Investment Strategy in Growth Stocks
Investing in the rapidly growing companies has always attracted the attention of all worlds’ investors, in particular, at the market rise. The reason why investing in growth stocks - so popular is very simple: stocks of these companies' rise up a lot faster than any other, and the return may be no longer measured in percentages but in times.
So what are those fast-growing companies and how to identify them from others? There is no exact definition, but generally, companies are recognized as growing fast if their sales growth over the year exceeds 20%, but the precise percentage would depend on market terms. In a growing economy, results of these companies are improving faster than the national average.
Investing in growth stocks is much riskier than investing in value stocks or market average. When stock market starts to decline, growth stocks react much more strongly, and their price drops faster than the overall market. Growth stocks can very quickly lose the major part of the value. The probability of such company bankruptcy is also higher than other companies, if excluding other factors.
For investing in growth stocks most often is used PEG ratio, which one is based on P/E ratio. It should be noted that the investment strategy in growth stocks is not full investment strategy but it may be only a part of it.