With the elevating GDP and companies’ profit, investors may give more considerations before they put their capital to growth stocks. In expansionary economies, growth stocks are booming. Yet, finding the right growth stocks can be difficult. Thus, here we give you 4 characteristics of good growth stocks.
Great Management Team
Growth companies always focus on increasing their profits and sales. Therefore, the management team for these companies matters a lot.
In order to grow companies, we need an innovative team. Without this team, the growth we expected will never happen. Growth investors always look for companies that have a leadership team with a good track record for being innovative.
Think of Steve Jobs, Bill Gates, and Mark Zuckerberg as the example of the great leaders. Indeed, it can be difficult for investors to spot these innovators, yet they can research on the leadership team before making the investment.
Competes in a Fast-Growing Market
Growth companies need to play in a market that is poised for growth. If the company is in an industry that currently faces the tail end of growth trajectory, then that is not a growth market.
For instance, investing in a PC hardware vendor might not be the best choice for growth investors. But, nowadays can be the best time to invest in a mobile app start-up.
Additionally, in choosing the high growth companies, the stocks should have a commanding market share. Investors should never want to invest in a third or fourth player in emerging market growth.
Strong Growth Record in Sales
Similar to the leadership and market shares, the sales of a company also matter a lot. Growth investors should always be looking for companies that continuously have acceleration in earnings and revenue growth.
The faster growth rate indicates a higher probability for the stock price to rise. To find this stock, you need to go with a company that at least has high double-digit growth.
Valuation
The main factor that attracts investors to growth stocks is that these stocks continuously growing. However, growth investors also avoid stocks with a big run-up due to investors’ demand or the fundamentals have declined. The overvalued stocks will shortly face shares decline at a price that reflects its fundamentals.
To avoid that, Price per earnings can be a good ratio to always check the growth stock.
Writer: Lisa Ramadhani
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