A growth-oriented investor looks for companies that are expanding rapidly. Stocks of newer companies in emerging industries are often especially attractive to growth investors because of their greater potential for expansion and price appreciation despite the higher risks involved. A growth investor would give more weight to increase in a stock’s sales per share or earnings per share (EPS) than to its P/E ratio, which may be irrelevant for a company that has yet to produce any meaningful profits. However, some growth investors are more sensitive to a stock’s valuation and look for what’s called, “Growth at a Reasonable Price” (GARP). A growth investor’s challenge is to avoid overpaying for a stock in anticipation of earnings that eventually prove disappointing.
Why Understand Investing Styles?
Growth stocks and value stocks often alternate in popularity. One style may be favored for a while but then give way to another. Also, a company can be a growth stock at one point and later become a value stock. Some investors buy both types, so their portfolio has the potential to benefit regardless of which is doing better at any given time. This gives you a look into how a professional bases their work on data rather than stock tips or guesswork, which in turn can give you a chance at a higher rate of return in your portfolio.
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