Definition
Growth investing focuses on companies expected to grow revenue and earnings at above-average rates, often in innovative or expanding industries. Growth investors are willing to pay premium valuations (high P/E, P/S ratios) for stocks with strong growth potential, betting that future earnings will justify current prices. Growth stocks typically reinvest profits rather than paying dividends. The strategy performs well in bull markets but can suffer significant drawdowns during corrections when high valuations compress.
Example
A growth investor buys a cloud software company at 50x earnings, justified by 40% annual revenue growth and expanding margins. The expectation is that within 5 years, earnings will grow to justify or exceed the current valuation.
FAQ
What is Growth Investing?
A strategy focused on companies expected to grow earnings faster than average.
Why is Growth Investing important?
Growth Investing helps investors evaluate investment strategies and make more informed decisions.