Growth stocks are the financial equivalent of high-performance sports cars – they often promise a thrilling ride with high speeds, but remember, they can also be volatile. These stocks usually outperform the market in terms of revenue expansion. Let’s discuss some of the top performers.
NOTE*** This article is for educational purposes only, aiming to provide you with investment insights. It does not offer advisory or brokerage services and does not recommend buying or selling specific stocks or investments.
Frequently, “growth stocks” refer to large technology companies like Apple, Microsoft, Amazon, Tesla, or Alphabet (previously Google). They significantly influence the S&P 500 index and thus, the overall movement of the stock market.
However, growth stocks are not limited to the tech sector. They can originate from any industry – healthcare, finance, and beyond. What classifies them as growth stocks is their rapidly growing nature. Let’s delve deeper into this.
What Are Growth Stocks?
Growth stocks are equities of companies experiencing rapid expansion in revenue or net income. They usually do not pay dividends, preferring to reinvest profits to foster their growth. Investors are attracted to growth stocks because they anticipate a swift rise in their share prices, paralleling the increase in revenue and net income.
These stocks are often compared with income stocks, which investors purchase for consistent dividend payments, and value stocks, bought with hopes of price recovery after a recent decline.
Leading Growth Stocks
Below is a list of the top ten U.S.-listed growth stocks, ranked by their one-year performance. This compilation considers growth rates of revenue and earnings over the previous year, as well as price-to-earnings ratios and the last year’s dividend yield.
Ticker Company Performance (1 Year)
AEHR Aehr Test Systems 488.04%
ELF e.l.f. Beauty, Inc. 272.35%
ACLS Axcelis Technologies, Inc. 270.51%
WFRD Weatherford International plc 212.42%
EXTR Extreme Networks, Inc. 194.08%
STRL Sterling Infrastructure, Inc. 169.97%
BWMN Bowman Consulting Group Ltd. 158.79%
UFPT UFP Technologies, Inc. 140.72%
TH Target Hospitality Corp. 133.54%
ALGM Allegro MicroSystems, Inc. 124.63%
Source: Finviz (as of July 6, 2023). The stock data is for informational purposes only.
Identifying Growth Stocks
You can identify growth stocks using a stock screening tool like Trade Ideas, Trading View, Finviz, TC2000, and more, as was done above. Filter for high EPS growth and revenue growth (or sales growth) to find potential growth stocks. You can also refine your search by screening for high PE ratios and non-dividend-paying stocks to narrow down growth stocks with share price momentum and aggressive reinvestment strategies.
Should You Invest in Growth Stocks?
Investment decisions depend on your financial goals. While the above stocks may currently outperform the market, it doesn’t mean you should invest all your assets in them. Remember, past performance does not guarantee future results, and individual stock picking can be risky.
Many investors prefer to buy index mutual funds or exchange-traded funds, which consolidate hundreds or thousands of stocks into a single investment. Index funds, by their nature, reflect the market—they rise and fall with it.
For instance, the S&P 500 index, comprising around 500 of the largest publicly traded U.S. companies, has returned an average of about 10% per year since 1926. This makes it a powerful tool for long-term wealth accumulation.
However, that 10% is an average annual return. In some years, the index outperforms this number, but in other years, it falls short.
During downturns, skilled stock pickers might theoretically outperform the market indexes by investing in individual companies that buck the negative trend, like those listed above. But caution is advised: Studies suggest that individual investors typically underperform the market indexes.
Disclaimer: This article is not intended to be investment advice. Always conduct your own research and consult with a professional advisor before making investment decisions.
