What is a Growth Stock?

Finding a good growth stock is exciting and potentially lucrative. But you could be in for a bumpy ride.

A growth stock is, by definition, a stock that outpaces the market. Some of the best ones could earn triple-digit returns in a short amount of time. Of course, fast growth like that goes hand-in-hand with volatility and risk.

However, finding the right early-stage growth stock can help investors achieve their long-term investing goals. Here’s what to look for:

• Capable of multiplying its earnings rapidly
• A revolutionary product or service that has mass market potential
• A good business model
• Limited competition
• Triple-digit revenue growth
• High profit margins

It may take a little work on your part to dig into the details, but it could be well worth it. And don’t expect that every growth stock will come without risk. Even so, for many investors, the risks are worth the potential rewards.

Apple (AAPL), Amazon.com (AMZN), Netflix (NFLX)—all of them started off as growth stocks before they became some of the market’s most coveted stocks. Those who got in early earned triple-digit, even quadruple-digit, returns.

Bear in mind, too, that no one picks winners all the time. Sometimes your stocks will go down right after you buy them. If they do, get out of them, keeping your losses small. On the other hand, you should hold your winners as long as they are doing well, cultivating them with the hope of holding on for the huge profits that can develop over several years time.

In general, we feel we’ve done a good job if 60% of our stock picks end up as winners. The key to success is letting the profits in your winners get larger while keeping your losses small.

To learn more and discover how you can find the right stocks for your portfolio, download our free report, Technical Analysis of Stocks: How Relative Performance Works, Why Trading Volume is Important, and Other Chart-Reading Lessons, right now.