Investing in the S-Curve

The "S-curve" is a growth-investing phenomenon where a company's sales and profits grow rapidly. Usually, more rapidly than anyone could have predicted resulting in a rapid rather than linear stock price move up.

This is the result of a sudden mass market adoption of the company's products, causing sales and profits to shoot up quickly over a short period of time. Note Zoom Video's rapid adoption during the Covid-19 pandemic.

The accelerated growth phase leads to a company's performance and stock price resembling an "S curve," which looks like this:

When a company reaches the middle section of the S-curve, other investors get more comfortable and jump onboard as well. This tends to push the stock price even higher, causing the S-curve shape.

As in investor, you want to be investing ahead of that middle section, and anticipate the push up higher, which requires finding companies that are just starting to catch on and are spreading rapidly, as reflected in sales growth numbers.

If you have been paying attention, there has been a lot of S-curve type stock charts in the e-commerce, cybersecurity, cloud computing, fintech, home fitness, and communication tools sector of late, as adoption has spread like wildfire, resulting in a sudden exponential growth of sales, as reflected in the stock price moves.

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