6.27Finding companies with consistent profit growth
1What is it?
Look for net profit and EPS growing steadily, ideally at least as fast as revenue (meaning margins are stable or improving).
2Why does it exist?
Share prices follow profits over the long term.
3Risks
- Profit growing much faster than revenue for years may not be sustainable.
- Check that profit growth isn’t from one-time items.
4Quick revision
- EPS growth drives long-term returns.
- Profit growth should be backed by revenue and cash.
5Knowledge check
Q1. Why should profit growth be backed by cash flow?Show answer
To confirm profits are real.
Q2. Revenue +10%, profit +25% for one year. Possible reasons?Show answer
Better margins, lower costs, or a one-time gain.
Q3. What ultimately drives share prices long-term?Show answer
Earnings growth.
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