By Tom Matthews
As a successful growth investor, I get presented with many different investment opportunities. These businesses operate across a wide variety of sectors. I also see different revenue models, often for similar companies operating in the same industries. So, what does a good business look like to me?
Growth opportunities within defensive sectors
As a growth investor, I seek investment opportunities in growing businesses, with attractive and sustainable growth dynamics within defensive sectors. Examples of defensive growth sectors include:
- “White-collar” business services
- Training and education
There are many sub-sectors and niches within these four broad sectors. Some fit the defensive growth characteristics better than others. However, the sub-sector markets that I search for typically:
- Provide an essential and non-discretionary service
- Are established and increasingly outsourced
- Show strong and sustainable growth drivers
- Are regulated or driven by legislation.
The growth investing checklist
Once I have identified that a sub-sector market is attractive, I try to find which industry players would make good investment opportunities. The investment characteristics I look for include:
- Strong market position
- Potential for growth
- Predictable and “sticky” revenues
- Profitable, with high and sustainable profit margins
- Strong conversion of profits to cash
- A deliverable growth plan and clear strategy
- A capable business leader and team in place looking for an equity partner to accelerate growth.