As it pertains to revenue growth, I would think as a “Category Crusher” keeps getting larger that revenue growth cannot continue at the torrid pace it once did when it was smaller.
Absolutely true. Raptor gave you a short term test but growth in nature, not just in stocks and technology but in yeast and all manner of living things, follows an “S” curve pattern
S-shaped growth curve (sigmoid growth curve) A pattern of growth in which, in a new environment, the population density of an organism increases slowly initially, in a positive acceleration phase; then increases rapidly approaching an exponential growth rate as in the J-shaped curve; but then declines in a negative acceleration phase until at zero growth rate the population stabilizes.
https://www.encyclopedia.com/earth-and-environment/ecology-a…
Technology can also be divided into three phases each of which is about one third of the lifetime of the technology. After the initial period, if the technology is adopted, grow accelerates creating the J-shaped curve in the hockey stick. That happens at around 15% market penetration. The fast growth lasts until about 85% market penetration putting in the top of the “S” curve. A successful company like Cisco will not grow much after that but it is often a cash cow for years.
The above applies not so much to individual companies but to the whole of the technology. It just so happens that in technology often one company (Intel) takes most of the market (PCs). A company can also put in several “S” curves such as Apple with iPod, iPad, iPhone, iWatch, iWhatever.
The “S” curve shares a relationship with the TALC curve
https://techcommcentral.files.wordpress.com/2013/02/2.jpg
You want to be invested in the technology in the middle third, not too early, not too late.
When one encounters seemingly absurd P/E and P/S ratios it more than likely is a company during this fast growth period. Typical valuation metrics are derived from “value investing” which does not grow as fast if at all. It’s like rating a jet by propeller standards. What happens at the top is that P/E and P/S ratios contract as they move from growth to value. You want to get out before that.
But beware of the Hype cycle that bites early investors.
https://ullizee.files.wordpress.com/2010/09/grafx-agile-on-t…
Denny Schlesinger
In other words, you will probably know when it is time to at least question a company’s growth trajectory, as you have your other holdings to compare it to. Alas, there is no formula for everyone, as that would overlook too many variables.
