Sometimes it is better to challenge the prevailing principles. So, what is the principle when it comes to net margins? Higher the net margins better the business. But a deeper look shows that while this principle is largely true, there are some businesses where the nature of the business is such that net margins are not very high, in fact just in single digit, but at the same time, the market size or the need of the product is very large which means consistent growth. Now consider this, a set of companies where the margins are in single digit but at the same time, these stocks have all created wealth. Now why look at this point of time. Over the years these companies have reached a stage where their balance sheet has become much better and also they have reached it is not easy for any competition to beat them and market size continues to grow.
