Study of the last half century's stock performance found that most of the great company (thatave a significant shares price increased) shows a great increase in the last one or two quarter earning per share (EPS).
From top 600 stocks between 1952 until 2001, 75% show more than 70% increasing increase in the last quarter. Even though the rest 25% did not show a stable increasing but show an average of 90% increasing increase.
More stable from quarter to quarter will give more possibility of the next price increment.
o Cisco showed gain of about 150% in the last 2 quarterly earning per share that ended in October 1990, before the stock jumps 1467% in the next 3 years.
o Dell showed gain of 74% and 108% in the last 2 quarter before the stocks jumps 557% in 6 months from October 1998.
o Ascend Communication have 1500% gain increment in August 1994 before the stock jumps 1380% in 15 months.
Even though there is only some company that shows this great, but do not worry in any period of time there is always a great company appear.
The increase of revenue and earnings does not always mean it is good, since the numbers of shares could have increased too. So it's more important to notice is earning per share. It will be give the exact of how much the share owner will get per share basis. It will not be lie.
When the revenue has been increased by 20%, the perception as well as the earning per share should be increased close to 20%; might be a little bit below. But we should be alerted if the perception only increase about 5%, for example; there is something wrong with the cost.
We need to compare the current quarter this year with the same quarter last year. Do not compare this current quarter with the previous quarter since it may be affected by the year cycle period, such as end year cycle which will give benefit for consumer's product compared to the previous quarter.
Revenue increase should be coming from the real sales increase. Make sure this sales increase is also because of the volume increase, not only a price increase. Sales increase means the market is still growing. Some revenue increase could be coming from other that sales increase, such as asset selling. In this case, this high jump is only incidental and will not occur anymore for next period. Means in could be drop for next period.
We should set a rule for minimum current quarter enrollment per share increase when searching for a good company to invest. For example: minimum of 20% increase. From the study, 10% is not sufficient to make a high share price increased.
A stable increase increase is good, but will not cause a big shares increase. When the learning is being increased a lot from quarter to quarter, it will make a big room for a big shares jump. Beware of quarter approaching drop for more than 1 quarter. It may signal a company drop in the future. In the recession, we still could find the company with less earning drop within the industry. Find the best performed company within the same industry.