A company life map - the rise and fall of a hot stock
Introduction|
Course|
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8. A growth strategy
Country Bumpkin's listing prospectus sets out a four-pronged growth strategy:
- Industry consolidation: buying small private businesses and achieving economies of scale
- Centralisation: handling purchasing, distribution, accounts and administration centrally to reduce costs
- Mail order growth: revitalising the company's direct mail business
- Improving margins: replace low margin with high margin products, and use the company's growing purchasing power to get better terms from suppliers
The first day's trading, in which the share price rose from 80p to 100p, suggests that there is excitement in the market about Country Bumpkin's potential.
Within 4 weeks of the AIM listing, Country Bumpkin begins implementing its strategy. It buys a rival catalogue business and a chain of three loss-making garden stores for a total of £470,000 cash.
When news of these deals appears on the Stock Exchange's Regulatory News Service, it is interpreted as evidence of the company's ability to deliver. The share price rises to 126p.
- The company's broker produces a research report on the company which endorses the growth strategy and predicts rapid earnings growth in the next 18 months.
- Small company newsletters begin to write about the company and speculate on its earnings growth
Country Bumpkin becomes "a stock to watch".
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