Growth stocks are the beauties of the stock world, plain and simple. They're exciting, they have good stories, and they can make you a lot of money.
But for all their beauty, growth stocks are also the prima donnas of the market. They can be erratic, they don't always live up to their billing, and they tend to attract a shareholder base that's ready and willing to run at the first signs of slowdown. For those reasons, caution is certainly in order when you enter the world of growth investing.
Fortunately, The Motley Fool's CAPS service brings us the collective intelligence of a community of more than 140,000 investors and is a great resource for separating the Jessica Albas from the Jabba the Hutts. Each of the stocks competing for this week's top spot has a market cap of at least $100 million and grew its net profit per share by an average of 15% or more per year over the past three years. (You can run the screen for yourself, if you like.) So let's go ahead and meet our contestants.
Databases may have been Oracle's
What does this all mean for investors? A peek at the numbers gives a pretty good idea. Oracle's revenue grew more than 60% between its 2006 and 2009 fiscal years, and profit made an even better 70% jump. Over the past 12 months, the company has sported an enviable net profit margin of 25%.
Michael Jackson may have been the king of pop, but Google
Between 2005 and 2008, Google's average annual earnings-per-share growth was a smoking 38%. The company has been riding the wave of Internet advertising growth and has been basking in its own glory as it gobbles up market share.
Many question whether the growth can continue, though, and investors are particularly wary considering Google's more-than-healthy price-to-earnings ratio. But even if the pace slows, it seems that Google does still have runway. Recessionary conditions no doubt constrained advertising spending recently, but the need to effectively reach consumers over the Internet isn't going to go away. And with its hands in new areas -- like mobile phones through its Android operating system -- the size of its addressable market continues to grow.
If your portfolio is in need of some excitement, FLIR Systems
The company makes thermal imaging systems that are used by the military and private industry to see things that the human eye can't. While some purchases can be put off during a recession, others can't. When the army needs gear to allow soldiers to work optimally or refiners need a way to detect emissions, there's rarely a good case for putting off purchases.
As for growth, FLIR might as well be asking "What recession?" Over the past 12 months, the company's earnings per share jumped 39%.
It's been a rocky road for Williams Companies
But natural gas remains a key piece of the energy puzzle and boasts a cleanliness well beyond its more primitive cousins, oil and coal. Williams itself is an integrated natural gas company, meaning that it does everything -- finds reserves, pulls the substance out, treats it, and transports it over its network of pipelines.
Williams' bottom line has had its ups and downs over the past few years and is down 40% over the past year, but its trailing results are still 50% better than what it produced in 2005.
Apparently, knowledge trumps recession. Or at least that's what one could guess based on Apollo Group's
Will the growth continue when the economy recovers? After such a rude wakeup call it's tough to imagine that U.S. workers' need to be more skilled and more qualified will be less important postrecession.
The envelope please ...
The voting is in and the CAPS community members have shared their opinions. Apollo gets a quick vote off the island thanks to a low two-star rating. The company got schooled by Citron Research earlier this year and that helped turn quite a few CAPS members against the stock. Neither Google nor Williams -- both sporting three-star ratings -- made it to the final showdown either.
Oracle and its mighty databases scored a commendable four stars from the CAPS community, but it still wasn't enough to trump this week's winner: FLIR Systems.
What pushed FLIR into the five-star orbit? Let's take a look at what CAPS member and FLIR bull SaysJotto had to say recently:
FLIR is the leader in infrared imaging technology. As the cost of this technology continues to decrease the adoption of their technology/products will continue to increase and be seen in applications that were previously cost prohibitive. With such a vast range of uses for this technology; defense, security, aviation, automotive, health (swine flu), etc FLIR will continue to have superior sales growth something many companies will have trouble with over the next 2-3years.
Now go vote!
Do you think that FLIR has what it takes to be America's next top growth stock? Head over to CAPS and let the rest of the community know what you think.
Google is a Motley Fool Rule Breakers selection. FLIR Systems and Microsoft are Motley Fool Inside Value recommendations. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool owns shares of Oracle.
Fool contributor Matt Koppenheffer does not own shares of any of the companies mentioned in this article. You can check out the stocks he's keeping an eye on by visiting his CAPS portfolio, or you can connect with him on Twitter @KoppTheFool. The Fool's disclosure policy would surely win America's Next Top Disclosure Policy, but for some reason there's no such contest.