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Steven Chen
Steven Chen
Articles (194)  | Author's Website |

Our Picks of High-Quality Fast Growers

One of Peter Lynch’s favorite categories

Fast growers, which are often defined as companies increasing sales at 20% or more per year, were among Peter Lynchs favorite categories for sourcing his multi-baggers, although he admits that there are just not many of them.

What is even scarcer in the stock market is a fast-growing business with the high quality that delivers cash-rich, profitable, value-generative growth to shareholders. Fortunately, the business world has become more connected across the globe than ever before. Hence, we, as the investors, do not have to concentrate on the U.S. market alone.

For this article, we searched across main markets around the world and came up with a quick list of businesses consistently producing both high growth and high return over the recent couple of years. Of course, we understand that it is necessary to conduct additional qualitative checks on these fast growers business economics. In particular, we would like to avoid hot industries, make sure that the previous growth stories are duplicable and gauge the length of the runway ahead.

We have constructed a virtual portfolio here at GuruFocus for the nine picks below to track the results over time.

10-Year Revenue Growth Rate %

5-Year Revenue Growth Rate %

1-Year Revenue Growth Rate %

ROA % (10y Median)

ROA %

Simulations Plus (NASDAQ:SLP)

15.4

22.4

20.7

17.62

19.82

Medifast (NYSE:MED)

8.9

20.4

42.4

18.4

39.54

Fever-tree Drinks (LSE:FEVR)

0

65.1

23.8

28.8

29

LiveChat Software (WAR:LVC)

0

41.4

20.8

104.57

94.64

Evolution Gaming (OSTO:EVO)

0

53.1

52

44.13

46.08

A2 Milk (ASX:A2M)

0

67.3

39.1

32.71

32.39

Plus500 (LSE:PLUS)

0

21

-52.5

84.42

44.66

Nemetschek (XTER:NEM)

15.6

19.7

20.7

13.05

16.66

M3 (TSE:2413)

30.6

24.4

14.7

18.81

12.53

As you may have noticed, these nominees are either food and beverage companies or businesses built upon information technology. This is quite a geographically diverse portfolio, with companies coming from the U.S., Asia Pacific, the UK, Continental Europe, the Nordic regionand the Middle East. More than half of the companies just went public within the last decade. All of them are expanding internationally at the moment.

In the meantime, long-term tailwinds further support the expansion of many of these businesses. For instance, A2 Milk and Fever-tree have been riding the trend of a healthy diet and premiumization, LiveChat Software and Nemetschek have been taking advantage of the growing digital world and Simulations Plus and M3 benefit from an aging population worldwide.

While all of the companies above appear to us to have promising growth prospects, we believe that investors may want to watch out on the defense side. Inevitably, high growths and high returns attract competition. This is especially the case in the technology space. In terms of the food and beverage businesses, investors should beware of fad products and shift in consumer tastes.

Disclosure: The mention of any security in this article does not constitute an investment recommendation. Investors should always conduct careful analysis themselves or consult with their investment advisors before acting in the stock market. We do not own any security mentioned in the article.

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About the author:

Steven Chen
Steven CHEN is a quality-focused investor (with bottom-up opportunistic approaches), an ex-hedge fund analyst on Wall Street, a serial entrepreneur, computer scientist, and free-market capitalist.

Steven is the Managing Partner of Urbem Partnership, a value/quality-focused investment partnership fund (www.urbem.capital).

Steven can be reached at [email protected] or through LinkedIn.

Visit Steven Chen's Website


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