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 165,000 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.


Three-Year EPS Growth Rate

Price-to-Earnings Ratio

CAPS Rating
(out of 5) (Nasdaq: PCLN)




lululemon athletica (Nasdaq: LULU)




Merck (NYSE: MRK)




Agrium (NYSE: AGU)




Trina Solar (NYSE: TSL)




Source: Yahoo! Finance, Capital IQ (a Standard and Poor's company), and CAPS as of June 16.

Growth without good looks
Despite searing growth, some of the stocks above have been stuck with lousy ratings from the CAPS community. Why? Let's take a closer look.

For one-star bottom-dweller lululemon, the pessimism is mostly a result of a hefty valuation and skepticism that the business can keep up momentum. Not only has the company's growth been spectacular, but its margins are much higher than athletic-gear competitors' like Under Armour. But to justify that lofty valuation, lululemon will not only have to keep the top-line fire going, but also defend its 14% net profit margin. That's a task CAPS members don't seem to think the company is up to.

Got moat? CAPS members seem skeptical that has one, or at least a big enough one. The company itself shared some pretty sobering thoughts in its 2009 annual report, suggesting that factors including supplier discounting may make 2009's eye-grabbing results a one-time event. In addition, the company is concerned that both Google and Microsoft (Nasdaq: MSFT) are encroaching on the online travel sector.

Interestingly, Trina Solar may be suffering from long-held pessimism from back in 2007 and 2008 when the company was earning far less money and the stock was trading at a much loftier valuation. Since then, the company's growth, along with a decline in the stock price, have brought the valuation to a far more reasonable level.

Does that mean the CAPS community is now wrong on its two-star rating? I'm not so sure. The solar industry is still in the budding stage and we've yet to see which companies will survive among a growing list that includes the much-larger First Solar. In addition, in three years as a public company, Trina Solar has yet to show it can produce positive free cash flow.

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

When it comes to growth, the heady number next to Merck's name is a bit misleading. The company's bottom line over the past 12 months was boosted by nearly $11 billion of balance sheet write-ups triggered by Merck's merger with Schering-Plough. In fact, over the next five years, analysts expect Merck will post a markedly lower 6% annual growth rate.

But despite the low prospective growth, CAPS members have flocked to the stock. The reason is pretty simple: Prescription drugs have a very solid market, Merck has a history of success in the pharma industry, and with a P/E below 8 and a 4.2% dividend, the stock is pretty darn attractive.

But as much as CAPS members like Merck's stock, it didn't have quite enough support to beat out this week's top growth stock, Agrium.

To get insight into why the CAPS community likes Agrium so much, let's take a look at what CAPS All-Star Kreeble had to say late last year:

... Levi Strauss made his fortune on the premise that supplying the suppliers with critically needed materials would make lots of money. Agrium is poised to be the primary supplier of fertilisers and other hard goods necessary for the agriculture industry. People gotta eat folks. ...

It's hard to argue with Kreeble's conclusion. World population growth increases not only the need for more crops, but also the need to maximize crop yields. But that's only the half of it. As emerging nations like China see per-capita income increase, demand for food could grow even faster.

So opportunity is definitely knocking at Agrium's door. But when it comes to growth, a lot will depend on the company's ability to find suitable acquisitions. For the five years ending in 2009, the company juiced its growth by making nine acquisitions worth $3.5 billion.

Agrium recently lost out on its bid to acquire CF Industries Holdings, but is dead-set on staying on the hunt for acquisitions. With mining giants like BHP Billiton and Vale (NYSE: VALE) also on the prowl -- Vale spent $3.8 billion on Bunge's Brazilian fertilizer assets earlier this year -- Agrium will have to be quick on its feet.

Now go vote!
Do you think that Agrium 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.

Looking for more home run stock ideas? Check out these big stock ideas.

Microsoft is a Motley Fool Inside Value pick. First Solar, Google, and Under Armour are Rule Breakers recommendations. is a Stock Advisor pick. Under Armour is a Motley Fool Hidden Gems selection. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool owns shares of Under Armour. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.

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.