What is Growth Investing?

Growth investing comes with a greater degree of volatility than dividend investing or even value investing. But it also has the potential for much bigger rewards.

Growth investing typically involves investing in less established, but fast-growing companies. In searching for growth stocks, you generally want to invest in companies that are growing – or projected to grow – earnings at a faster rate than the overall market. Companies growing at triple-digit rates, 100% or better, are among our favorites. (In fact, triple-digit growth has been a factor in most big winning stocks over the years).

That kind of rapid growth can overcome a number of smaller deficiencies: inexperienced management, competition, weak patent positions, etc. Furthermore, fast growth typically attracts the attention of institutional investors, who push share prices higher as they buy their way in.

Of course, the risk in growth investing is that you’re buying less mature companies that usually don’t pay a dividend. If the share price declines, you don’t have a quarterly dividend payment to cushion the fall. And these stocks can very volatile, especially during earnings season.

While fast-growing companies have a good chance to outpace the market—sometimes by a considerable amount—they also have the potential to fall flat. Some high-growth companies are so under the radar or so misunderstood that the share price appreciation doesn’t match the financial growth.

The key to successful growth investing is identifying fast-growing companies before the masses do. That can be tricky, since some of the best growth-stock candidates are relatively obscure. There’s a reason, after all, that the market hasn’t fully discovered them yet.

But keep things simple. Look for companies with accelerating sales, better-than-average earnings growth, and healthy profit margins. More often than not, the combination of those three characteristics eventually grabs the market’s attention. When it does, the rewards can be astonishing.

To learn more and get everything you need to know about investing in growth stocks, download our FREE Special Report, 10 Forever Stocks to Buy Now—and How to Find the Best Growth Stocks.