There are many labels that are used to describe companies in the world of investing. Shares of companies are labeled by investors as value stocks, dividend stocks and many other names. The truth is that these labels often indicate whether a company is an established firm that has been around for many years or if the company is new and investors expect the firm to expand operations or gain considerable amounts of market share in its sector.
A growth stock is basically a company that is expected to grow at a fast rate. The firm may be new and may have recently issued an initial public offering known as an IPO or has been publically traded for years but is in the middle of an earnings boom. New firms in the growth phase tend to be regarded as riskier than established companies that already have a big brand. However, investing early in a company that manages to grow at a fast pace for many years can easily turn an average Joe into a millionaire.
Many people who owned shares of Microsoft like Bill Gates became rich by holding shares of Microsoft during its growth phase. Other investors like those that invested in Apple during the year 2000 are getting richer by the minute and what is really amazing about this is company is that Apple was a company that was at the verge of disappearing because its products at the time were lacking in terms of sells and for the company is was very hard to make a profit. Strangely enough Apple is an old firm. Shares of Apple traded around $16 when everyone thought that the firm was done. As of 2011 the stock trades around $350 more or less. An investor that bought $16,000 worth of Apple during the shaky period sits on around $350,000 during the year 2011. A person that bought more than $45,000 of the company during that period is now a millionaire in just 11 years. How is that for growth? The new millionaire can easily sell his or her shares and invest in a few high quality dividend stocks and never have to go to work again. That is the power of investing in growth stocks.
Usually, during the growth period a company doesn’t pay dividends since firms in this phase need most of the cash they generate to fuel operations and expansion. Still, the results can be unbelievable. The thing is that it is impossible to determine the outcome of such and investment. No one can really predict the future. A firm can look promising and ultimately fail to deliver. For this reason, it is very important for a person that invests in this type of company to be able to read financial statements to know what is really happening from quarter to quarter. An investor that doesn’t know how to read financial statements should seek help from a certified investment advisor or invest trough a mutual fund that holds a diversified portfolio of growth stocks.
Disclaimer: This article is not a buy or sell recommendation. Investing takes some skills and for this reasons it is recommended that you seek help from a broker or a financial advisor.