Before a potential investment there are several points which the growth investor must take into account. Does the company which he has zeroed on in, possess a stable management and whether its finance credibility is positioned for sustained growth. Then he must check whether the present economic environment will benefit the particular industry of which the company is a part? And above all, the value of the stock is very important.
To determine a sound entry price for a strong growth stock can be a difficult task. But to determine the success of an investment, it is the most important factor. An investor would ideally be inclined to buy into a growth company very early, because he would naturally like to garner enough profit from its persistent growth. But at the same time it is very important for the investor not to place a huge chunk of his premium on his apprehension of the company’s growth potential. For, doing so might limit his future profits from another possible sector.
At the starting point the investor needs to decide about his own investment preference. He can either be a ‘value’ or a ‘growth’ investor or he can be both. But it is always advisable to choose a primary focus. It’s important to note that growth and value investment are not contradictory options but are rather two different approaches to an identical situation.
An investor can decide his own inclination regarding which strategy appears the most appealing. Given below are the basic characteristics of growth investment:
o The average growth rates in revenue and earning of these companies are higher in comparison to the other companies.
oThese companies cater to such industrial sectors which are continuously expanding. They are smoothly sailing through the current demographic and economic cycle.
oThese companies do not pay dividends.
oThese companies are characterized by such high growths that they often end up beyond the earning estimates.
oThe continued growth of the company determines the holding period.
Growth investment is all about estimating and predicting the future. It is constantly in the investor’s thought that whether the respective company would maintain the same steady pace in the stock market. He must be extremely concerned about the company plans and policies like revenue, earnings, and sales and so on. He needs to keep an eye on the industry and the level of participation of the company in that growth. Some attentive reading done online and the financial press can immensely help the growth stock investor. Another notable feature of the growth stock is that it belongs to growth industries. A growth industry is usually related to some kind of technology. Next, the growth stocks belong to companies that are small to mid-sized. In fact a wide range of factors keep the large companies away from maintaining a steady growth rate. An exception being the Microsoft.