Growth Stocks For The Online Investor

Growth stocks or growth investing is the practice of focusing on a stock that is growing and has high potential for continued growth. So, how do you spot a growth stock? There are a few key indicators, however there’s no such thing as an exact measurement.
Naturally one of the first things to look for is a high growth rate. Look at the company’s growth rate over the past 5 years, for smaller companies it should fall around 10% or more. You can expect to see a slightly less growth rate with larger companies, 5% or more.

Return on Equity, or how efficiently a company uses it’s assets to produce earnings. This is calculated by dividing the Net Income by Book Value.

Study the company’s pre-tax profit margins. If sales do not translate into earnings, this is a good sign of a bad growth stock. Also, read this article on evaluating stocks to understand how to use “earnings per share” as a comparative tool when investigating stocks. http://stocks.about.com/od/evaluatingstocks/a/eps1.htm

A good portfolio is a diversified portfolio. Online investors should have a good balance of growth stocks, value stocks, and perhaps even a speculative stock if you’re feeling lucky. I’ll get into value stocks and speculative stocks in my next posts.