How to Invest in Growth Stocks

Investors purchase growth stocks in anticipation of future earnings growth. Growth stock investors don't mind paying premiums for growing stocks because they believe the increases in earnings will justify the higher valuation. Even if a growth stock's valuation relative to earnings remains the same, its stock price will increase if earnings grow as predicted. A value investor buy stocks with lower valuations, while income investors buy stocks with high dividend rates. Read on to learn how to invest in growth stocks.

Instructions

1. Start a brokerage account. Online or discount brokerages offer lower commissions, while full-service companies will provide you with advice and assistance. Full-service companies usually have higher minimum balances, too.

2. Look for companies that you expect to grow in the future because of new products, technological innovations, changing demographics or political developments.

3. Check the company financial statements for any signs of weakness. Also browse through the financial media to be sure the company is free of scandal. You only want to invest in the future earnings of financially reliable companies.

4. Buy a stock if it has the potential to increase earnings faster than other companies in its industry. Full-service brokers charge more because they provide you with advice. If you are going to make your own investment decisions, open an account with a discount brokerage.

5. Evaluate the company continually, especially when it releases its quarterly earnings report. If growth, real or prospective, diminishes it may be time to sell the stock.

Tips & Warnings

• Growth investors ignore fluctuations in stock price unless they are reflective of real problems. If the price changes are caused by market tastes or breaking news, hold the stock to profit from anticipated growth.