The Study On Analysis Framework Of Consumer Growth Stocks

The securities market of China toke the first step when the Shanghai stock exchange set up in1990.In the past22years, China’s securities market is gradually maturing. With the development of market, the value investment theory must become popular in the securities market in China.The value investment theory is subdivided into two tactics. The first is low-price investment which is also called cigar-butt method by Warren Buffett, the other is a method that means buying superior company by reasonable stock price. There are also two kinds of superior company. The first kind company does not get high-growth, but has high ROE that benefits stock holder by sharing superior dividend. The second kind superior company has promising prospects. Therefore, their stock price will rise as the company developing and the stock holders will also get sufficient return. As we can see in China’s securities market, there is few listed company whose PB is under1.Moreover, company whose price is lower than the liquidation value of a listed company does not exist. Therefore, the first tactic is impossible in China. In addition, owing to low dividend of China’s listed companies, so the second is also impossible. China’s economic development is so fast that there are a lot of high growth companies with high quality. Therefore, growth stock investment strategy is more suitable for investors in China.Investment is a combination of art and science. A systematic analysis framework is the embodiment of the scientific investments. Setting up an analysis framework of the system is necessary for investment success.Great company should have four characteristics:Strong competitive advantage, good management, clear growth path and real earnings growth. The four characteristics constitute the basic analytical framework of consumer growth stocks.Great on the growth of the company’s primary feature is the strong competitive advantage. Economic theories tell us that the higher level of monopoly enterprises can obtain higher ROE. From the investment point of view, strong competitive advantage can eliminate a large part of investment uncertainty. Uncertainty is the biggest enemy for investments. The key of investment analysis is to see certainty in an uncertain environment. When you find high certainty, you should follow the way that Charlie Munger said big bets on big probability events. There is a lot of uncertainty in the future, such as macro-environment, population change, etc. But the biggest uncertainty comes from competition. In a competitive market, to see any certainty of a company without an advantage is impossible. This is the root cause of the analysis of competitive advantage in the first place.Competitive advantage of consumer goods companies has two basic characteristics. The first basic feature is that brand is the core of competitive advantage. The second basic characteristic is that unique operating system can further enhance the competitive advantage. According to the basic characteristics, competitive advantage can be divided into three levels. First, a company only has strong brand. Secondly, except for strong brand, a company obtains a unique part of its value chain. Thirdly, in addition of strong brand, a company also has a unique value chain.For investors, competitive advantage analysis is just the first step. Careful analysis of certainty of enterprises’ recent growth paths and feasibility of the long-term growth path will bring more certainty for investment.Good management is essential for developing of enterprises. Poor management will weaken the competitive advantage of enterprises. Poor management can also bring moral risk for investors. That is the reason that investors have to consider situation of management carefully. Computing earnings per share and PE ratio is the last step. After completion of this step, investors can make investment decisions.