Loading the player...

What is 'Growth Investing'?

Growth investing is an investment style and strategy that is focused on the growth of an investor's capital. Growth investors typically invest in growth stocks or companies whose earnings are expected to grow at an above-average rate compared to its industry or the overall market.

BREAKING DOWN 'Growth Investing'

Growth investors often call growth investing a capital growth strategy because investors seek to maximize their capital gains. However, some consider growth investing and value investing to be diametrically opposed - value investors seek stocks that trade below their intrinsic value whereas growth investors tend to ignore standard indicators that might show the stock to be overvalued. Growth investing is highly attractive to many investors because buying stock in emerging companies can provide impressive returns if the companies are successful. However, such companies are high risk. 

Influential People in the Growth Investing Field

Peter Lynch pioneered a hybrid model of growth and value investing, which is now commonly referred to as growth at a reasonable price (GARP) strategy. Another notable name for growth investors is Thomas Rowe Price, Jr., who was named the father of growth investing because of his vast work on the subject and the services provided by his company, T. Rowe Price. T. Rowe Price is now a public multinational investment firm.

Philip Fisher also created his own name in the growth investing field. Fisher's growth investment style was shared in his 1958 book entitled "Common Stocks and Uncommon Profits." This book is still one of the most popular books on growth investing today.

Growth Investment Vehicles

Investors have many options and ways to execute a strategy that focuses on capital appreciation. These include investing in smaller companies that have high potential for growth, investing in blue chips, investing in emerging markets and purchasing recovery shares.

Evaluating a Company's Potential for Growth

Growth investors look at a company's potential for growth and invest in markets that are yet to emerge. However, selecting assets that may grow requires both objective and subjective interpretations from every individual investor. Investors use different methods and guidelines that allow them to make decisions that best fit their investment style, their capital and their financial goals. In addition, growth investors look at the position of companies in relation to their industry performance and historical financial performance.

Growth investors look at five key factors when selecting companies that may provide capital appreciation. Growth investors investigate whether a company has strong historical earnings growth. Investors also consider a company's forward earnings growth, management's control on costs and revenues, management's way of operating the business, and whether the asset has the potential to double in five years.

RELATED TERMS
  1. Style Analysis

    Style analysis is the process of determining what type of investment ...
  2. Investing Style

    Investing style is an overarching strategy or theory used by ...
  3. Growth at a Reasonable Price (GARP)

    Growth at a reasonable price (GARP) is an equity investment strategy ...
  4. Philip Fisher

    Philip Fisher was an acclaimed investor known for writing the ...
  5. Organic Growth

    Organic growth is growth that a company can achieve by increasing ...
  6. Growth Firm

    A growth firm represents a company that continues to record faster ...
Related Articles
  1. Investing

    A Beginner's Guide to Growth Investing

    Learn growth investing strategies and techniques across asset types. Find out how to research and analyze key fundamental data to evaluate growth stocks.
  2. Investing

    Is Growth Always A Good Thing?

    Getting big quickly looks good, but companies can get into trouble when they do it too fast. Find out how to spot this trouble.
  3. Investing

    Great Company Or Growing Industry?

    Look at the big picture when choosing a company - what you see may really be a stage in its industry's growth.
  4. Investing

    6 Investment Styles: Which Fits You?

    How you invest is just as important as what you buy. Find out which style is right for you, and how to follow it.
  5. Investing

    5 T. Rowe Price Mutual Funds with Long Track Records (TROW)

    Learn about T. Rowe Price and the company's nearly 80-year history, and discover which mutual funds in the company's lineup have been around the longest.
  6. Small Business

    Ken Fisher's Success Story: Net Worth, Education & Top Quotes

    Learn about the rise of Kenneth Fisher, the would-be forester who became the founder of one of the largest money management firms in the country.
  7. Investing

    T Rowe Price Capital Appreciation Fund Performance Case Study (PRWCX)

    Check out an overview of T. Rowe Price Capital Appreciation Fund as well as its financial performance and historical trends over the past five years.
  8. Financial Advisor

    T. Rowe Price Funds for Diversified Income Seekers

    Find out which T. Rowe Price mutual funds to use to create a diversified income portfolio for current income, income growth and capital preservation.
RELATED FAQS
  1. When does a growth stock turn into a value opportunity?

    Learn how fundamental analysts use valuation measures, such as the price-to-earnings ratio, to identify when a growth stock ... Read Answer >>
  2. What are the most popular mutual funds that invest primarily in the insurance sector?

    Understand why investors may be interested in investment opportunities in the insurance sector, and learn which mutual funds ... Read Answer >>
  3. What do you do if the intrinsic value of a stock is significantly lower than the ...

    Discover how the intrinsic value and market price of a stock are related and why a stock that appears overvalued may still ... Read Answer >>
  4. What common growth rates should be analyzed when considering the future prospects ...

    Learn about some of the most commonly used measures for evaluating a company's future growth prospects and analyzing it as ... Read Answer >>
  5. What is more important for a business, profitability or growth?

    Discover how both profitability and growth are important for a company, and learn how corporate profitability and growth ... Read Answer >>
Trading Center