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Growth Investing

In short

Buying high-growth companies — prioritizes future earnings potential over current valuation

Growth investors buy companies growing fast — even if the stock seems expensive today. The bet is that rapid revenue and earnings growth will justify the high price. Think early Amazon or Tesla. High risk, potentially high reward.

Growth investing targets companies with above-average revenue and earnings growth, typically trading at high P/E and P/S multiples. Key metrics: revenue growth rate, addressable market size, gross margin trajectory. Growth stocks are particularly sensitive to interest rate rises (high duration assets).

Related concepts

  • Value Investing — Value investors hunt for companies the market has mispriced — cheap relative to their true worth. Like finding a $100 bill selling for $70. The strategy requires patience: sometimes the market stays wrong for years.
  • P/E Ratio — Imagine buying a lemonade stand that makes $100/year. If it costs $2,000, the P/E is 20 — you need 20 years of earnings to pay it off. Lower means cheaper.
  • Revenue Growth — If a company sold $100M last year and $120M this year, revenue grew 20%. Fast growth is exciting but check if it's profitable growth or just spending more to sell more.
  • PEG Ratio — If a stock has a P/E of 30 and analysts expect 30% annual earnings growth, its PEG is 1.0 — a fair multiple for that growth rate. A stock with the same P/E of 30 but only 10% expected growth has a PEG of 3.0, meaning investors are paying far more per unit of growth.