The following video is part of our "Motley Fool Conversations" series, in which analyst John Reeves and advisor David Meier discuss topics across the investing world.

Analyzing growth businesses can seem like a daunting task. John and David would like to simplify it a bit in order to help Fools invest -- better. The first thing one should do is determine the total addressable market. Then, make sure it’s big, or it’s getting big. LinkedIn’s addressable market is $27 billion. Current revenue is $724 million. Big Data analytics is expected to grow to $20 billion by 2015, which is why Splunk might be attractive. Next, we need to determine if the company is differentiated, either with a better product or a disruptive technology. InvenSense has created motion sensors with a smaller form factor, giving it an advantage in the marketplace. Fusion-io was one of the first companies to use solid-state memory to help server processors run more effectively. Finally, we must determine if the growth can persist. IPG Photonics developed the fiber laser, a disruptive technology. Not only will it grow by taking market share away from traditional lasers, but the company is investing heavily in R&D to create new markets for its products. That will help it grow for years to come. Investing in growth companies can be very lucrative for investors. These three simple steps to analyzing growth businesses should help you invest better.


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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.