Growth Stock

 

Growth Stocks 

Growth stocks are those stocks that grow at a faster rate than the average stocks in the market.

 GROWTH STOCK MEANING

A stock that has high growth potential. They can lead to massive wealth creation.  They have the potential to earn above-average returns. 

Growth investing focuses on investing in companies that are growing rapidly.

KEY INDICATOR TO FIND GROWTH STOCKS

Some key indicators that may help us to identify growth stocks as there is no absolute formula that helps us to identify growth stocks.

EPS (Earning Per Share)

EPS is an important financial measure. It indicates the profitability of a company. It is the tool used by the market participants of a company before buying its shares

It is calculated by dividing profit after tax by the total number of outstanding shares. As the EPS of the company increases, the stock price also appreciates.

Comparison with peers in the same industry also tells you about the financial performance of a company.

Growing reserve of a company

Reserve of a company is what we get after subtracting dividend income from profit after tax. Reserves show the ability of a company to be self-reliant. 

Companies with good reserves meet their capital expenses and execute expansion plans. 

The companies with good reserves do not have to depend on outside loans to meet their expenses.

Debt to equity ratio

The debt to equity ratio is a key measure for investors looking to a company's financial health. The ratio shows the relationship between a company's debt and its equity.

 Debt is not necessarily a bad thing. high debt to equity ratio can be good because it shows that a firm can easily service its debt obligations. 

This ratio should be compared with peers in the same industry.

Profit margins

Profit margins are used as an indicator of company financial health. It is the level of profit that a company has captured or kept from the revenue it generated from business activities. 

In simple terms, a profit margin is a measure of a company's earnings relative to its revenue.

 It is calculated by deducting all expenses except taxes from the sale and dividing that by sales.

The profit margin figures of a company should be compared with the figures for the last few years to know the company's profitability.

Competitive advantage

Growth companies usually have a USP. It attracts a large customer base. If the company has a competitive advantage over its peers, it grows better than others in the same industry. 

There can be many possible examples like patent technology, low-cost products, and better service quality that give the companies high growth.

Return on equity

It measures the financial performance of a company. ROE is the measure of a company's annual return divided by the value of its total shareholder's equity.  

Higher the return on net worth, the more  efficient the company's operations are making  use of this funda

This number is compared with peers in the same industry. 

CONCLUSION

In order to identify growth stocks, one must try to find companies that are unique.