How To Evaluate Fast-Growing Companies And Decide To Invest In Them?

When you are a seasoned investor, you probably know how to deal with blue-chip companies such as Procter & Gamble and Shell. These companies have assets, make profits, and invest in new markets and products. When looking at their balance sheet, you know what you are dealing with. When it comes to online companies these principles do not hold. You can

Look at the Total Addressable Market (TAM)

A good way to start looking at these companies is by studying the TAM. This is the total market that the company is trying to capture in the long term. For example, Spotify is targeting people that want to listen to music all over the world.

You can imagine that, with some legal limitations, this is a very large TAM. They could also consider moving beyond music streaming and introducing new services such as podcasts. This will help them grow beyond their current scope.

What if the TAM has been captured to a large extent

What if the company has already captured a significant part of the TAM? How would you then see the potential growth of the TAM? In this case, it is needed to look at new markets to extend. For example, the company could consider doing an acquisition in a different segment or industry to expand its reach.

Netflix, which has been leading the streaming market, is now entering gaming to expand its TAM. All these factors influence the valuation of fast-growing companies.

The business model is key

A market can be very large, but the business model also needs to be solid. How does the company plan to make money? To continue with the Spotify example, you might think that their subscription model is lucrative.

However, there are major differences to spot between these models. Spotify needs to share profits with record labels that own the music, and this can be quite a significant percentage.

Companies such as Netflix have the same difficulty and are therefore switching to producing their content. All these factors will influence the profitability and strength of the companies over competitors.

In the case of a platform player, you need to think about how they charge (e.g., transaction fee), and how much consumers are willing to pay. How hard would it be for consumers to get the same deal off-platform?

What are the added services and benefits from the platforms? These are important indicators of the sustainability of the business model in the long term.

Identifying these companies

Are you interested in finding out about these fast growers? You can use a stock and crypto tracker to see which companies are outperforming. Once you have identified them, you can do a detailed analysis to see if it fits with your investment strategy.

You can also add them to your tracker to follow them for a while. This helps you to analyze their quarterly statements and make a decision on investing in them. Analyzing overtime limits your risk of making an investment decision that is based on the market sentiment.

Learn more about tracking technology

Want to learn more about stock tracking technology and how you can benefit from it? You can visit its website of Delta to find out more. The company is a leader in the field and combines stock and crypto data in a single application. You can visit them through: https://delta.app/en/stocks-tracker

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