
This Growth Stock Could Be Worth a Trillion Dollars in the Next 5 Years
Financial data is the future, and Square is leading the pack.
Investing in growth stocks can be a great way to earn life-changing wealth in the stock market. The key, of course, is to know which growth stocks to buy -- and when.
To help you get started, here’s a handy guide to growth investing. With these tools and strategies, you’ll be able to position your portfolio for long-term success with growth stocks.
Growth stocks are companies that increase their revenue and earnings at a faster rate than the average business in their industry or the market as a whole. Growth investing, however, involves more than picking stocks that are going up.
Often a growth company has developed an innovative product or service that is gaining share in existing markets, entering new markets, or even creating entirely new industries.
Businesses that can grow faster than average for long periods tend to be rewarded by the market, delivering handsome returns to shareholders in the process. And, the faster they grow, the bigger the returns can be.
Unlike value stocks, high-growth stocks tend to be more expensive than the average stock in terms of metrics like price-to-earnings, price-to-sales, and price-to-free-cash-flow ratios.
Yet, despite their premium price tags, the best growth stocks can still deliver fortune-creating returns to investors as they fulfill their awesome growth potential.
Growth stocks are companies that increase their revenue and earnings faster than the average business in their industry or the market as a whole.
To provide you with some examples, here are 10 excellent growth stocks available in the stock market today:
Company | 3-Year Sales Growth CAGR | Industry |
---|---|---|
Shopify (NYSE:SHOP) | 183% | E-commerce |
Alibaba (NYSE:BABA) | 63% | E-commerce and cloud computing |
Square (NYSE:SQ) | 63% | Digital payments |
MercadoLibre (NASDAQ:MELI) | 58% | E-commerce |
Facebook (NASDAQ:FB) | 48% | Digital advertising |
JD.com (NASDAQ:JD) | 29% | E-commerce |
Netflix (NASDAQ:NFLX) | 29% | Streaming entertainment |
Amazon (NASDAQ:AMZN) | 28% | E-commerce & cloud computing |
Salesforce.com (NYSE:CRM) | 26% | Cloud software |
Alphabet (NASDAQ:GOOG), (NASDAQ:GOOGL) | 18% | Digital advertising |
CAGR = compound annual growth rate. Data sources: Morningstar, company quarterly financial reports
As this list shows, growth stocks come in all shapes and sizes. They can be found in a variety of industries, both within the U.S. and in international markets. In fact, while all the stocks on this list are larger businesses, smaller companies can be fertile ground for growth investors, too.
A great way to invest in a wide variety of small-cap growth stocks is via an exchange-traded fund (ETF) such as Vanguard Small-Cap Growth ETF (NYSEMKT:VBK). This fund tracks the performance of the CRSP US Small Cap Growth Index, which gives investors an easy way to invest in roughly 580 small-cap growth companies all at once.
Importantly, the Vanguard Small-Cap Growth ETF has an ultra-low expense ratio of 0.07%. This means investors will receive nearly all of the fund’s returns, with only a small amount in fees going to Vanguard. (An annual expense ratio of 0.07% equates to only $0.70 in fees per $1,000 invested per year.)
Image source: Getty Images
To find great growth stocks, you’ll need to:
Companies that can capitalize on powerful long-term trends can increase their sales and profits for many years, generating wealth for their shareholders along the way.
The coronavirus pandemic accelerated many trends that were already well underway. Here are some examples, along with the companies that can help you profit from those trends:
The key is to try to invest in these types of trends and companies as early as possible. The earlier you get in, the more you stand to profit. However, the most powerful trends can last for many years and even decades, giving you plenty of time to claim your share of the profits they create.
It’s also important to invest in growth companies that possess strong competitive advantages. Otherwise their competitors may pass them by, and their growth may not last long.
Some competitive advantages are:
Lastly, you’ll want to invest in businesses with large addressable markets -- and long runways for growth still ahead. Industry reports from research firms like Gartner (NYSE:IT) and eMarketer -- which provide estimates of industry sizes, projections for growth, and market share figures -- can be very helpful in this regard.
The larger the opportunity, the larger a business can ultimately become. And, the earlier in its growth cycle it is, the longer it can continue to grow at an impressive rate.
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