Growth investment refers to the investment done in companies that have been showing a good performance and are likely to continue this good show, although there is no guarantee. Investment is made if it is expected that a company will grow at an above-average rate as compared to the other companies in the same industry or the overall market.
Growth investment strategy is often termed as capital growth strategy as the investors look to enhance their capital gains. Growth investors invest in smaller companies that carry high potential for growth, in blue chip companies, in companies of emerging markets or in purchasing recovery shares. Many factors like capital, financial goals, investment style, and position of the company in respect to other companies in the same industry are considered before making an investment decision. Types of growth investment categories include small-cap stocks, healthcare and technology stocks, and speculative investments.
Main features of growth Investment
Higher priced than broader market: Investors are so hopeful of companies doing better in future that they willing to pay high price-to-earnings multiples. They might not have a strong history of great earnings but carry the potential to make it big in the future. They expect the companies to perform even better in the future and hope to make profit by selling at a higher price.
High volatility: Growth investments are subject to higher rate of volatility than broader market since the lofty price of the stocks could fall sharply if any negative news floats regarding the company.
High earnings growth records: Growth companies are more likely to continue a good show even in case of slower economic conditions. This mostly happens when other companies register a slower performance as a result of disappointing market conditions.
Growth investments help the investors in beating the market in the long run. It requires the investors to have plenty of patience and staying power. They must also remember to retain enough capital to play longer innings.