Can’t Buy Me Growth…A Cautionary Tale

This article was co-authored with Alex Van Putten of Cameron & Associates

We’ve been talking about what gets investors excited about a public company’s prospects and maintain that it’s when a management team can credibly offer the promise of innovation-led growth. But hey, wouldn’t it just be easier to buy a fast-growing company rather than create it yourself? Rarely, the answer is yes. Usually, it’s no.

Recap: The Imagination Premium, a forward-looking metric for future growth

For a detailed explanation of the Imagination Premium and how it is calculated, please see this article or contact us and we’ll send you a copy.

The share price, and hence market capitalization, of a publicly traded company reflects two sources of value. One is the value of the cash thrown off by company operations. The other is the perceived value of growth. Divide the value of growth by the value of operations and you get a metric we call the Imagination Premium (TIP).

A high TIP suggests that investors have confidence in management’s ability to generate organic growth through innovation. Think of a high TIP as a free boost to your market capitalization. Management has both imagined a bright future and effectively conveyed its vision to analysts and…