The 2020 pandemic hit many companies hard, while other companies took it as a chance to grow, seemingly unaffected by the state of the world around them. NVIDIA (NASDAQ:NVDA) came out as one of those thriving businesses and achieved gains of 122% in 2020. The company’s graphics processing units (GPUs) were present and needed for trends that accelerated exponentially due to the pandemic, boost...
Suppose you are currently looking for an investment that is trustworthy and highly capable of bestowing upon you a considerable amount of wealth. In that case, you can’t go wrong with choosing to invest in growth stocks.
The term “Growth Stocks” is the name usually given to those companies whose revenues and earnings grow at even faster rates than those typically expected from other companies belonging to the same industry.
Now, you might be asking yourself: what type of event might even be capable of triggering a scenario such as this? And what does it mean for my investment?
Usually, companies tend to encounter growth stages when developing a new and innovative product that is either entering new markets or even capable of creating them. When this kind of situation occurs, the very same business behind creating the product is usually rewarded with significant profits, which are then reflected upon its shareholders.
The bigger the impact of the product, the bigger the growth. And the bigger the growth, the bigger the returns on your investment.
However, it is worth noting that growth stocks investments tend to have higher costs than those of your average stock purchases. Yet, your returns will most likely cover far beyond your initial investment in a short period.
Some examples of great growth stocks
As of March 2021, here are some companies that have made significant growth in recent years:
- Mercado Libre
How to find growth stocks to invest in?
Finding a growth stock worth investing in is a relatively straightforward process but one that will still require lots of effort in return. What you’ll want to do is:
- Do some research regarding today’s biggest market trends and then find the companies with the highest potential of delivering something of value to that same trend.
The point of this exercise is to pinpoint which companies are more feasible when it comes to having long-lasting increases in sales and profits within the foreseeable future.
Due to the COVID-19 pandemic, many trends have increased exponentially to respond to the needs of today’s average consumer. Not only that, but they can stay that way for the long-run even after the pandemic has subsided. You can take advantage of the situation for your investment goals.
Here are some of those trends on which you can decide to base yourself:
- Digital advertising.
- Digital payments.
- Cloud computing.
- Streaming entertainment.
- Remote work.
- Now try and narrow down your list to only those companies with the most significant advantages over their competition.
Ideally, your company of choice should be the better among those with similar activities, products and services. If a competitor were to surpass them, your growth will significantly decline over time, cutting down your profit short of what it could’ve been.
Here are some criteria which you can make use of to qualify your company’s competitive advantages:
- Network effects. The bigger your network’s audience, the bigger their reach. A company with a more significant reach will make it harder for the competition to displace them from their territory.
- Scale advantages. Choosing a big company in terms of size means that their smaller competitors will have a hard time trying to replicate their success.
- High switching costs. Companies with expenses related to switching from their services to another’s means that your users probably won’t want to go through the arduous process it involves. In other words, the number of people using your competitor’s services is being cut down by your efforts.
- And finally, narrow your list even further to just the companies with the biggest addressable markets.
Finally, try and find those companies with the broader areas of opportunity within their respective markets. The larger your company’s area of opportunity, the bigger the business it can eventually become.
To better know about your company’s area of opportunity, you can make use of online tools such as Gartner to find useful data regarding industry sizes and future projections.