A. It really depends on your investment goals. We will take a look at the pros and cons of growth investing and value investing below to help you make the decision.
First, what's growth investing?
Growth investors look for companies that are expected to grow faster than the economy and inflation.
What's less important for a growth investor is a stock's current price level, also, growth stocks tend to be young companies that reinvest their earnings into the company instead of paying dividends, that's why you can find many growth companies in the technology industries that are expanding rapidly.
Here are some characteristics of the companies that growth investors look for:
- Historic earnings growth. For example, a minimum of 7% earnings per share (EPS) growth for companies between $400M – $4B.
- Expected earnings growth. For example, a minimum of 10 earnings growth rate over the next five years.
- Industry leaders that have beaten pre-tax profit margins for five years.
- Steady or rising ROE.
In our next blog post, we will discuss the pros and cons of growth investing.