to 02 years is negative, the annual growth rate of net profit from 02 to 03 years is positive, and the average annual growth rate of net profit from 01 to 03 years is negative.

To 04 years ago, there has been no continuous three year net profit growth rate steady growth.

But when we look at the net profit quarter growth rate from 03 to 04 years, we find that the 04 year net profit growth rate is above 15% over the same period and the annulus ratio. Therefore, we can judge that the stock may have just entered a high growth period in 04 years.

In the late 04 years, the company's annual report and its 05 year annual report confirmed the correctness of the view. The company's share price trend should also be judged.

Four. Sporadic changes

Sometimes, the annual net profit or quarterly net profit of listed companies will suddenly change, for example, suddenly increase, then return to the original growth track.

Such occasional changes should be deleted in our net profit growth rate.

The G Haihong (000503) mentioned above is the case.

Such a change can not be the basis for calculating the continuous growth rate, but it will cause bias.