Why Company Like Yahoo will outperform in the Stock Market

One of the fundamental factors you should consider when investing in any stock is whether the company has the capacity to grow for a prolonged period. It is possible that the company is able to make one time profit due to certain breakthrough in technology, research or economical climate. This will lead to short time spurt in stock prices.  This kind of one-time profit is eagerly grabbed by many speculators and bargain hunters. But these stocks do not offer that degree of opportunity. You may not make huge wealth with these companies.

For example let us take the company AltaVista. It was the pioneer in internet search engine in the glorious dot.com era of 90's. Alta Vista was the widely used search engine. It was the Google of 90's giving tough competition to Yahoo. Alta Vista made use of the boom in the internet. Its stock price soared several times. But it failed to capitalize on the growth by innovation. It is nowhere now.

Let us take the example of Yahoo. It is as old as the internet (Google came much later). Yahoo too made use of the great internet boom in 90's. But unlike AltaVista it innovated and diversified. It was the first to monetize the internet traffic by pay per click business. From 2003 onwards it has been facing serious competition from Google. But unlike many other Internet search engines it is still surviving and making profits. It is No.2 in the market now.

The example of Alta Vista and Yahoo gives an insight into the managerial capacity of the company which long term investors should be looking for. Companies may be making one time profit like Alta Vista but it is the stocks of those companies which are in for long run give returns.  
 
A changed condition opens up a large increase in sales for a period of a very few years, after that sales stop growing as in the case of Alta Vista. A huge increase in advertising revenues sales occurred for several years in the case of Alta Vista but as it failed respond to new business conditions the sales slowed and so did the stock which almost vanished from the stock market.

Not even the most outstanding growth companies need necessarily be expected to show increase in sales year after year. The normal constraints of commercial & business research and the time delays of creating and marketing new products cause uneven sales growth.  Yahoo for example was not making major revenues till 2000 when it started the pay per click marketing. Now the revenues of Yahoo have again decreased due to competition from Google. Yahoo has diversified and entered into Chinese market in a big way. It is almost at number one place in Chinese Internet space.
A high quality of management is a must for any company to grow in the long haul. No company grows for a long period of years just because it is fortunate and is in right place at right time. So many internet companies like Alta Vista were in right pace in right time but they vanished within a couple of years.

Stocks like Yahoo which apart from making one time profit from new business opportunities also innovate and diversify are in for the long haul. Such stocks will reward investors handsomely. Yahoo has done it in past and it is more likely to do in future too. After all a company like Microsoft will not be willing to pay top dollar to buy out Yahoo.