Does the promise of growth make a stock attractive? Or is it the evidence of profitability? Both are important, since each conveys a different aspect of the company, and often times both go hand in hand. A growing company ultimately requires profits to sustain & attract more investors – and a profitable company needs to constantly look at growth sources in order to, again, attract investors.
It’s difficult to find investors who are willing to invest in companies that are profitable but not growing. However, expanding companies that offer potential growth even without profitability still attract many investors. And rightly so, since profitability often follows growth.
After all, growth is essential for a business to expand – making the company bigger, increasing its market, and ultimately making it more profitable. There’s certainly the risk that the growth will not turn into profits – but it’s this promise that also brings with it far higher rewards for the patient and long-term investors.
Why invest in Growth stocks?
A growth company is generally characterized by growth rates higher than that of the overall economy & its industry peers. Such companies tend to re-invest a large portion of their resources & profits to expand their products and/or services to generate more revenue are called growth stocks.
However, such stocks also tend to not pay out dividends since most of the earnings have been reinvested in new projects and initiatives (e.g. product development, new factories, R&D, etc.) that will help the company become stronger in the long-term.
Given their lack of dividend payments and high valuations, you might wonder why anyone would invest in growth stocks at all. But, such investments maximize your capital appreciation & can be a great way to increase your wealth over the long term. Some benefits of investing growth stocks are:
- Rapid Growth: Rapid growth means a fast and sustained increase in the stock price, which leads to a faster accumulation of wealth. Importantly, the company’s rapid growth rate is believed to be continued into the future.
- Reap Long Term Benefits: Identifying companies with the potential to dominate their industry in the future can grow your wealth over the period. Though these stocks may experience minor corrections, it may be set to become a solid company for the next 50 years, or even more.
- Overcome Trends: Usually, such companies have some sort of lock on a market, whether that be radical innovation or a strong patent on an in-demand product. This sustains consumer demand even at times when the market is slumping, thus overcoming overall market trends.
Some growth stocks go on to create huge amounts of wealth for their investors. The following are some popular growth stocks in the US and the incredible returns they’ve earned for their investors since they went public:
|Company Name||IPO year||Share Price Appreciation since IPO|
AxisDirect Samruddhi smallcase
Are you wonderstruck by these humungous returns too? Investing in Growth stocks can be a great strategy. But picking out such stocks can become tricky for retail investors. Hence, Axis Securities Ltd. (ASL) Research has created a readymade basket named AxisDirect Samruddhi smallcase that invests in growth-oriented stocks.
The “AxisDirect Samruddhi smallcase” consists of strong companies having sound management and proven historical track record. This makes it suitable for investors seeking long-term capital appreciation. It has generated a healthy annual CAGR of 28.62% vs NIFTY returns of 9.82% over the past one year (as of Oct 2019).
If you are looking to accumulate wealth by investing in stocks that maximize your capital appreciation, you might want to consider investing in the AxisDirect Samruddhi smallcase.
AxisDirect launched smallcases in July 2018, and the AxisDirect Research team has created 10+ smallcases since. smallcases are portfolios of stocks/ETFs that have an underlying theme or an established investing strategy. smallcases are inherently diversified, have no additional cost on AxisDirect, and prove to be far more cost-efficient than mutual funds in the long-run. Login now with your AxisDirect account to invest in smallcases.