As an investor, it is important to know how the company you are investing in makes money. After you determine that you can then see how will different scenarios affect the stock price. In Bloomberg News columnist Shira Ovide examined Facebook. In 2017 Facebook did very well, revenue was up, it generated 46 cents of operating profit of each dollar of revenue and the stock price was up over 50%.

Facebook is the internet’s best combination of quickly increasing sales, fertile profit, large market share in a valuable category and potential future growth from fresh areas.

But, and there usually is a but, all may not be as well as it seems – it is easy to imagine the company’s big opportunities becoming burdens. For example, Facebook makes money by selling ads. The growth of ad revenue was linked to the news feed Facebook users see and sometimes click on. The company’s Finance chief said ad volume was becoming less important and revenue growth would be increasingly driven by the company’s ability to extract higher prices for the ads it sells.

When powerful companies lean on price increases to keep growing, it typically means they are running out of natural growth potential. If they do that, they are no longer a growth company but a more mature one. Growth companies trade a different multiples than mature ones or the stock price will not likely grow by 50% again in one year.

Facebook’s volume of advertising is increasing more slowly because the company made a shift in thinking to slow the number of ads which go into the news feeds. Facebook also is moving in web videos. It takes longer to watch a video than to see an ad on news feeds.

Linking to dividend paying stocks, understanding the business models allows you to decide if the multiple is worth buying at or waiting for a downturn. In the case of Facebook, millions use the service and more will continue to do so, but if you are deciding between Alphabet (Google), Microsoft and Facebook then making a projection into the future helps you pick the stock at the price you are willing to pay.

There are more questions than answers, till the next time – to raising questions.