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 160,000 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 earnings per share by an average of 15% or more per year over the past three years. So let's go ahead and meet our contestants.


3-Year EPS Growth Rate

Price-to-Earnings Ratio

CAPS Rating
(out of 5)

Apple (Nasdaq: AAPL)




Netflix (Nasdaq: NFLX)




First Solar (Nasdaq: FSLR)




PotashCorp (NYSE: POT)




Teva Pharmaceutical (Nasdaq: TEVA)




Source: Yahoo! Finance, Capital IQ (a Standard and Poor's company), and CAPS as of April 21.

Growth without good looks
There's no question that First Solar has delivered on the growth front. Since posting its first annual profit of $4 million in 2006, the company has grown like a weed and finished 2009 with $640 million on the bottom line. So it's got growth, it's in a burgeoning industry, and its valuation certainly isn't crazy. What gives with the two stars?

First and foremost, investors have simply fallen out of love with the solar industry as a whole. A few years ago, solar stocks were flying high and many investors seemed to think the sky was the limit. But those wild-eyed optimists must have moved on to something more exciting because stock prices and valuations have fallen pretty much across the entire sector.

I'd like to say that it may be time to take a chance on some of the best operators in the industry while prices are down, since I think the industry has a good future. Picking winners in emerging industries can be particularly tricky, though, and a lot of companies end up fading off into the night. So for now, despite the growth, I'm still with the CAPS community here.

As for Apple and Netflix, it's not hard to guess where much of the pessimism comes from: valuation. Apple is no longer a beaten-down turnaround, making it happen in the shadow of tech giants. Apple is a tech giant now. Growth has been stellar, but investors have to wonder whether a P/E ratio of 25 is really appropriate for a giant with a $235 billion market cap. How does Apple become a $300 billion company?

The P/E ratio for Netflix in the table above is not a typo; the stock is actually currently trading at nearly 44 times its trailing earnings. Sure, the P/E ratio falls to "just" 35 if we use 2010 earnings, but it seems hard to believe that future growth will justify that valuation, particularly as the company is threatened by digital delivery movies from competitors like Apple, Hulu, and Comcast (Nasdaq: CMCSA).

Strutting their stuff
While the stocks above haven't been able to sufficiently inspire CAPS members, PotashCorp has.

Potash (the salt, not the company) may not be all that exciting and you may not be able to pick out a pile of potash from a pile of molybdenum. But potash is important because it provides one of three essential nutrients for crop growth and, according to the company, it "enhances taste, color and texture of food." Yummy. It's also used as animal feed and as an ingredient in certain industrial products.

But it's not easy to get into the potash business. PotashCorp claims that it takes an investment of about $3 billion and a lead time of five to seven years to start up a reasonably sized greenfield potash mine. And that type of prohibitive capital and time investment makes it even better for PotashCorp as the No. 1 potash producer in the world.

Today's price tag looks steep, but if the Wall Street analysts are right, the company may see a postrecession rebound that will more than double its 2009 earnings per share by 2011.

But as appetizing as PotashCorp may be, it was one star short of topping this week's top growth stock, Teva Pharmaceutical.

We might as well call Teva a name-brand drugmaker's worst nightmare. The genesis of the large storm cloud over the big pharmaceutical names can mostly be traced back to upcoming patent expirations for major drugs from the likes of Pfizer (NYSE: PFE) and Merck.

But what's misery for Pfizer and Merck is the key to success for Teva. As the world's leading generic-drug manufacturer, Teva stands to benefit not only from upcoming patent expirations, but also from ongoing concerns over health-care costs -- particularly in the U.S. The current trailing P/E isn't exactly tantalizing, but with expected earnings per share of $4.55 in 2010, it's trading at a much more palatable 13.5 forward P/E.

Now go vote!
Do you think Teva 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.

None of these growth stocks is particularly cheap; if cheap is what you're after, then you may want to look here.

Pfizer is a Motley Fool Inside Value selection. First Solar is a Rule Breakers recommendation. Apple and Netflix are Stock Advisor selections. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Matt Koppenheffer does not own shares of any of the companies mentioned. 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.