Growth Stock
From Handwiki In finance, a growth stock is a stock of a company that generates substantial and sustainable positive cash flow and whose revenues and earnings are expected to increase at a faster rate than the average company within the same industry.[1] A growth company typically has some sort of competitive advantage (a new product, a breakthrough patent, overseas expansion) that allows it to fend off competitors. Growth stocks usually pay smaller dividends, as the companies typically reinvest most retained earnings in capital-intensive projects.
Criteria
Analysts compute return on equity (ROE) by dividing a company's net income into average common equity. To be classified as a growth stock, analysts generally expect companies to achieve a 15 percent or higher return on equity.[2] CAN SLIM is a method which identifies growth stocks and was created by William O'Neil a stock broker and publisher of Investor's Business Daily.[3] In academic finance, the Fama–French three-factor model relies on book-to-market ratios (B/M ratios) to identify growth vs. value stocks.[4] Some advisors suggest investing half the portfolio using the value approach and other half using the growth approach.[5]
See also
- Alternate stock categorizations:
- Turnaround stock
- Value stock
- Treatment of growth:
- Sustainable growth rate § From a financial perspective
- Stock valuation § Growth rate
- Earnings growth
- PEG ratio
- PVGO
- Valuation using discounted cash flows § Determine the continuing value
- Benjamin Graham formula
References
- ↑ "Top Growth Stocks". InvestingDaily.com. http://www.investingdaily.com/glp/32175/investing-in-growth-stocks-top-momentum-stocks-to-own-now.html.
- ↑ "Sivy on Stocks". CNNMoney.com. 2004-08-06. https://money.cnn.com/2004/08/06/commentary/mkcommentary/sivyguide_six_guestions/index.htm.
- ↑ O'Neil, William J. (2002). How to Make Money in Stocks: A Winning System in Good Times or Bad. The McGraw-Hill Companies. ISBN 978-0-07-137361-6. https://archive.org/details/howtomakemoneyin00mcgr.
- ↑ Fama, Eugene F.; French, Kenneth R. (1998). "Value versus Growth: The International Evidence". The Journal of Finance (American Finance Association, Wiley) 53 (6): 1975–1999. doi:10.1111/0022-1082.00080. ISSN 0022-1082. http://www.jstor.org/stable/117458. Retrieved 2021-12-28.
- ↑ "Multi-Style Investing: A Tale Of Two Investment "Styles"". Bernstein Global Wealth Management. 2004-07-22. http://www.bernstein.com/public/story.aspx?cid=744&nid=185.
External links
- How to Find the Ultimate Growth Stock
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Categories: [Fundamental analysis] [Stock market]
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