Which Companies Are Considered for Growth Stocks?

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Which Companies Are Considered for Growth Stocks?

Over the long term, growth stocks tend to perform better than other stocks, which is why many investors add them to their portfolios, despite their greater volatilities. After looking at the price/earnings ratios and performance histories of a number of stocks you are interested in, you may decide to further focus your research and investment dollars on certain types of companies that are particularly likely to issue growth stock.

Look in certain industries

Although you can find growth stocks issued by companies of varying sizes and at different places along the growth curve, you are especially likely to find them in specific high-growth industries. For instance, computer, software, and Internet companies generally offer higher potential for growth than do companies based on older manufacturing processes. Similarly, communications technology companies often provide considerable growth potential, as do pharmaceutical and biotechnology companies that are creating new products and entering new markets. Conversely, you are less likely to find growth stock issued by corporations that manufacture automobiles, furniture, and home appliances.

You usually can find growth stocks issued by companies that have established a track record in their fields. While stocks issued by start-up companies may grow very quickly, they are also very volatile and lack the earnings track-record requirements that are part of the standard definition of growth stocks.