[[Start here]] → [[What works in stocks?|what works]] → [[diversify for resilience|diversity]] → [[there are six different categories of winning stocks|classifications]] → fast growers --- ![[fst-grwr.png]] Peter Lynch stated in [[Lynch - One Up On Wall Street|One Up On Wall Street]] that [[there are six different categories of winning stocks]]. Fast Growers was one of them. ## About fast growers - Small, aggressive, new enterprises that grow at 20%+ per year. > [!quote] Peter Lynch[^1] > If you choose wisely, this is the land of the 10- to 40- baggers, and even the 200- baggers. With a small portfolio, one or two of these can make a career. - Fast growing company doesn't need a fast growing industry. Slow growing industry is just fine. - e.g. Marriott, hotel industry only grew at 2% per year, but it managed 20%. - Cloning business models can duplicate themselves in new malls, regions, markets. "Phenomenal acceleration in earnings". - Plenty of risk - overzealous and underfinanced. - Larger fast growers risk devaluation when they run out of road. They end up [[stalwarts]], [[slow growers]] or at worst [[Turnarounds]]. ## How to deal in fast growers - Look for the ones with good balance sheets. - Look for the product to be a "major part of the business". - Be wary of hot industries with 50%+ growth rates. - Ensure it's proved expansion is working in new regions, markets or otherwise. Make sure there's also still room to grow ! - Ensure P/E is "at or near the growth rate" - i.e. PEG <=1 ish. - Beware of "one shot deals" - prefer razor blades. Earnings can crash. - Make sure few institutions know about the stock. ## Typical two-minute monologue > La Quinta is a motel chain that started out in Texas. It was v. profitable there. The company successfully duplicated its successful formula in Arkansas and Louisiana. Last year it added 20% more motel units than the year before. Earnings have increased every quarter. The company plans rapid future expansion. The debt is not excessive. Motels are a low-growth industry, and very competitive, but La Quinta has found something of a niche. It has a long way to go before it has a saturated market. ## When to sell a fast grower - You don’t want to sell a fast grower, but they growth prospects can diminish right at the point of maximum valuation. So watch for slowing store growth, same store sales being down, new store sales disappointing, key executives leaving to start or join rivals, P/E above 30 but best case earnings growth 15-20% for next 2 years. PEG ratio unattractive. [^1]: [[Lynch - One Up On Wall Street|One Up On Wall Street]] - Lynch p111