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 loveliness, 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 135,000 investors, providing 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 each grew its net profit per share by an average of 20% or more per year over the past three years. (You can run the same screen I did, if you like.) So let's go ahead and meet our contestants.
OK, it doesn't have the iconic golden arches of McDonald's
The company already has significant exposure abroad, and it's been growing that segment. And with roughly 90% of its restaurants owned by franchisees, it has little need for huge amounts of capital to fund growth.
Do I really have to say anything about Google
Google's growth has dropped off lately, thanks in large part to the recession, but analysts see growth reigniting over the next couple of years.
Much like Expedia and priceline.com in the U.S., Ctrip.com
Remember that growth in China that I mentioned would help Ctrip? Well, ditto that for China Mobile
Chipotle Mexican Grill
Chipotle Mexican Grill
Compared to Burger King and its 11,000-plus restaurants, Chipotle is still a baby, with fewer than 900 locations. Assuming that Americans continue to enjoy delicious, fresh-tasting burritos, I suspect that Chipotle has plenty of room to grow.
The envelope please ...
The voting is in, and CAPS community members have shared their opinions. Right off the bat, Burger King is getting the old heave-ho. While many CAPS members are hot on this Whopper-slinger, there are quite a number who think the chain doesn't stack up well against competitors such as McDonald's and Yum! Brands. A two-star rating on the stock suggests that we should steer clear.
Google and Chipotle are next to get the boot. While their three-star ratings don't mean that we should completely shun the stocks, they're far from good enough to elevate either to win the Top Growth Stock crown. (Chipotle's A shares get three stars, while its cheaper B shares do get five full stars.)
In the end, Ctrip and its four-star rating gave China Mobile a run for its money, but a perfect five-star rating for China Mobile means that it will claim the title of Top Growth Stock this week. To get a better idea why CAPS members like China Mobile's stock so much, let's take a look at what CAPS All-Star Trimalerus had to say back in April:
I have a very small number of Large Cap stocks in my folio and this is my only Mega Cap pick. Attractive buy opportunity as this is near it's 52 week low, of course I would have loved to have picked this at $35-38, but nobody is perfect. The Telecommunication market should continue to grow nicely in China as their middle-class expands. And as I said my primary focus is on Small Caps, so that means that this really has to shine for me to pick it to outperform.
Now go vote!
Do you think that China Mobile 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.
Chipotle Mexican Grill and Google are Motley Fool Rule Breakers recommendations. priceline.com is a Motley Fool Stock Advisor pick. Microsoft is a Motley Fool Inside Value pick. Chipotle and Ctrip.com are Motley Fool Hidden Gems selections. The Fool owns shares of Chipotle. 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 that 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.