One of my favorite companies, The Providence Service Corp., just announced two small acquisitions that reveal much about the quality of the company’s management. The company said it acquired a therapeutic foster care services company, as well as a company that provides management services for not-for-profit providers of foster care services. The two small companies were bought for a total of $8.4 million, and Providence expects their earnings to be accretive in 2006.
One of the attributes I like to see in a company is a commitment to smart, diligent growth — I don’t like to see a company bet the farm on a bold new business strategy. In my experience, the best wealth creating companies are those that stick with a proven, established business model, and hone it as conditions in the economy change. A company that builds a successful business in a careful, deliberate manner is often more profitable to stockholders over the long term than other investments.
There are plenty of “one-hit-wonders” in the stock market, but the roller coaster ride can be very hard if you’re an investor. Especially in this market, where even institutional investors are unsure of themselves, a slow and steady grower is a much more desirable asset.
Institutional investors in today’s stock market really don’t have a view for the near-term trading action in stocks. This explains the current market malaise we’re experiencing. With energy costs growing and interest rates rising, institutional investors (the real drivers of stock prices) are very likely to become much more interested in slow and steady growers, over fast and furious one- hit-wonders.
Every entrepreneur wants to grow his or her business as fast and as furious as possible. It’s human nature to want success and to want it fast. However, when you come across a company that’s willing to go slow and make reasoned, deliberate business decisions, you know you’re dealing with professional management. You definitely want to be looking for this in the current market environment.