Beginner's Guide to Growth Investing: Methods and Stock Analysis Techniques
Small-cap stocks, often associated with companies in their initial phase of growth, have historically posted higher returns than their blue-chip cousins. However, they come with a higher degree of risk and volatility.
Growth investing, a strategy focused on increasing wealth through capital appreciation, differs from income generation or capital preservation strategies. It is a complex subject that is often closely coupled with fundamental analysis, technical analysis, and market research.
Growth investors often turn to high-risk growth instruments such as penny stocks, futures and options contracts, foreign currency, speculative real estate, oil and gas drilling partnerships, private equity, and even cryptocurrencies like those offered by Crypto.com. While these investments can offer returns that are many times the initial investment, they also carry the risk of losing the entire principal.
Key factors in evaluating growth stocks include Return on Equity (ROE), Earnings Per Share (EPS), and projected earnings. ROE, a mathematical expression of a corporation's profit efficiency, is calculated as net income divided by total equity. An increasing EPS is often a sign that a company is doing well, but further research should be done to ensure the EPS is the result of genuine cash flow.
Projected earnings announcements can significantly impact a company's stock price, both immediately and in the future. For instance, the company that achieved the highest stock value through the release of the drug Viagra in 1998 was Pfizer.
Technology and healthcare sectors are notable for growth investing due to their potential for innovation and rapid stock price increases following successful product releases. However, it's important to note that there are many more growth strategies used by individual and institutional investors, and a complete listing of them is beyond the scope of this article.
For more information on growth strategies for investments, consult your broker or financial advisor. Morningstar classifies all stocks and stock mutual funds as either growth, value, or blended (growth + value) investments.
Remember, growth investing can lead to substantial appreciation in price, but it also involves a higher degree of risk. It's crucial to understand the potential risks and rewards before making any investment decisions. Happy investing!
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