Mastering Growth Investing

Who doesn’t want to grow from their current state? In the same way, what if your capital grows? Growth investing may help you to grow your capital properly. It represents an investment approach that places primary emphasis on the appreciation of asset prices or values. Investors who adopt this strategy are referred to as growth investors, and they prioritize a company’s future potential over its current valuation. This approach is frequently referred to as a capital growth strategy.

Growth investors direct their investments towards companies anticipated to experience earnings growth surpassing their industry or the broader market. The underlying concept of growth investing is that the expansion in earnings or revenue will ultimately lead to higher stock prices in the future. 

They actively seek opportunities within rapidly expanding industries where novel technologies and services are emerging, aiming to profit through the appreciation of stock values rather than relying on dividends. Many investors find growth investing particularly attractive because investing in growing companies can yield remarkable returns if those companies achieve success. It’s essential to note, however, that such companies also entail a high degree of risk. 

Key criteria to consider when engaging in growth investing include:

1. 1. Quarterly sales growth YoY: This metric reflects an increase in a company’s sales for a specific quarter when compared to the same quarter in the previous year. It provides insight into the company’s ongoing sales growth, indicating how its quarterly sales are expanding over time. 
   2. Consistent annual sales growth rate: This criterion identifies stocks with a history of maintaining a yearly sales growth rate. It serves as an indicator of a company’s financial health, showcasing its ability to introduce new products, diversify its business through technological innovations, meet customer demands, and uphold its brand reputation. 
   3. Quarterly EBITDA growth: EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) represents a company’s operating profitability. By focusing on EBITDA growth for a specific quarter when compared to the same quarter in the previous year, investors gain clarity on the cash generated from the company’s core operations. 
   4. Quarterly net profit growth: This metric focuses on a company’s ability to generate a profit after accounting for all expenses, relative to the same quarter in the prior year. It signals the company’s capacity to sustain its market presence and foster growth. 
   5. Consistently increasing quarterly earnings per share (EPS): This factor involves the ongoing comparison of a company’s quarterly EPS to those in previous quarters. EPS, or net income per share, quantifies the net income earned per outstanding stock share, demonstrating the company’s consistency in delivering value to shareholders. 
   6. Consistently Increasing Annual Earnings Per Share (EPS): This concept pertains to the company’s yearly EPS compared to previous years, illustrating the net income earned per outstanding stock share and its trajectory over time.
   7. Growing Cash Flow from Operations: This signifies the financial strength of a company due to an increase in earnings. It indicates that the company, after deducting all direct costs associated with production and distribution, is generating sufficient cash from its operational activities. 

Important Links:

• Are Low P/E Stocks A Great Bargain Or A Trap?
• Power of free cash flow
• Key Principles of Value Investing

This is one way to grow your capital by investing in growth companies. However, merely reading about it will not lead to success. Success is achieved through practice in identifying sound companies based on the mentioned criteria, gaining experience in investing, and implementing proper risk management. 

Furthermore, investors have many options and ways to execute a strategy that focuses on capital appreciation which includes investing in blue chip companies, investing in smaller companies having high growth potential, investing in emerging markets, etc.