Online Tutorial #2:
How Do You Estimate A Company's Sales and Sales Growth Rate?
As we discuss at length in the book, sales growth is often the value trigger that has the greatest impact on shareholder value. This session focuses on where you can find historical sales figures and projected sales growth rates. We will use Gateway, Inc., as of April 21, 2000, as a case study.
Where Can I Find Historical Sales Figures?
You can find historical sales figures at a number of sources:
- Company web sites. Often, you can find detailed information on past historical results on a company's own web site. For example, Gateway has a large Investor Relations web site, which can be accessed here. Clicking on the link that says Quarterly Information on the left hand side will bring up a list of quarterly earnings releases. Each release also contains a link that says "Click Here To View Financial Charts." This will provide quarterly and year-to-date financial data, including historical sales.
- SEC filings. Investors can obtain a company's annual audited data, and quarterly updates, at numerous web sites, including:
- SEC's EDGAR database. There is a tutorial on how to use this free service on this page. You can find the most financial data on the forms "10-K" and "10-Q", which contain annual and quarterly data.
- Freeedgar. This free-for-basic-access service offers a convenient search feature and allows you to download only the portion of the 10-K or 10-Q that you need.
- Value Line Investment Survey. Value Line offers online subscriptions that offer historical and projected quarterly and annual sales data. Value Line is available through both print and online subscriptions, and is often available at your local library.
How Do I Projected Future Sales Growth Rates?
While this is harder to get, you can start your search for a company's projected sales growth rates in a number of places:
- Company web sites. With the advent of Regulation Fair Disclosure (FD), companies are no longer allowed to selectively disclose information to favored analysts. Thus, companies are increasingly publishing their "guidance" on future financial metrics when they report quarterly earnings. Searching a company's investor relations web site may prove fruitful.
- Value Line Investment Survey. Value Line offers online subscriptions that offer historical and projected quarterly and annual sales data. Value Line is available through both print and online subscriptions, and is often available at your local library. Click here to see how to read a company-specific Investment Survey using Value Line. Arrows #7 and #23 point to where you can find Value Line's historical and projected sales and sales growth estimates.
For detailed information on how to translate Gateway's Value Line Investment Survey into sales forecasts that we can use in our Price-Implied Expectations analysis, you may wish to download this accompanying spreadsheet, which we have created to show how to convert data from Value Line's format to a PIE-consistent format.
- Multex Investor. This web site allows subscribers and clients of member brokerages to access analyst research. In some cases, you can download reports for free, but the majority of reports seem to cost between $10 and $25. Please note that it may be a good idea to make sure reports you purchase are longer than 2 pages, as 2 pages notes often do not include financial forecasts.
Case Study: Gateway, Inc., as of April 21, 2000
For our Gateway case study, we used a combination of our own analysis, analyst reports and Value Line estimates to estimate a range for Gateway's likely sales growth rate.
- Our worst-case scenario of 6% sales growth assumes Gateway's consumers became saturated with PCs, while small business and "beyond-the-box" revenues slow down.
- Our best case scenario of 28% sales growth--consistent with the Value Line estimate--assumes continued PC penetration from increased Internet usage and the deployment of broadband connectivity, coupled with growth in e-commerce and beyond-the-box revenues.