Sustainable growth increase is indispensable.

The basis of successful investing is always long-term profit growth. Stable earnings growth not only increases the return on your investment, but also reduces the risk of loss. The top 100 stocks worldwide are characterized by rising profits over a longer period of time.

Important criteria for growth increases are the revenue and EBIT growth of the past five years and in the next three years. A healthy combination of both growth criteria characterizes quality companies. The average annual revenue growth over the past five years (CAGR) shows how valuable a company is in the long term. Profit growth is primarily generated through revenue growth in the long term. Therefore, a company that is intended to continuously increase in value must always generate larger revenues. The average annual expected revenue growth in the next three years (CAGR) is necessary to consider future expectations. Because by purchasing a stock, investors benefit from all future profits of a company. We are in a constantly evolving world where new technologies are increasingly being used. Therefore, it is important to look to the future and invest in the winners of tomorrow.

The average annual operating profit growth (EBIT) over the past five years (CAGR) steadily increases in high-quality companies. If companies can only increase their revenue but not their EBIT growth, this is a dangerous sign. In order to be successful in the long term, companies must also increase their operating profit. The average annual expected operating profit growth (EBIT) in the next three years (CAGR) is also an indicator for the future. Because the value of a stock is derived from all future cash flows, discounted to today.

Be cautious with trend stocks.

Yesterday commodity stocks were in trend, tomorrow it will be cannabis stocks. Many investors buy what is currently trending and follow the herd instinct. This type of investing resembles gambling in a casino rather than rational investing. Of course, trendy stocks can lead to high returns, but unfortunately, they can just as quickly go in the opposite direction. Most often, these trend stocks are overpriced and do not generate long-term profits.

Minimize risk

The stock market comes with some risks. However, investors cannot prevent market risks such as inflation, interest rates, and economic growth. Therefore, it is important to reduce the risk of investment, and in doing so, we look at the following criteria: net financial debt, continuity of earnings, and EBIT drawdown. Eulerpool filters out risky business models for investors, ensuring that investments in failures are avoided at all costs.

Net financial debt is lower in quality companies than four times the company's operating profit. This is because high debt leads to higher risks that investors want to avoid.

Calculation of net financial indebtedness. Net financial debt = short-term financial liabilities + long-term financial liabilities - Cash

In order to minimize the risk of your investment, it is also necessary to consider the continuity of earnings. Quality companies are characterized by not having any operational losses in the long term. Companies with consistent profits have a stable business model and therefore reduce the risk.

Ultimately, the EBIT draw-down is important for finding quality companies. The EBIT must never have fallen by more than 50% compared to the previous record profit in the 5-year period.

Profitability

Profitability is an important measure for success measurement and analysis. Investors gain insight into the efficiency of capital utilization through profitability. Two important metrics to assess the capital deployed are return on equity (ROE) and return on capital employed (ROCE).

The return on equity is considered a measure of profitability and efficiency in generating profits for a company. Therefore, a high return on equity is of great importance. A return on equity of more than 15 percent is very good, as it allows a company to easily finance itself from the profits generated. However, the return on equity of a company also depends on the industry in which it operates. For example, it is common for technology companies to have an ROE of over 15 percent, while it is not uncommon for many companies in the utilities sector to have an ROE of less than ten percent.

The ROCE is a financial metric that can be used to evaluate capital efficiency independent of capital structure. Although the ROCE is similar to return on equity, it is not manipulable through debt. Even with the ROCE, a company should have a value of over 15 percent.

Avoid high valuations.

At the end, it is important to avoid an excessive valuation. because no investor wants to enter a stock at a high price. Therefore, it is important to find affordable quality companies based on a low price-to-earnings ratio (P/E ratio). But a low P/E ratio alone does not necessarily indicate a quality company; investors also need to consider the expected return.

Top companies are characterized by an annual expected return of over ten percent. The expected return is dependent on the current price development. If a company's stock price increases, so does its market capitalization, and therefore the expected return.