If there is one kind of investing that has found favour over the rest, it's growth investing.
Growth stocks are companies that grow at a faster rate than the average business in an industry or market as a whole.
Growth stocks are attractive to investors because businesses that can grow faster than the average business for long periods tend to be rewarded by the market.
The faster they grow, the bigger the returns are for shareholders.
It important to keep in mind that while there are chances that growth stocks could generate multibagger returns, if these companies disappoint even slightly, they could get punished heavily by the market due to high valuations.
Further, when you are picking growth stocks, relying on past growth numbers will not be enough. You have to be reasonably confident that the growth is sustainable and virtuous in nature i.e. the incremental growth comes with high return on invested capital.
In other words, every time one reinvests in the business, the return on incremental capital should remain high.
Check out Equitymaster’s powerful stock screener to find the best growth stocks in India.
It includes stocks like Bajaj Finance, Adani Green Energy, Deepak Nitrite, etc.
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You must know this checklist if you want to invest for the long term.