Question

Suppose you are a stock analyst and have been assigned to follow a company that went public two years ago. In the three years prior to going public, the firm saw on average 20% quarterly growth in sales. Since going public, you have noticed a decline in the growth rate of sales, and in the last quarter the firm announced a 12% increase in sales. You have been given the task of forecasting the next two years of sales for the firm. Give two reasons why you would expect a return to higher growth and one reason why you would expect a continued decline in growth.

Answer 1

Two reasons why I could expect the company to return to growth because-

A. This quarter was one off quarter, as there was an abnormal loss by company and has to take due to lagging in receipt of sales so that it cannot be recognised as there was no payment yet.this can also be attributed to the cyclical nature of the business of the company.

B. It can also be attributed to change in accounting rules and regulation because of the reporting of sales has changed and it can lead to decrease in overall sales but the effect could be magnified in next quarters as changes in accounting standard will be e ffecting into better growth for the company in next years.

One reason I expect continue decline in growth because-

A. There is a lack of demand because of change in the disposable income pattern of different consumers and due to availability of a better substitute so that there would be continued decline in the overall sales of the company.