As the name suggests, growth stocks are companies whose earnings are growing at an above-average rate compared to the broader market. These companies usually command much higher valuations due to the positive sentiment surrounding the company.
However, despite the higher valuations, growth companies can still deliver great long-term returns if they can fulfil or even exceed their potential.
In this article, I want to discuss where and how you can find growth stocks and what valuation metrics investors should look at when analysing such stocks:
- Look for high-growth industries
- Historical growth as an indicator
- Look for growth catalysts and sustainability
- Valuations matter!
- Using Peter Lynch’s metric of PEG
- The Foolish bottom line