I love a great growth company as much as the next stock junkie, but growth for growth's sake just doesn't cut it for me. I want to see a company grow Foolishly, creating value even as it expands.
Why isn't growth enough? Let's say I start a business that earns 10% returns on capital. Unfortunately, it cost me 12% to get the capital I needed to get my business up and running. That means my business doesn't generate enough of a return to pay back my investors. The more I grow, the further into the hole I sink. That's not very Foolish.
Apparel manufacturer G-III Apparel Group
Company |
5-Year Sales Growth |
ROIC |
---|---|---|
G-III Apparel Group |
32.0% |
17.1% |
VF |
2.6% |
11.9% |
Phillips-Van Heusen |
7.2% |
13.2% |
Source: Capital IQ (a division of Standard & Poor's) and author's calculations.
The Foolish bottom line
Value and growth are joined at the hip. If a company's management can't find ways to grow sales while earning positive spreads on its investments along the way, I'd just as soon keep my capital in my pocket. Fortunately, G-III Apparel Group's track record of creating value as it grows makes it well worth considering.