What are High Growth Stocks? A Beginners' Guide - Entrepreneur

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If you want to invest in high-growth stocks, use this guide as your starting point.
High-growth stocks can provide significant rewards, but investing in them takes careful analysis and study. Finding companies with solid growth prospects isn’t always easy, so it’s important to do your homework before buying shares.
Your first step is to look at the company’s overall growth potential. The best way to do this is to focus on a few key areas:
Related: Become a Billionaire by Investing in Stocks
A company’s growth rate can be calculated using its earnings per share (EPS). The rate is expressed as a percent change from one period to the next, such as a year or quarter. For example, if a stock has an EPS of $1 this quarter and $1.25 the next, that’s a 25% increase in EPS.
The industry you’re looking at should also have high growth potential. Generally speaking, industries where products don’t become obsolete quickly tend to have more consistent sales and profits than those where products quickly become outdated (think newspapers vs. smartphones). You also want to ensure enough customers in your chosen industry; otherwise, too many companies will compete for limited business opportunities and drive down profit margins across the board.
The best way to determine whether an industry is growing fast enough for you is by comparing its growth rate with other comparable industries or with itself over time. It doesn’t hurt if its current year looks strong compared to past years’ performance.
Related: The Beginner’s Guide to Investing in Cryptocurrencies
To get a feel for a company’s financial health, you’ll want to look at its balance sheet, cash flow statement, income statement, debt load and share price.
You should also analyze the company’s management. This includes looking at the management team’s experience, skill sets and track performance record. You’ll also want to look at how financially healthy a company is and how corporate culture and governance are handled.
Related: Looking to Invest in NFTs? How to Research and Find the Next Potential Big Hit.
Risk tolerance is a personal thing. It can change over time, and it’s not the same as risk aversion or risk appetite. If you’re new to investing, there are some easy ways to gauge your risk tolerance:
High-growth stocks can provide big rewards but also carry more risk and volatility. To succeed with high-growth stocks, you’ll need to do significant research and plan how to use them in your portfolio.
Some of the best investments can deliver double-digit gains in a short time and often within just months or even weeks after purchase. These returns may sound tempting, but investors who want to experience those results should know that high-growth stocks are more volatile than other investments like bonds or money market accounts. That’s because high-growth stocks typically pay higher dividends than other investment vehicles; these payments are based on the company’s revenue growth rather than its profits from previous years (which is how most bondholders get paid).
Related: This Clever App Can Help You Make Smarter Investments
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