GEARS

This is a measure of the average annual return to making transactions according

to the direction of sales growth. Everything else equal, rising sales growth produces

an increase in the rate of growth of profits and should result in an increase

in the share price. Falling sales growth results in a decline in profit growth

and should result in a decline in the share price. An increase in the rate of sales

growth is a buy signal and a decrease is a sell signal. During the period when the

stock is sold, treasury bills are the alternative investment. If the return to sales growth

transactions is higher than the buy/hold return for the stock, then sales growth is a

valuable factor.

The number of transactions is determined by the number of inflection points in

sales growth as indicated by the top chart left. The success frequency counts the

percentage of transactions that produced a positive return over the holding period

or to last Friday’s closing price of the stock.

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