Saturday, March 22, 2008

The "ARG" term defined

As you hear vocalized by Jim Cramer on "Mad Money", you are looking for stocks that have accelerating revenue growth, or better known as ARG. As the name implies, the revenue growth rate will continue to improve vs. the prior period resulting in a sales growth chart that looks like a hockey stick.

To illustrate ARG, I would like to introduce you to Nutrisystems Inc. (NTRI)

NutriSystem, Inc. provides weight management and fitness products and services in the United States. Its weight management program consists of a pre-packaged food program and counseling.

Exhibit 1.

In Exhibit 2, you will find two lines

- Red Line denotes revenue % growth vs. prior year
- Blue Line denotes stock price

During Q3 2004, NTRI reported a 57% increase vs. PY. In the next quarter, the company followed up with an 88% increase vs. PY starting the acceleration phase lasting for 6 quarters. If you were to purchase the stock when the firm published results on March 30th, 2005 at a price of $10.10 per share, you would be sitting on a stock valued at $71.25 or a 605% increase. To put this into context, an initial $10,000 would have been worth $70,544 today.

Exhibit 2.

Please keep in mind, companies have 90 days to file annual results and 45 days to file quarterly results.

One last note….. Please keep in mind if there is any seasonality to the company’s revenue:

- If seasonality exists calculate revenue growth vs. prior year.
- If no seasonality exists, calculate vs. prior quarter.

In terms of NTRI, weight loss and dieting are centered on New Years resolutions of individuals. If you were to chart the revenue growth rate vs. prior quarter (refer Exhibit 3.) you might have missed this mad money opportunity.
Exhibit 3.

1 comment:


Some stocks have long term trends and others are just fads. Nutri Systems seems more like a fade to me