As I mentioned in this post, three of Phil Fisher's 15 Points to Look For in a Common Stock are directly related to profit margins. Companies with slim profit margins often feel tough economic or business cycles more vehemently than those with fat margins. Of course, there is a flip side to that coin: When coming out of tough times, companies with thin profit margins tend to rebound much more than those with fat margins.

Continue Reading Phil Fisher on Profit Margins, Part II ››

Phil Fisher laid out fifteen points to look for in a common stock; three of them are directly related to profit margins. Calculated as net income divided by revenue, the profit margin is a quick way to determine which companies in an industry are most efficient (i) relative to the competition, and (ii) as a whole.

Does the company have a worthwhile profit margin?

To hammer the importance of this point home, you need not look further than traditional auto manufacturers.

Continue Reading Phil Fisher on Profit Margins ››

You've heard the clichés: He could sell ice to an Eskimo. She could sell a ketchup popsicle to a woman in white gloves. The sales force is the lifeblood of an organization. After all, the best product in the world is worthless if nobody knows about it. And so, we move on to Phil Fisher's fourth point:

Does the company have an above-average sales organization?

Continue Reading But Can They Sell It? ››

Today's research and development (R&D) is tomorrow's new product or process. The other day we (or more specifically, Phil Fisher) asked, "Does the management have a determination to continue to develop products or processes that will still further increase total sales potentials when the growth potentials of currently attractive product lines have largely been exploited?"

The goal of R&D is to produce new products, services, or processes that will "still further increase total sales potentials" for the company. Not an easy question to answer, Fisher asks:

How effective are the company's research and development efforts in relation to its size?

Continue Reading What's Happening with Research and Development? ››

Businesses generally expand in three ways — increased sales of existing products, sales (and increased sales) of new products, and acquisitions to expand product lines. We looked at "increased sales of existing products" in Can They Increase Sales For Several Years? Fisher then went on to talk about "sales (and increased sales) of new products":

Does the management have a determination to continue to develop products or processes that will still further increase total sales potentials when the growth potentials of currently attractive product lines have largely been exploited?

There are two schools of thought on this subject — the rational, business-like approach and the "other" approach.

Continue Reading Will They Seek Out More Profitable Lines? ››

In Common Stocks and Uncommon Profits, Phil Fisher outlined fifteen points to look for when analyzing a company for purchase. When valuing a business, our job is to try and predict the future with a degree of accuracy and confidence. If it were as easy as plugging the financials into a spreadsheet, everyone would achieve consistent, double-digit returns.

Unfortunately, the future is more than a simple mathematical equation. Enter Phil Fisher.

Continue Reading Can They Increase Sales For Several Years? ››

When you buy stock in a company, how long do you plan on holding it? Forever. Ideally, yes. But we live in the real world — a world of wildly fluctuating stock prices that often turns otherwise sane investors into panicky, self-doubting lemmings. As stock prices drop...lower...lower...people tend to second-guess their decisions and sell precisely when they should be buying.

[W]hile I realized thoroughly that if I were to make the kinds of profits that are made possible by the process that I have described as zigging when the rest zags, it was vital that I have some sort of quantitative check to be sure that I was right in zigging. With this in mind, I established what I called my three-year rule. — Philip Fisher, Common Stocks and Uncommon Profits

Continue Reading Patience and Performance ››