The Best Indicators of a High Growth Stock in 2020
The stock market is one that’s graded by various scales. Some investors look at growth, others at diversification, some at a profit, and others at how solidly established a company is. The stock market has been up and down since the pandemic.
Some stocks have done well, and others are still trying to make their mark. Several companies that have performed well are under what we call High Growth stocks. Welcome to my blog, where investors can get the best news about stock investment and financial and money management.
Please click the like and share button and leave a comment below to support my work. Before going any further, to learn more about stock investment as a new investor, read my blog ‘Steps To Become Wealthy In The Stock Market Using The GVD 123 Tactic’.
You should also know that my posts are all my opinion and in no way law for you. Also, all values and information are accurate for the 19th of august. Let’s get to it.
What do investors want?
Recently, it seems that investors are looking for companies with high growth stocks. This is because a stock that has a yearly growth of over 20 percent is marketable. However, most companies that have high growth stocks are not very profitable. Take Shopify and Square as examples.
They are doing well in the financial market, but they are still yet to make a profit. Even with a lot of consumer patronage, companies like Upwork are still not making a lot of turns. Yet a lot of investors love them for their growth, and I am not far off.
How to choose the right High growth stock
Here is my checklist, which I cover when searching for good high growth stocks.
In contrast to what many believe, checking a high level is fundamental in finding a stock with high growth is essential. At some given point in time, businesses will see fundamentals catch up towards them, or there would be a drop in the price of a stock to meet with the fundamentals.
It might take a longer period, but when the stock price starts to match the fundamentals, it might be dangerous. To find out if the business is a good one to embark on, here are the fundamentals you should look for.
- Market cap: The price to the ratio of a good company should sit below 10
- Revenue: Look for a consistently growing company and not one that is stagnant, falling, or barely rising each year.
- Net income: You should be looking at a company’s net income or profitability for now or at least in a defined future date.
- Free cash flow: If a company isn’t generating money now, it should at least have a free cash flow plan that is directed towards the profitability of the company.
This is another fundamental to discover a high growth stock. For a high growth company, there should be at least a 20% growth of revenue year by year. The higher the revenue growth, the better the company becomes. An investment with 5% or 6% revenue growth isn’t bad and cannot be regarded as a high growth stock.
A company with a shallow balance sheet is not worth investing in. When there are hard times, such as economic setbacks or other unforeseen circumstances, a company with a low balance sheet will fall back to its cash to keep it’s smooth running. If it’s a company that is not financially buoyant, such business might be at its end.
When you’re putting your cash in an investment, ensure to know if it’s a company with reasonable assets. Having more assets than liabilities on their balance sheet is convincing enough. You can make findings by visiting the website of the company you wish to invest in.
Find out about their debts, balance sheet, assets, investments, cash, and other vital information that are necessary to convince you.
All this is just to ensure when hard times hit; it would not affect its smooth running. Most of these companies with high growth stocks have more assets than liabilities, which is why they keep having more investors. But it’s still important to dig deep before investing.
If the company is running out of cash and also burning the available cash without having profit or returns every quarter, that’s a green light that it’s not worth investing in.
If a company is careful about these three fundamentals listed, it’s worth it. To learn about their businesses, read about their products, read reviews, go to the investor’s page to find out more about the company.
Check Price Target, hedge fund, and insider activity:
Irrespective of the site, you can choose to find out about a particular stock, check what the price target, hedge funds, and insider activity are saying about the stock. Check out if buyers are holding or selling off the stock quickly.
When you decide to buy company stock, do not base your decision on someone or an investor who is selling our buying for a huge amount of money. Even when you read in the news that a company’s specific stock is sold at a high rate, you must make your deep findings before buying it.
Do not base your stock buying on whatever you read or hear about hedge funds, insiders’ activity, and price target. Carry out your in-depth research. So that when you arrive at a decision you can be confident about it.
There will be times when insiders’ downgrades and upgrades stock. Don’t let this throw you off your feet. Do not forget; you’re responsible for the money you’re investing.
Finding the right stock to buy can be hard if you do not know the fundamentals. When you stick to the listed-above points, getting a high growth stock could be much easier than you think. Thank you for sticking around. Be sure to leave me a comment.
Recommended for further reading:
- Warren Buffett and the Interpretation of Financial Statements: The Search for the Company with a Durable Competitive Advantage
- Intelligent Investor: The Definitive Book on Value Investing — A Book of Practical Counsel
- The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns (Little Books. Big Profits
- Stock Market Investing For Beginners: The Investment Guide — How to benefit from the crisis, invest in stocks and generate long-term passive income incl. ETF and Stock Picking Checklist
- The Stock Market Investing Guide #2020: From Beginner to Intelligent Investor within 30 Days — How to Save Money, Generate Passive Income and Reach Financial Freedom