Hey👋, I’m James and welcome to the free version of SCALE 89. My goal is to help people understand technology, software, and high growth investing. I’m sharing my ideas, insights and perspective on Tech so readers all over can learn from me. Thank you for reading and supporting my work!
💥High Growth Stocks
It took me years to find and understand high growth stocks. My first stock investment was now over 14 years ago and it was a financial and insurance company that my family was familiar with. Looking back, it was not really a great company to invest in, but it got me started in the stock market. I think the hardest part of investing is just making that first investment and building up interest in the company. From there, you can learn about how investing really works. I’m hopeful that my writing can help save you some time in the process of becoming a successful investor.
Low Growth vs. High Growth
Most large companies with huge brands are low growth stocks. This means their revenue growth year over year is very low. As companies grow and scale around the world, their growth tends to slow down. Lets’s take a look at Johnson & Johnson, a well known US company that most people are familiar with. They have over 128,000 employees on LinkedIn, 250 different brands, and they operate in 60 countries.
Low Growth Example: Johnson & Johnson ($JNJ)
Since 2017, the company has hardly grown at all in terms of revenue per year.
2017 revenue: $76 billion
2021 revenue: $82 billion
This growth in revenue represents 7.89% over 5 full years, which means they grew by an average of 1.57% each year. Low growth in revenue year over year, generally translates to low growth in the stock price year over year. Over the last 5 years, the Johnson & Johnson ($JNJ) stock is up 38% total. This comes out to 7.6% each year on average. In my view this is a very low return and nothing to get excited over. Most mutual funds or index funds would be beating $JNJ.
🚀High Growth Example
CrowdStrike is a top pick stock in SCALE 89 and is a high growth company. CrowdStrike is a software company that is focused on cyber security related products. Investors in CrowdStrike ($CRWD) have seen incredible returns since the IPO in 2019. Let’s take a look at the revenue growth from CrowdStrike over the last few years.
High Growth Example: CrowdStrike
2018 revenue: $118 million
2019 revenue: $249 million
2020 revenue: $481 million
2021 revenue: $874 million
From 2018 to 2021, CrowdStrike grew revenue a whopping 640% in just 4 years. Since the IPO in June of 2019 to the present, the stock is up 301%. In this scenario, the high growth stock delivered an amazing return to the investors. In just 3 years, CrowdStrike delivered around 300% to the investors. Whereas, the massive company, Johnson & Johnson only delivered only 23% during the same 3 year period. I understand that this is only one example, but it is to help illustrate the power of high growth companies and their potential returns to your portfolio.
High growth companies have the potential to deliver massive returns. All stock market investors need to take notice in these fantastic growth companies.
What Is High Growth?
High growth is about how fast the company is growing compared to the previous year. It is a focus on revenue growth YoY in terms of the amount of revenue and the % difference. Consistent growth 35-40% YoY or higher is high growth to me. Companies that are growing in this range tend to deliver higher stock market returns. There are always going to be exceptions so it is important to have 15 or more companies in your portfolio. This gives you diversity and helps protect you against the companies that might not deliver high returns. You can also find companies that are growing well over 40% YoY like CrowdStrike.
Some people think that high growth investing is too risky but I see things differently. I think it is risky to invest in slow growth companies that are hardly growing at all. They are risky because they are loosing market share quickly to new startups. These smaller startups are just eating away at their revenue growth each year. High growth investing does come with significant drops. This means the stock can drop quickly in a short period of time. It is possible for a high growth company to drop 20-50% in a matter of weeks. These drops are painful and hard to look at, but they are the buying opportunities that you want. Ideally, you use these significant drops to buy more shares of your favorite growth stocks. If the company is continuing to deliver more revenue growth, there is a strong chance the stock can recover.
Drop Example: CrowdStrike
From August 2019 to March 2020, CrowdStrike dropped 58% in the stock price. This was a huge and massive sell off that would have a negative impact for many investors. Some investors can’t see the bigger picture and they sell growth stocks during this time. Since then, CrowdStrike can gone on to deliver over a 500% return for investors. In this example, time was the healer for this huge drop in share price. If you can handle these massive drops, you can be patient for the huge upside that will take time. Investing in high growth stocks requires patience. You need to give the stock time to recover from these significant drops. It took CrowdStrike about 9 months to fully recover from this drop.
SCALE 89 covers high growth investing and companies that are top picks in my portfolio. You can learn more about high growth investing in my other articles:
Thank you for reading and subscribing to SCALE 89 by James Carter
I spent 8 years working in Tech at startups, mid-sized, and Enterprise companies. During this time, I was fortunate to see teams grow and scale all around the world. Tech and software can scale easily with the right people that understand product, growth, sales, and marketing. I noticed first hand that it always came back to revenue, the main focus on measuring company growth. I was able to take these insights to better understand stocks and high growth investing. There is a direct correlation with revenue growth and stock performance and I hope to share this info with my readers all over the world. Thank you for reading and supporting my work, SCALE 89!
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Disclosure: Not Financial Advice / Not Investing Advice
SCALE 89 and The Author does NOT provide financial, investment, legal or tax advice. None of my content can be construed as advice. The author is not advising you to buy or sell a security. This newsletter, article and my tweets are for informational and educational purposes only. By reading my content, you are acknowledging that this is not advice. Please note that my positions can change at any time.
I currently own shares of CrowdStrike (CRWD), Datadog (DDOG), and Elastic (ESTC)