Earlier I was screening down some companies which come under the metrics of High Operating Profit Margin and High Sales Growth. Why did I choose these metrics? Since, as I understand business as prima facie, it all comes down to the bottom line which is "Net profit". And as a fact, most of the business fails to achieve whether be it listed entity or be it any proprietary firm. One can enter these metrics either by focussing on the sales growth or by focussing on the margin growth. As is said in economics, “There ain't such thing as free lunch", and it is true, an entity with high sales growth fails to attain a high margin due to high forces of competition, and a line entity with high margin fails to satisfy consumer and thus low sales. So, I ran my query to search for entities that meet the criteria of high sales growth along with a high margin. The query landed me on 7 such companies, namely;
1. Dr. lal pathlabs
The above results may not be what it seems. In order to nullify that risks, I looked at sales of the past 7-10 years.
Now the most important question is, will this be continued in the long-medium term? To find the answer we need to analyze the moat and risks that these companies bear such as revenue risks, margin risks, effects of change in revenue to its net profit. Further, I analyzed the macro industry scenario of these businesses, such as penetration, available market size, competition by organized players, etc.
Note: Above mentioned process is just a technique to narrow down my search to limited companies. Further analysis is very important as revenues can be manipulated; hence further analysis of the cash-flow statements is very important. I still lack much knowledge and wisdom but I'm eager and curious to learn more as I continue in the journey. As Rakesh Jhunjhunwala quoted in one of his interviews, “Quest to learn is a journey, not a destination".