We all want our portfolio to grow. Here is a brief explanation of investment strategy and a great growth stock to consider.
What are growth investments?
The goal of growth investing is to increase the capital of an investor. Since these shareholders want to maximize their profits, growth investing is also known as a capital growth strategy or capital appreciation strategy.
Growth stocks are usually young or small companies whose profits are expected to grow at an above-average rate compared to other similar companies or the overall market.
Growth investors think about the profit they might make when they sell the stock, rather than the dividends they might receive from owning it. Most growth companies usually do not even pay a dividend because they want to use the money to expand their businesses.
There are a few things that growth investors look for when analyzing a stock to determine if it is worth it. They look at how strong the company’s profit growth has been in the past, whether the company has projections for higher profits in the future, what the return on equity is, how solid the profit margins are, and the overall performance of the stock.
Growth investing or value investing
Growth investing is the opposite of value investing, where you buy stocks that are trading at a lower price than analysts think they are worth, bargain hunting, so to speak. While value investing focuses on stocks that are trading below their intrinsic value, growth investing is about the future potential of the company rather than the current stock price. Thus, growth investors may even invest in a stock that is trading higher than its current intrinsic value, assuming that the company’s value will increase and then exceed its current valuation.