Question

10c. Sometimes, a supernormal growth pattern is observed in stock prices. How is the supernormal growth pattern likely to vary from the normal, constant growth pattern? What kind of firms tend to experience the supernormal growth pattern?

Answer 1

10c. The super normal growth pattern is the growth experienced by a firm that is experiencing huge demand for it's products. This rapid growth cannot be sustained by the market as competitors enter the market as this period of super normal growth eventually fades off. Firms might experience this period of super normal growth due to the launch of a new product or ew technology. A company which has acquired a patent may also experience super- normal growth.

After the phase of super normal growth settles down, firms tend to experience a normal growth rate. A higher than normal growth rate is super-normal growth rate. Normal growth is the growth pattern which is consistent with the industry. Constant growth pattern , is a form of growth pattern where the growth rate is constant.

The startup firms usually experience super normal growth. The companies or industry which are in the initial phase of business, witness a period of supernormal growth. . The supernormal growth pattern is often experienced by firms in emerging industries, such as in the early days of electronics or microcomputers.