Penny Stock Brokers 4u

One cannot read articles and information on stocks without seeing some referred to as growth stocks, but exactly what are growth stocks? Growth stock is a term applied to stocks and companies that have shown themselves to perform in a specific way, generally an advantageous performance.

Put in the simplest way, a growth stock is from a company that has shown high growth and is expected to continue to do so. This growth is often gauged by analysts by computing the company’s Return on Equity (ROE) which is done by dividing net income into average common equity.

Another way a stock may be considered a growth stock is when earnings are expected to rise at a rate higher than average. Typically this is determined by having a high P/E ratio or a high price/book ratio.

Others consider shares that have paid increasing dividends due to growing profits to be a growth stock, especially when it is indicative of a continuing upward trend. It is interesting to note, however, that many growth companies do not pay out dividends at all as they choose instead to retain the profits to further grow the company or to pay down start-up costs and financing debts.

Regardless of what definition an investor feels qualifies a stock as a growth stock, it is still an investment that bears considerable due diligence as growth stocks are considered somewhat more risky than other investments. Since many growth companies do not pay dividends, this is not an investment for the person that requires a regular income from the assets in their portfolio. It is also important to note that overall growth stocks do best when the country is experiencing a stable and growing economy, although some sectors may be doing well while the overall health is less than stable.

One way to locate growth stocks is to use a stock screener. There are many online sites that do not charge a fee to use them. Yahoo Finance, CNBC and MSN Money are three of the most widely used. They have pre-defined options as well as some custom options. There are also companies that have more sophisticated screeners available for a monthly or annual subscription fee. When using these screeners you will need to look both at historical earnings growth and analysts’ growth forecasts. By looking at both you avoid the mistake of investing in a company whose growth is not sustainable.