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Investing In Growth Companies;
 

Our portfolio of INC. 100 stocks is only hypothetical. Lucky for us.
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Readers who look forward with even modest expectations to INC.'s annual foray into the market might do better these days cheering for some other bunch. The Chicago Cubs, say; they can be equally frustrating, but at least they serve beer in the grandstand. Alas, investing in the common stocks of the country's 100 fastest-growing public companies was a losing proposition on balance for the second straight year.

Not that any real-life investor lost money. Every year, INC. reaches back 12 months to establish the basis prices at which the equities of the INC. 100 could have been bought. In practice, though, there is no way an investor could know which ones to purchase until a year later, when the annual roundup is concluded. So the exercise performed herein -- purchasing $100 worth of each issue on March 1, 1984 (or on an initial public offering date during the year), then selling the portfolio a year later -- is purely academic.

That doesn't make it any more pleasant to behold. With this year's 11% drop, INC. 100 stocks now have given up 27% of their value in the past two years. Maybe that is tolerable for a gaggle of high rollers in a bear market in which everybody throws snake eyes, but the 12 months in question this time constituted at least something of a bull market. Indeed, even the 24-month span from March 1983 to March '85 ended up generally profitable for most investors. Among other popular averages in the same two years, the Dow Jones Industrials gained 16%; the American Stock Exchange Index, 20%; and the Standard & Poor's 400 -- a wide sampling of established corporations -- an impressive 22%, yielding more than the money market for the first time in several years. Only the NASDAQ Industrials, along with INC., suffered a collective two-year loss, but NASDAQ's was a trifling 1%, thanks to this winter's rebound of the over-the-counter market. Oddly, no fewer than 94 of the INC. 100 stocks are traded OTC, yet they fared dramatically worse than their average brothers.

It is yet more dismaying to note that on March 1, 1985 -- the day INC. was destined to "sell" its fanciful $10,000 portfolio at a discount of $1,142.89 -- the creaky Dow celebrated an all-time record, brushing against 1,300. A paltry 37 of the 100 stocks showed a 12-month profit on that day. If that sounds discouraging, readers may take some heart in noting that the sum is 10 more than the 27 issues that managed gains last year. But not too much heart: Despite these additional pluses, the median stock lost $22.55 -- a little worse than last year's median of $21.82.

Among the 37 winners, 7 were born of IPOs during the period. Only five public offerings on the INC. list ended up losing ground from their offering price -- and at that, not losing as much as the median stock, save for MicroPro International (#26), which ended up in 92d place. The continuing relative strength among these toddlers might ultimately bode well for the entire body of small-capitalization stocks. But the test of that surmise will have to wait for next year's less tatterdemalion (one hopes) gathering.

Outside of the IPOs, the common stocks of a mere 30 of the remaining 88 "senior" companies met any buying demand. And more than a few issues that performed comparatively well in last year's compilation about-faced and fared comparatively poorly in this year's. That is one reason why stock-market players haven't placed much credence these days in rapid expansion of revenues: In the unstable kingdom of fast growth, fortunes granted under one regime can be confiscated by the next, almost overnight. Byers Communications Systems (#60), for example, was INC.'s leading stock-market gainer last year, up a then-enviable 148%. This year it is a leader, all right -- but on the downside. After the stock's drop of nearly 90% in the past year, buyers of Byers ended up losing almost three-quarters of their investment if they held on for 24 months. Despite soaring sales, the cable television company got bogged down in cost overruns, bad debts, and contract litigation.

Prices can continue to fall rapidly while revenues continue to rise rapidly -- a lose/lose trend that defies all principles of finance except the one that counts here, namely the stock market's. Healthdyne (#37), for example, on the INC. 100 four years in a row, has seen its common fall straight out of bed, from $27.08 to $3.38 since March 1983. Genex (#80) similarly shriveled from $17.94 to $6.13. True, when stocks take baths like that it is often because the cost-of-goods-sold growth rate has exceeded that of sales, but not always. Pope, Evans & Robbins (#73), a manufacturer of protective fabrics and clothing, faded by 60% in two years in the face of sizable increments in per-share earnings. So go figure.

There is at least some cause for rejoicing this year. In one industry represented on the list, all participants were able to post profits. Led by the INC. 100's top gainer, Atlantic Southeast Airlines (#64) at 213%, all five air carriers appropriately took off, posting an average gain of 76%.

Overall, however, the record is discouraging. For a gathering of cheeky growth-company kids to be beaten by the dowdy Dow in a bull market is like a major-league baseball team dropping two straight to a collection of old-timers. It oughtn't to happen, and die-hard fans know that eventually the law of averages will catch up. Until then, as any disappointed fan gets used to saying, all we can do is wait till next year.

RELATIVE MARKET PERFORMANCE

3/1/84 3/1/85 % gain

INC. 100 $100 $89 (11)

DJI 1,171 1,299 11

S&P 400 180 205 14

Amex 213 228 7

NASDAQ 291 311 7

Since the criteria for inclusion in the INC. 100 rule out such capital institutions as banks and holding companies, INC. pits the stock market performance of its entries against the industrial components, rather than the composites, of common stock indexes. Unlike the other averages, INC.'s "average" is reborn each year with a new group of stocks , and so cannot be compared with past listings.

INC. 100 MARKET PERFORMANCE

1985 $100

Company (symbol/exchange) rank 3/84 3/85 worth

1. Atlantic Southeast Airlines (ASAI/O) n1 64 $6.00 $18.75 $312.50

2. Fibronics International (FBRX/O) 40 7.00 16.50 235.71

3. QMS (QMSI/O) n2 77 7.44 15.00 201.68

4. Nutri-Foods Int'l (NUTR/O) n3 61 4.00 7.88 196.88

5. Telepictures (TPIX/O) 91 12.50 21.25 170.00

6. 3Com (COMS/O) n4 22 6.00 9.88 164.58

7. Telco Systems (TELC/O) 89 12.25 20.00 163.27

8. Walker Telecommunications (WTEL/O) 13 7.50 12.13 161.67

9. Home Health Care (HHCA/O) 25 6.75 10.88 161.11

10. Endevco (ENDV/O) 9 4.88 7.63 156.41

11. IDEA (IDEA/O) n5 47 5.83 8.75 150.00

12. Intertrans (ITRN/O) 75 5.75 8.63 150.00

13. Ungermann-Bass (UNGR/O) 7 14.25 21.25 149.12

14. Expeditors Int'l (EXPD/O) n6 2 9.00 13.25 147.22

15. Savoy Industries (SAVO/O) 28 0.88 1.25 142.86

16. Simmons Airlines (SIMM/O) 18 7.00 9.50 135.71

17. Comair (COMR/O) n7 97 11.43 15.50 135.63

18. Sulcus Computer (SULC/O) n3 50 5.00 6.75 135.00

19. Marquest Medical Products (MMPI/O) 72 8.25 11.00 133.33

20. Fine Art Acquisitions (FAAA/O) 23 1.63 2.13 130.77

21. Reid-Ashman (REAS/O) 35 6.75 8.75 129.63

22. Altos Computer Systems (ALTO/O) 94 9.75 12.63 129.49

23. Collagen (CGEN/O) 16 10.25 13.25 129.27

24. Bay Pacific Health (BPHC/O) n8 57 5.50 7.00 127.27

25. Durakon Industries (DRKN/O) n9 39 10.50 13.25 126.19

26. Home Depot (HD/N) 33 15.75 19.75 125.40

27. Enzo Biochem (ENZO/O) 41 16.75 20.00 119.40

28. Hybritech (HYBR/O) 10 15.25 18.13 118.85

29. Bogert Oil (BOGO/O) 86 0.75 0.88 116.67

30. Action Packets (ACTN/O) n10 68 5.50 6.38 115.91

31. Information Resources (IRIC/O) 92 27.50 31.50 114.55

32. Information Solutions (ISOL/O) 99 3.50 4.00 114.29

33. Masstor Systems (MSCO/O) 34 5.75 6.50 113.04

34. Tranzonic (TNZ/A) 96 14.75 16.50 111.86

35. Buffton (BUFF/O) 3 1.38 1.50 109.09

36. Empi (EMPI/O) 54 6.50 7.00 107.69

37. ComputerCraft (CRFT/O) 8 7.00 7.38 105.36

38. FilmTec (FTEC/O) 14 17.75 17.25 97.18

39. Micron Technology (DRAM/O) n9 4 14.00 13.00 92.86

40. Pinetree Computer Systems (PNTR/O) 42 1.38 1.25 90.91

41. American Healthcare Mgmt. (AHI/A) n9 58 10.00 9.00 90.00

42. Total Assets Protection (TAPP/O) n11 59 5.00 4.50 90.00

43. Page America Group (PAGE/O) n9 55 2.50 2.13 85.00

44. Carriage Industries (CARG/O) n9 98 7.00 5.88 83.93

45. BSD Medical (BSDM/O) 51 6.00 5.00 83.33

46.Avant-Garde Computing (AVGA/O) 52 16.50 13.75 83.33

47. Pope, Evans & Robbins (PER/A) 73 7.13 5.88 82.46

48. Fuddruckers (FUDD/O) 15 13.50 11.13 82.41

49. Inacomp Computer Centers (INAC/O) 83 8.75 7.13 81.43

50. Servamatic Systems (SSSI/O) 32 3.00 2.38 79.17

51. StarTel (STAS/O) 44 4.13 3.13 75.76

52. Centuri (CENT/O) 45 2.38 1.75 73.68

53. U.S. Design (USDC/O) 17 6.63 4.88 73.58

54. C.P. Rehab (CRHB/O) 49 12.50 9.00 72.00

55. Plains Resources (PLNS/O) 53 2.63 1.88 71.43

56. Quest Medical (QMED/O) 48 5.75 4.00 69.57

57. Nelson Research & Develop. (NELR/O) 79 12.75 8.75 68.63

58. TVI Energy (TVIE/O) 31 1.75 1.188 67.86

59. Ziyad (ZIAD/O) 21 11.50 7.50 65.22

60. Lomak Petroleum (LOMK/O) 85 1.25 0.813 65.00

61. Micro D (MCRD/O) 38 8.00 5.13 64.06

62. AGS Computers (AGSC/O) 90 22.25 14.00 62.92

63. Telstar (TSTR/O) 29 0.25 0.16 62.50

64. B.I. (BIAC/O) 65 0.25 0.16 62.50

65. Datasouth Computer (DSCC/O) 88 7.00 4.25 60.71

66. Corvus Systems (CRVS/O) 46 6.88 4.13 60.00

67. Convergent Technologies (CVGT/O) 1 17.50 10.50 60.00

68. Chi-Chi's (CHIC/O) 71 19.25 11.25 58.44

69. Emulex (EMLX/O) 70 19.50 10.75 55.13

70. American Solar King (AMSK/O) 84 6.88 3.75 54.55

71. Kaypro (KPRO/O) 30 7.38 4.00 54.24

72. HCW (HCWO/O) 74 10.25 5.25 51.22

73. Zitel (ZITL/O) 76 9.00 4.50 50.00

74. Video Connection of America (VIDC/O) 82 2.00 1.00 50.00

75. Yankee (YNK/A) 93 14.13 6.876 48.67

76. Genex (GNEX/O) 80 13.00 6.13 47.12

77. Publishers Equipment (PECN/O) 63 6.25 2.88 46.00

78. Tender Loving Care (TLCI/O) 78 7.13 3.25 45.61

79. Automatix (AITX/O) 27 16.50 7.50 45.45

80. Helm Resources (H/A) 43 2.13 0.94 44.12

81. Xebec (XEBC/O) 87 14.75 6.50 44.07

82. Hogan Systems (HOGN/O) 20 14.88 6.50 43.70

83. Tandon (TCOR/O) 67 15.75 6.75 42.86

84. CompuShop (CSHP/O) 56 9.25 3.75 40.54

85. Consul Restaurants (CNSL/O) 19 13.88 5.50 39.64

86. Lee Data (LEDA/O) 6 17.00 6.63 38.97

87. G.D. Ritzy's (RITZ/O) 12 6.50 2.50 38.46

88. ZyMOS (ZMOS/O) 36 5.75 2.06 35.87

89. Data Switch (DASW/O) 62 22.00 7.75 35.23

90. Protocol Computers (PCII/O) 24 7.25 2.50 34.48

91. Healthdyne (HDYN/O) 37 12.25 3.38 27.55

92. MicroPro International (MPRO/O) n4 26 10.50 2.75 26.19

93. Columbine Exploration (COLX/O) 66 0.63 0.16 25.00

94. Novan Energy (NOVN/O) 100 0.25 0.06 25.00

95. Vector Automation (VCTA/O) 95 4.75 1.13 23.68

96. Satelco (STEL/O) 5 4.00 0.88 21.88

97. Info Designs (INFO/O) 81 6.00 1.25 20.83

98. One Potato Two (SPUD/O) 11 11.50 1.63 14.13

99. Kelly-Johnston Enterprises (KEJO/O) 69 8.13 1.06 13.08

100. Byers Commun. Systs. (BYCM/O) n12 60 13.00 1.38 10.58

n1 3:2 split, 11/84;

n2 2:1 split, 9/84;

n3 first public 4/84;

n4 first public 3/84;

n5 3:2 split, 9/84;

n6 first public 9/84;

n7 5% stock div., 10/84;

n8 first public 11/84;

n9 first public 8/84;

n10 first public 12/84;

n11 first public 5/84;

n12 3:2 split, 3/84

Last updated: May 1, 1985




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