Investors have several strategies that they can use to make money in the stock market. Like Value Investing, High dividend yield investing, Active investing, Passive investing, Top to down or bottom to up approach, but one investing which has grown over years and proved worth practicing is investing in Growth Stocks.
What is a Growth Stock?
A company which has potential to grow faster or above-average rate compared to the market or competitors in the industry in general. A growth company typically has some sort of competitive advantage like a new innovative product, breakthrough patent or some overseas expansion which provides them wing to grow at much faster rate for sustainable period.
Private Equity Investing Style?
Normally Growth companies are smaller in size and initial years they do not generate profits, in fact they make losses but their topline keeps improving at healthy rate. One of the best and Successful example of Growth investing has been Tesla Inc. Company has single handedly changed the functioning of Automobile industry with clean energy approach. Till now Tesla Inc is not making any profit after tax annually, infact company is burning a lot of cash but still it is most expensive Car company in the world in terms of market capitalization. From small company to Automobile giant in terms of market cap, Tesla has been classic case study and example of how the wealth has been created by investing Growth stocks. But not every company which grows rapidly is growth stock. Strict screening criteria are needed to identify Growth company and below are the few of criteria we use at Vtrade Capital before investing the clients’ fund.
- Value Migration
Value migration is nothing but the shift of value-creating forces. Value migrates from outmoded (old style or outdated) business models to the business (innovative and updated) which are better able to satisfy customers need and wants. New business models (Companies) not only capture the market share of old companies but also increase the pie of the market which opens a lot of head room for sustainable growth.
- Shift in consumer behavior
As per our study of growth stocks we have found Consumer behavior particularly important aspect to become a successful growth story. Clean energy and Environment friendly option compare to Petrol and Diesel base Environment unfriendly option was bigger driver and Tesla Inc was ready with need and change of consumer wants. Currently Animal based meat to Plan based meat (Vegan trend which also eco-friendly) is ongoing value migration which we believe has just started and it has potential to go long way. Substantial wealth can be created by investing in Plant based meat companies.
- Bigger Picture
While doing valuation on Growth stocks, Terminal value approach works beautifully. We try to calculate future growth of industry, size of the company and then discount it back to current value based on the expected cash flows. This approach helps you to understand the size of company and industry.
As per the pecking order we believe Value migration is at heart of our philosophy of Growth stock investing followed by getting vital clues from shift in consumer behavior while keeping bigger picture in mind. As per one report Telehealth industry has potential market size of $165 Billion. Teladoc Inc is leader in that space and we have covered that stock for our clients to get more details one can visit the below link