When deciding to buy one stock or another stock, there are many things you need to look at. But one of the most important things to look at is the earnings history of stocks. In the long run price follows earnings. If the earnings of a company is rising, then the price of the stock will rise also. If the company’s earnings have been declining, then the price of the stock is likely to decline as well.
In one of my favorite books Eight Steps To Seven Figures by Charles Carlson, he says “Stock prices follow earnings, so you want to own companies with rising profitability. Ideally, you want to own companies where profits are rising every year for at least the last five years. Focus on companies with five-year earnings growth of at least 12 percent.” But he also warns “It’s not enough for a company to have rising earnings. Those earnings could be generated by cost cutting and not increased demand for it’s products. You need to own companies with rising sales. Rising sales sustain rising profitability.”