Growth stocks
Growth investment is investing in stocks of companies, their earnings are expected to grow at a higher than normal rate.
Over a long time not only next quarter or the next year.
Growth investing in hard to measure by quantitative analysis, such as the p/e ratio or market price/book value ratio.
Growth investor seeks minimum annual growth rate 15 to 20 percent, which growth rate much higher than market return.
High growth stocks are also high risk. Because of,inventor willingness to pay high premium for high growth stocks. Which kind of stocks trading at high p/e ratio.
Almost growth stocks is in growth industry. That sector of economy in which revenues are expanding very rapidly. Which stocks may be small companies and high-tech industry.
Many investor is thinking about that high technology stocks only high growth stocks. That's not true. Non IT sectors stocks also outperformed well. For instance, ITC is fmcg leader in India. this stock has been giving the potential return to the investor .
How to identity the growth stocks
Growth stocks always would be get superior technology in it's industry.
That companies revenue an profit are growing rapidly.
The company consistently provide the innovative products to customer.
Good employee -management relation lead to high customer satisfaction.
One good approach to finding growth stock is to identify some great products and services.
Strong historical earnings growth proves that the company can produce fruitful earnings.
There are five basic ways to improve their earnings.
Innovative business model and distribution model.
Customer friendly service.
Expand in to new market.
Raise price.
Close or dispose of a losing operation.
How to evaluate the growth stocks
The p/e ratio is given rough idea of whether the stock as current price is under valued or overvalued.
Growth investor guru peter lynch has said, if stocks peg ratio is 1time, it's value is reasonable, peg ratio is below the 1 level is considered stock is under value.
Peg ratio is calculated by EPs growth rate. Which EPs divided by stock pe ratio.
If it's growth rate 20 percent, p/e ratio of 20. It is reasonable value.
Perhaps, growth rate at 30 percent, if stock p/e would be 20 percent, that stock is under valued.
In such a times, low interest rate environment growth investor willing to pay high premium up to 1.5 times.
Some great company's stocks available at very cheap rate in bear market. Warren buffet would say often, Buy the good stock in bear market, sell the worst stock in bull market.
Growth investor should concentrate on the important factor. Before enter the stock.
1. Excellent management.
2. Research and development.
3. Profit margins.
4. Respond to challenges.
Excellent management
Superior management can turn an ordinary company in to growth stocks. To measure the commitment of a company's top management find out whether the senior managers own company shares they awarded as part of their compensation.
Philip fishers approach is probable the best for judging the quality of management, he suggest poising questions to the company's consumer's employers and suppliers to get a good sense of it's management.
Research and development
Growth company constantly improve themselves through customer surveys, research in human relation, market research and sociological research.
Which companies can't sustain growth with out a significant R&D effort. Investor should evaluate the qualitative nature of R&D expenses and evaluate they are keeping up with growth in revenue.
Generally, they adapt to new technology for achieve the competitive advantage.
Profit margin
Excellent growth companies almost always have high margins relative to other firms in the same industry. For example, TCS profit margin is around 26 percent, but, emphasis profit margins is nearly 14 percent. Both firms are in the same industry. When investor evaluate the company's profit, the first step in examining the company's profit margins.
Expanding profit margin mean that things are going very well, for the company and that every rupee of sales will produce more profits .
Respond to challenges
Some companies adapt to the changing world faster than others for sustainable growth. It is necessary that company rediscover themselves often. Despite, some companies fail they encounter new technology. Finding out whether a company rediscover itself often require considerable amount of research. As an investor put more efforts to find these outstanding growth companies.
Exit strategy
If the company's top management CEO and CFO , they subsequently resigning from the company, that is dangerous sign to the investor.
If the company misses estimates on a regular basis, it is a sign that management is not control cost and revenue or both.
If insider out of their money from the company's stock. They expect future growth is uncertain.
Over a long time not only next quarter or the next year.
Growth investing in hard to measure by quantitative analysis, such as the p/e ratio or market price/book value ratio.
Growth investor seeks minimum annual growth rate 15 to 20 percent, which growth rate much higher than market return.
High growth stocks are also high risk. Because of,inventor willingness to pay high premium for high growth stocks. Which kind of stocks trading at high p/e ratio.
Almost growth stocks is in growth industry. That sector of economy in which revenues are expanding very rapidly. Which stocks may be small companies and high-tech industry.
Many investor is thinking about that high technology stocks only high growth stocks. That's not true. Non IT sectors stocks also outperformed well. For instance, ITC is fmcg leader in India. this stock has been giving the potential return to the investor .
How to identity the growth stocks
Growth stocks always would be get superior technology in it's industry.
That companies revenue an profit are growing rapidly.
The company consistently provide the innovative products to customer.
Good employee -management relation lead to high customer satisfaction.
One good approach to finding growth stock is to identify some great products and services.
Strong historical earnings growth proves that the company can produce fruitful earnings.
There are five basic ways to improve their earnings.
Innovative business model and distribution model.
Customer friendly service.
Expand in to new market.
Raise price.
Close or dispose of a losing operation.
How to evaluate the growth stocks
The p/e ratio is given rough idea of whether the stock as current price is under valued or overvalued.
Growth investor guru peter lynch has said, if stocks peg ratio is 1time, it's value is reasonable, peg ratio is below the 1 level is considered stock is under value.
Peg ratio is calculated by EPs growth rate. Which EPs divided by stock pe ratio.
If it's growth rate 20 percent, p/e ratio of 20. It is reasonable value.
Perhaps, growth rate at 30 percent, if stock p/e would be 20 percent, that stock is under valued.
In such a times, low interest rate environment growth investor willing to pay high premium up to 1.5 times.
Some great company's stocks available at very cheap rate in bear market. Warren buffet would say often, Buy the good stock in bear market, sell the worst stock in bull market.
Growth investor should concentrate on the important factor. Before enter the stock.
1. Excellent management.
2. Research and development.
3. Profit margins.
4. Respond to challenges.
Excellent management
Superior management can turn an ordinary company in to growth stocks. To measure the commitment of a company's top management find out whether the senior managers own company shares they awarded as part of their compensation.
Philip fishers approach is probable the best for judging the quality of management, he suggest poising questions to the company's consumer's employers and suppliers to get a good sense of it's management.
Research and development
Growth company constantly improve themselves through customer surveys, research in human relation, market research and sociological research.
Which companies can't sustain growth with out a significant R&D effort. Investor should evaluate the qualitative nature of R&D expenses and evaluate they are keeping up with growth in revenue.
Generally, they adapt to new technology for achieve the competitive advantage.
Profit margin
Excellent growth companies almost always have high margins relative to other firms in the same industry. For example, TCS profit margin is around 26 percent, but, emphasis profit margins is nearly 14 percent. Both firms are in the same industry. When investor evaluate the company's profit, the first step in examining the company's profit margins.
Expanding profit margin mean that things are going very well, for the company and that every rupee of sales will produce more profits .
Respond to challenges
Some companies adapt to the changing world faster than others for sustainable growth. It is necessary that company rediscover themselves often. Despite, some companies fail they encounter new technology. Finding out whether a company rediscover itself often require considerable amount of research. As an investor put more efforts to find these outstanding growth companies.
Exit strategy
If the company's top management CEO and CFO , they subsequently resigning from the company, that is dangerous sign to the investor.
If the company misses estimates on a regular basis, it is a sign that management is not control cost and revenue or both.
If insider out of their money from the company's stock. They expect future growth is uncertain.
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