The Appeal Of Growth Stocks

by David Jenyns on January 9, 2009

To many, a growth stock simply means a name stock or a stock with a lot of demand. Whenever speculative fever runs high, investors tend to overreach for popular stocks. Whether it’s growth or nongrowth, the all-important price-earnings ratio should always be the predominant determinant of stock prices.

No stock, growth or nongrowth, is above earnings. The growth stock concept is well entrenched, with the great majority of investors long having recognized growth stocks as a major type of investment opportunity. Everybody loves a true growth stock. Other things being equal, a growth stock is definitely preferred to a nongrowth stock. Generally, you are expected to pay some premium for a growth stock. Also, you should subject a growth stock to the same rigid standards of scrutiny as you would any other stock you buy.

This and other “fundamentals” about a company or industry are what make a situation basically attractive. Beginners would do well to get involved only with situations sound in “fundamentals,” though a brilliantly timed purchase of even a basically unattractive stock might work out well.

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