CHARLOTTESVILLE, Va., March 14 /PRNewswire/ -- The Batten Institute,
part of the University of Virginia's top-ranked Darden School of Business,
has released the latest results of a decade-long study of corporate
earnings, establishing a correlation between "Organic Growth" and
outperforming stocks. The companies revealed by the study are "All-Stars"
of Organic Growth -- as measured by the Organic Growth Index (OGI) from
Darden Professor of Business Administration and Batten Executive in
Residence Ed Hess. In addition to consistent growth in underlying earnings,
as measured by the OGI, the company's share prices have outperformed the
S&P 500 by a factor of ten over the past ten years. The results from
2003-2006 have just been revealed, finalizing the ten-year study.
"Once you get past the 'noise' that is in most companies' reported
numbers, there is an incredible correlation between what I call real
growth, and the recognition of that value in the stock market," said
Professor Hess, whose book on OGI is entitled The Road to Organic Growth.
"These companies have shown that they can grow in good times and bad. It's
not about the economic cycle. It's about the business model."
Professor Hess applied the OGI screening process to over 1300 companies
over the 10-year period that were leaders in Economic Value Added (EVA)
creation. Applying the OGI model to that pool narrowed it down to a list of
27 "All-Stars," which qualified in at least four different time periods
studied by Professor Hess. His report notes the following:
-- Actual 10-year returns (1996-2006) for the OGI All-Stars were over
1,368% vs. approximately 130% for the S&P 500 Index and 144% for the
Dow Jones Industrial Average
-- The average market capitalization of the All Stars is $9.72 billion
-- 50% of the All-Stars are in retail or casual restaurant industries
"Organic growth is growth the old fashioned way: more customers, more
products, better operating efficiencies," continued Professor Hess.
"Organic growth represents the underlying strength and vitality of a
company's business model. In contrast, there are many ways to create
reportable earnings: accounting elections, valuations, income recognition
changes, financial engineering, currency gains, investments, etc. We have
become a "play dough" economy- manipulating and rearranging assets - as
opposed to growing - businesses."
Professor Hess has identified four key attributes of strong organic
1. Utilizes simple-focused business strategies, implemented by management
who are "execution champions";
2. Top management is homegrown and made up of "humble, passionate
3. A highly-engaged workforce characterized by a strong degree of loyalty
and productivity; and
4. Operates with a seamless, self-reinforcing internal growth system
Professor Hess further commented, "This study is one of five major
research projects currently underway at the Darden School, all funded by
The Batten Institute. Each, in its own way, is working to crack the DNA of
organic growth from different discipline perspectives: accounting,
organizational design, leadership, customer intimacy, options theories of
growth initiatives, and employee engagement."
Professor Hess concluded, "It should not require as much deep research
and analysis as we had to conduct to generate this type of information. I
think that the Securities and Exchange Commission should require companies
to transparently disclose their organic growth and how they are creating
other earnings. Such disclosure may lead to organic growth being rewarded a
valuation premium by the markets. If that turns out to be the case, the
policy might motivate corporate leaders to focus more on organic growth
which produces innovation, jobs and competitive advantage."
More information on Professor Hess' study and the Organic Growth Index
is available at the link below, followed by a list of the 27 All-Stars.
-- American Eagle Outfitters
-- Applebee's Intl.
-- Avon Products
-- Bed Bath & Beyond
-- Best Buy Co.
-- Brinker Intl.
-- Columbia Sportswear
-- Coventry Health Care
-- Dollar General
-- Dollar Tree Stores
-- Express Scripts
-- Family Dollar Stores
-- Intl. Game Technology
-- Hormel Foods
-- Lincare Holdings
-- Lowe's Companies
-- Omnicom Group
-- OSI Restaurant Partners
-- Ross Stores
-- TJX Companies
-- Total System Services
About the Batten Institute
The Batten Institute advances the study and practice of
entrepreneurship and innovation by uniting three distinct elements --
thought-leading research, student-centered teaching, and hands-on learning
-- to give Darden's unrivaled educational experience The Batten Edge.
For More Information Visit: www.darden.edu/batten
SOURCE Batten Institute