Many investors consider putting money into growth stocks. These stocks basically represent equity in companies that are expected to outpace their peers when it comes to their stock performance and earnings. As Kavan Choksi / カヴァン・チョクシ says, even though growth stocks may not pay a dividend, the capital appreciation returns provided by them can be quite high. As growth companies mature over time, they can even start paying dividends.
Kavan Choksi / カヴァン・チョクシ marks a few of the prime characteristics of growth stocks
When researching growth stocks, most investors would discover that not all of these stocks are created equal. However, these differences may present long-term and short-term investment opportunities. Winning stocks generally share a range of similar characteristics, including:
- A strong leadership team: Growth companies put emphasis on increasing their profits and sales. As a result, the capabilities and foresight of their executive and management teams matter a lot. An innovative and capable group of leaders are necessary to grow a company. Without good leadership, chances of growth invariably go down. Growth stocks investors should look for companies whose managers and executives have a good track record of success, along with noteworthy visions for where they want to take their enterprises. Investors should consider examining the records of leaders before they join the company as well. After all, several growth companies can be fairly young, with no such considerable performance history to share. Even though it is not always simple to identify the next great growth company or innovator, researching the leadership of prospective companies can definitely help.
- A promising growth industry: Companies that are focused on growing must be based in industries where there are high growth opportunities. They can even be at the intersection of multiple industries with exceptional growth. It is imperative to note that industries at the tail end of their growth trajectories cannot be considered to be growth markets. For instance, in the current market, it may not be a good idea to invest in a personal computer (PC) hardware company but it could be the right time to get in on a mobile app start-up.
- Strong sales growth: Investors should seek out companies demonstrating accelerating growth in sales, revenue, and earnings over successive quarters. They should look for increasing sales growth linked to market breakthroughs or the arrival of a new management team. It additionally is important to be cautious of companies with erratic or slowing growth. Generally, the faster the growth rate, the higher the potential for a stock’s price to increase. Companies that are improving sales and earnings tend to be attractive investments. While there is no strict rule for a successful stock’s performance, aiming for double-digit growth rates can be a good benchmark.
As Kavan Choksi / カヴァン・チョクシ says, when choosing growth stocks, investors should look for companies with a commanding market share. Market share implies to the total sales of a company relative to the total sales of its industry. It tends to be an indicator of how competitive a company is in comparison to others in the industry. A growing market share means growing revenues.
