The company makes money and pours it all back into future expansion.
I think the goal for any business is to keep growing and keep innovating. Everyone wants to keep moving forward at a steady pace and within reason. Growth stocks are no exception in this mindset, but in the way they grow is drastically different. I see these companies moving at a very fast pace going no where but up. You will most likely see these companies with smaller market capitalization as they are smaller and just getting started. Since they are just getting started, this is where we see volatility and sometimes these are risky stocks. Some of them fail and some succeed, but within that moment of market efficiency, money is sure to be made.
Dividends are the last thing these companies are worried about paying out, because that capital could be used to grow the business even more. When I look at the chart of revenue over a period of time, I like to see this:
Notice how this bar graph looks. I can clearly see the direction that this company is moving in. Their revenue keeps increasing at a steady rate and so is their earnings. Even though this company had negative earnings, it flipped to the positive side which is attractive. I can see that there was a pivotal change in direction when it comes to the company’s profitability, and I can also minimize risk by noticing how their revenue is increasing after the flip from negative earnings. This is a really positive example of what a growth company should look like and this company also is in my portfolio at the moment. The company is called The Callon Petroleum (NYSE:CPE). They are clearly in the business of oil (if you couldn’t tell by their name) and I consider this one of the more developed growth stocks (or is it?).
Callon displays a continual ideology of growth in their operations, which makes me a proud share holder. I like to see dominance in these companies and Callon is definitely doing that. It has a large holding of land in Midland county, Texas and recently expanded their holdings. I think based on what the oil industry is doing in the United States, Callon is well positioned to keep expanding at a rapid pace. I don’t see them having a real innovative product, but what is really innovative for them is timing. Timing and innovation is something you have to keep in mind with growth stocks. Callon is developing at the right time that the area it operates in will begin to boom. Although they may be early for the show, they have really set themselves up for success in the long run.
When you think of growth investing, think about getting in on sunlight before sunlight exists. You should have a predefined goal when selling your growth stocks, and make sure they are realistic. Maybe not a 100% return, but instead of a 7% return on your initial investment, think about getting around 15-30%. Each stock is going to be different. You should understand that the fundamentals of these companies need to be strong so consider the following when investing in growth stocks.
When looking for growth investments, look for:
- Great return on equity
- Great return on assets
- Manageable debt levels
- Good profit margin percentages
- Market outpacing
- Realistic (but strong) forecast and projections of growth
These are generalizations and meant to increase your understanding of the securities market. Any advice contained within this blog is general advice and does not consider your objectives, financial situation or needs, and you should consider whether it’s appropriate for you. The information we are giving you is for educational purposes only.
“Investing is about understanding your risk” and every time you invest in the share market there is a risk of loss. Trading is not for everyone. There is a possibility that you can lose your money. You should only act on our recommendations if you are confident that you fully understand what you are doing