The valuations and Price Earnings ratios (P/E) of growth companies are usually quite different than our friends in value investing. P/E ratios tends to be much larger as these companies are valued for their growth potential, rather than their current value. Always remember, the market tries to price-in any current knowledge and sentiment about the company and the company’s future.
Targeting growth investments means looking to the industry leaders in innovation, and being able to ride the waves of potentially volatile swings along the way.
Growth investing can provide some BIG GAINS. These companies are usually the ones you here about leading the market to new highs over and over again, think Netflix, Apple, Google!
Coupled with momentum trading, growth investing can bring big time short term gains that can be compounded. Just make sure you settle on your buy and sell rules and stick to them – don’t get greedy!
Strong leaders of growth companies can have exceptional impact on their financial results. If a competent leader is at the helm or joins the team, this can really bolster the company’s potential.
Usually growth companies do not pay dividends, as they take all profits and reinvest it in the company to fuel future growth.
There can be volatile swings in the share price when news and earnings reports come out, so you need to be willing to accept higher risk than value investing.
Growth stocks are highly susceptible to current perceived value and hopes that they will continue to grow. If companies run into challenges, or another company gets first to a new innovation, the company you invested in may get left in the dust.