A graph of an Inc. 500 company's sales growth over time resembles a Himalayan ascent. But what happens when the company goes public?
To find out, we selected companies from the 1988 Inc. 500 that went public sometime after they made the list. Two-thirds of the companies are technology companies. We looked at what a $10,000 investment made on the initial trade date for each company would have been worth on July 31, 1998, taking into account stock splits.
Our conclusion? Based on the performance of those 27 companies during the time period we considered, an investment in an Inc. 500 company had a 50-50 chance of paying off. Sales growth does matter--three of the four companies that ranked highest in investment growth on our chart also had the highest rates of sales growth over the past 10 years. But the market is not satisfied with sales growth alone. The healthy profit margin (net income of 23% of sales in fiscal 1997) of BMC Software, a Houston-based database software developer (#342 on the list in 1988), is a primary reason that company came out on top in our chart, turning $10,000 into $160,000. The inverse is also true. The feeble margins (1% or lower for the last three fiscal years) of Command Security (#444 on the list in 1988) battered the Lagrangeville, N.Y., security-personnel provider's stock and reduced a $10,000 investment to $1,736. An electronics manufacturer based in Willow Grove, Pa., Quad Systems (#19 on the 1988 list), saw its stock price depressed by the Asian financial crisis.
For one Inc. 500 alumnus that went public, investment growth has reached stratospheric heights. An investment in Microsoft (#80 on the 1984 Inc. 500) on its stock list date in 1986 would have turned $10,000 into just under $3 million by July 31. --Sally Chicotel
1988 Inc. 500 Companies That Have Gone Public
*adjusted to reflect a stock split ' made on initial stock-list date