In
financeFinance is the science of funds management. The general areas of finance are business finance, personal finance, and public finance. Finance includes saving money and often includes lending money. The field of finance deals with the concepts of time, money and risk and how they are interrelated...
,
growth stocks are
stockIn the investment world, a share of stock represents a share of ownership in a corporation ....
s
belonging to companies that have shown high growth (e.g. in earnings) in the past and, it is hoped, will continue to grow, leading to good investor returns.
Analysts compute ROE by taking the company's net income and dividing it by the company's
equityEquity, in finance and accounting, is the residual claim or interest of the most junior class of investors in an asset, after all liabilities are paid. If valuations placed on assets do not exceed liabilities, negative equity exists...
. To be classified as a growth stock, analysts expect to see at least 15 percent return on equity. CANSLIM is a method which identifies growth stocks and was created by
William O'NeilWilliam J. O'Neil is an American entrepreneur, stockbroker and writer, who founded the business newspaper Investor's Business Daily and the stock brokerage firm William O'Neil + Co. Inc...
a stock broker and publisher of Investment Business Daily.
Discussion
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In
financeFinance is the science of funds management. The general areas of finance are business finance, personal finance, and public finance. Finance includes saving money and often includes lending money. The field of finance deals with the concepts of time, money and risk and how they are interrelated...
,
growth stocks are
stockIn the investment world, a share of stock represents a share of ownership in a corporation ....
s
belonging to companies that have shown high growth (e.g. in earnings) in the past and, it is hoped, will continue to grow, leading to good investor returns.
Criteria
Analysts compute ROE by taking the company's net income and dividing it by the company's
equityEquity, in finance and accounting, is the residual claim or interest of the most junior class of investors in an asset, after all liabilities are paid. If valuations placed on assets do not exceed liabilities, negative equity exists...
. To be classified as a growth stock, analysts expect to see at least 15 percent return on equity. CANSLIM is a method which identifies growth stocks and was created by
William O'NeilWilliam J. O'Neil is an American entrepreneur, stockbroker and writer, who founded the business newspaper Investor's Business Daily and the stock brokerage firm William O'Neil + Co. Inc...
a stock broker and publisher of Investment Business Daily.
Growth vs. Value investing
Since 1982, the growth stocks have beaten value stocks during:
- 1982
- 1985
- 1987
- 1989-91
- 1995-99
- 2007
During the rest of the years, the value stocks have done better. Note that the 5 years preceding the
dot-com bubbleThe "dot-com bubble" was a speculative bubble covering roughly 1998–2001 during which stock markets in Western nations saw their equity value rise rapidly from growth in the more recent Internet sector and related fields...
burst, growth stocks did better than value, since then value stocks have generally done better.
Some advisors suggest investing half the portfolio using the value approach and other half using the growth approach.
See also
- Finance
Finance is the science of funds management. The general areas of finance are business finance, personal finance, and public finance. Finance includes saving money and often includes lending money. The field of finance deals with the concepts of time, money and risk and how they are interrelated...
- Financial ratios
- P/E ratio
The P/E ratio of a stock is a measure of the price paid for a share relative to the annual net income or profit earned by the firm per share...
- Turnaround stock
-External links:***...
- Value stock
External links