Growth investing is an investment style and strategy that is focused on increasing an investor’s capital. Growth investors typically invest in growth stocks—that is, young or small companies whose earnings are expected to increase at an above-average rate compared to their industry sector or the overall market.
Growth investing is highly attractive to many investors because buying stock in emerging companies can provide impressive returns (as long as the companies are successful). However, such companies are untried, and thus often pose a fairly high risk.
Growth investing may be contrasted with value investing. Value investing is an investment strategy that involves picking stocks that appear to be trading for less than their intrinsic or book value.
KEY TAKEAWAYS
- Growth investing is a stock-buying strategy that looks for companies that are expected to grow at an above-average rate compared to their industry or the broader market.
- Growth investors tend to favor smaller, younger companies poised to expand and increase profitability potential in the future.
- Growth investors often look to five key factors when evaluating stocks: historical and future earnings growth; profit margins; returns on equity (ROE); and share price performance.