Does Wall Street buy your growth story? For how long?

Abstract

Purpose

The article introduces the authors’ “ Imagination Premium™” metric which assesses the confidence of the investing community in a business’ growth strategy.

Design/methodology/approach

The article explains how the Imagination Premium is calculated and applies it to several cases--Amazon, Tesla and Buffalo Wild Wings.

Findings

Amazon’s implied value of growth was nearly four times its value from operations, a result completely consistent with its “profits are optional” motto. Amazon is a prototypical example of a company that is built to thrive in the ‘transient advantage economy.

Practical implications

Sky-high expectations for growth can be dashed by external events over which businesses have little control as Tesla found out. Unless a business can show, as Amazon has historically done, that it can turn expectations into gold-spun reality, lofty investor expectations can become a liability.

Originality/value

By applying the Imagination Premium concept to successful and problematic cases the authors illustrate the risks and advantages of a bold growth-before-profits strategy.

Citation

McGrath, R.G., van Putten, A.B. and Pierantozzi, R. (2018), "Does Wall Street buy your growth story? For how long?", Strategy & Leadership, Vol. 46 No. 2, pp. 3-10. https://doi.org/10.1108/SL-01-2018-0005