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What to Look for in a Growth Stock

With the world economy and corporate profits on an upswing, today’s investors are giving additional thought to growth stocks because they outpace peers in terms of performance and earnings. While these stocks don’t usually pay dividends, they can provide solid returns if the investor chooses carefully. Below are several characteristics to look for in a growth stock.

A Great Management Team

Because growing companies focus on increasing sales and profits, their management teams are very important. For a company to be successful, leaders must be innovative. While it’s not always easy to spot an up-and-coming innovator, an investor should research a company’s leaders before purchasing stock.

Competition in a Rapidly-Growing Market

For a company to grow, it must participate in a market that’s entering (or already in) a growth phase. If an industry is at the end of its upward trajectory, it’s not a growing market. For instance, it may not be the best idea to invest in a PC hardware company, but it’s the perfect time to get into a startup that creates mobile apps.

A History of Sales Growth

The market, leadership, and industry are all important, but stock buyers should consider a company’s sales as well. Buyers should choose companies that are seeing revenue and earnings growth in consecutive quarters as opposed to those with irregular growth. When a company boosts its earnings and sales, it becomes an attractive investment.

Valuation

Growth stocks are compelling choices, but that doesn’t mean an investor should pay too much. A growth investor should avoid stocks with significant run-ups due to demand, as these stocks’ values will likely decline to a price that reflects their fundamentals.

In Conclusion

Growth investment can be an attractive proposition in a booming economy where demand and spending are high. When a company sees accelerated growth, it usually sees an increase in stock prices as well. However, not all growth companies are the same, and investors must do their due diligence when making stock picks. With enough research, an investor can find great growth stocks that will provide continued profits. Investors can visit Rockwell Trading on Twitter for additional stock tips and other info.