Mon. August 14, 2000
New York, NY -
4Kids Entertainment, the company that produces Pokemon films and holds the licensing rights enabling them to put the creatures on T-shirts, backpacks, and school supplies for obsessed grade-schoolers, made a spectacular debut at No. 1 on FORTUNE's annual list of the 100 Fastest-Growing Companies in America. RF Micro Devices, makers of the communications chips that power wireless handsets came in at No. 2; communications software maker Siebel Systems ranked No. 3; data-storage powerhouse Network Appliance came in at No. 4; and Source Information Management, maker of supermarket magazine display racks, came in at No. 5. The rest of the speed demons rounding out the top ten on FORTUNE's list are: in a tie for No. 6, Salton and Zomax; I2 Technologies at No. 8; Diamond Technology Partners at No. 9; and Stericycle at No. 10.
To take some of the risk out of betting on high-growth companies, David Rynecki's "Ten Stocks: The Best of the Bunch" selects the safest bets from among FORTUNE's ranking of the 100 Fastest-Growing Companies. Rynecki enlisted help of six of the hottest money managers out there--who between them manage $50 billion--to help accomplish his mission: "to find a core portfolio of ten emerging growth companies that possess the management depth, dynamic products, and unlimited market opportunity to become superstocks."
According to Rynecki, the best stock picks out of what he dubs "The Builders"--companies that create the building blocks of networks--are Network Appliance (No. 4) and Solectron (No. 73). Mercury Interactive (No. 13), I2 Technologies (No. 8) and Sapient (No. 32) stood out in Rynecki's analysis of the companies that work behind the scenes on back-end products and services. Under the heading "Wireless Widgetmakers"--companies that provide the tiny parts inside the latest cellular phones, handheld computers and refrigerators--RF Micro Devices (No. 2), Cree (No. 11) and Comverse Technology (No. 51) were deemed the safest growth stocks. Finally, Forest Laboratories (No. 23) and Guidant (No. 99) are the companies within FORTUNE's Fastest Growing list Rynecki deemed best able to take advantage of the growth in the health care industry as it keeps pace with the aging U.S. population.
By contrast, Jeremy Kahn's "Growth Elixirs May Be Risky" offers a cautionary tale about investing in high growth companies. As Kahn writes: "Investing in America's Fastest-Growing Companies is a bit like strapping yourself to a rocket. Sure, these stocks might blast you to the moon, but a single miscalculation and they might also blow your investment to kingdom come." Citing how many lessons there are to be learned, Kahn notes that shares of almost half the companies on FORTUNE's 1999 roster of fast growers fell at least slightly, with about a fifth of the stocks experiencing what might be described as a "major malfunction," losing 60%, 70%, even 90% of their value.
Kahn singled out four of the main causes behind some of last year's biggest blowups among the fastest-growing companies, highlighting examples ranging from Compuware (No. 29 on last year's list) whose stock got hammered after it failed to meet aggressive profit and revenue targets, to Century Business Services (No. 53 on last year's list) that ran into trouble with financial shell games it appears to have played with its books.
FORTUNE compiled the list of the 100 Fastest-Growing Companies based on the following criteria: Eligible companies had to be based in the U.S., have been in operation for three years, and have at least $50 million in revenues and market capitalization. In addition, companies needed a 30% annual growth rate in both revenue and earnings per share over three years, and were judged by total stock market return during that same period.
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