What are “same-store sales” numbers? – G.R., Flagstaff, Ariz.
They reflect sales at stores open a year or more. Imagine that Wanton Punctuation (ticker: ?#$@!) reports sales of $300 million in 2011 and $600 million in 2012. That looks great – 100 percent growth.
But now assume that Wanton had 10 stores open in 2011 and 20 open in 2012. If its same-store sales for 2012 came in at $300 million, then sales at its stores open for at least a year have not come close to doubling.
If you boost your number of stores, then of course your total sales will probably rise. Some retailers might open many new units, but their average sales per store might be flat or falling.
Same-store numbers (also called “comps”) can help you see the situation more clearly, comparing apples to apples. Expansion can be good, but companies should be increasing sales at their existing stores, too.
MY DUMBEST INVESTMENT
My dumbest investment was made around 2002, when on the advice of several people, I bought 10,000 shares of a company with an exciting technology that could evaluate baseball umpires. At the time, it was listed in newspapers and in the market. A bit later, it was not listed anywhere, and my broker and I couldn’t find it, nor were we able to contact the company. Fortunately, I lost only $1,000. – W.K., Sarasota, Fla.
The Fool responds: If you bought 10,000 shares for $1,000, then you paid around 10 cents per share, meaning you were dealing with a company firmly in penny-stock territory. Such companies can be very exciting and tempting, perhaps working on cures for cancer or drilling for oil, but they’re also extra-risky and more easily hyped and manipulated, owing to their small size. They tend to not have track records of growth and profits. It may be thrilling to own 10,000 shares of anything, but remember that a 10-cent stock can easily become a 2-cent one. You might be far better off buying five shares of a solid, growing $200 stock with that $1,000.
I’m the world’s second-largest food and drink company, known for fizzy beverages and salty snacks. Twenty-two of my many brands each deliver more than $1 billion in annual revenue, and my brands include Gatorade, Frito-Lay, Quaker, Tropicana, Mountain Dew, Aquafina, Tostitos, Lay’s, Fritos, Cheetos, SoBe, Tazo, Lipton, Cap’n Crunch, Smartfood, Ruffles, SunChips and much more. I operate almost 700 manufacturing plants globally, and my roughly 100,000 distribution routes serve about 10 million outlets regularly. The formula for my flagship product (which features my name) was developed in 1898. Who am I?
Last Week’s Trivia Answer: Union Pacific
THE MOTLEY FOOL TAKE
If you can handle a little extra risk, Chinese search-engine giant Baidu (Nasdaq: BIDU), often compared to Google, offers the possibility of extra reward. There’s a lot to like about it, but a few cautions as well.
With a recent market capitalization of about $32 billion, Baidu has been growing rapidly.
There’s much potential for further growth, too, as perhaps half of China’s billion-plus population is not yet online. (The Motley Fool owns shares of Baidu, and Google, and its newsletters have recommended them.)
The stock market (or a particular stock) could plunge today – or tomorrow. Smart investors expect occasional drops, and they don’t panic, as so many do. Bailing out is often the worst thing to do, as bad times can be good times to wait, or even buy. As Warren Buffett has quipped, “Be greedy when others are fearful, but be very fearful when others are greedy.”
Sometimes it does make sense to panic, though – such as:
• When you don’t know why you own what you own. If you have no clue why you bought shares of Tattoo Advertising Co. (Ticker: YOWCH), you’ll have trouble determining when to sell. If YOWCH shares plunge, it might be due to a fleeting problem, in which case you should hang on, or it might be due to some serious trouble. Be familiar with your holdings, so you can tell the difference.
• When you don’t understand the long-term upward trend of the market. From decade to decade, stocks of great companies and the market as a whole tend to rise in value. You can keep your blood pressure down during market downturns by remembering this.
• When you have a short time horizon. If you’re invested in stocks for just a few months, then go ahead and hyperventilate right now. As the past few years have reminded us, anything can happen in the short term. Even stock in wonderful companies can temporarily plunge. Any money you expect to need within the next five (if not 10) years should be out of stocks and perhaps in CDs or money market funds. Learn more at fool.com/savings and bankrate.com.
• When you haven’t learned that it’s the percentage of the market drop that counts, not the points. A 100-point drop was a big deal when the Dow was at 1,000. But when it’s around 14,000, 100 points is less than 1 percent.
Read up on investing, at fool.com and elsewhere. The more you know, the less you’ll panic.