How to Invest in a Growth Stock

Growth stocks are stocks where you make money by buying low and selling high. Your profit or loss is determined by the change in price of the stock. Typically, these stocks are issued by small or medium sized companies that are ready to grow their business and profit.
You can make money with growth stocks if you are disciplined and thoughtful.
Learn to invest in growth stocks.

Difficulty: Moderate

Instructions

Things You'll Need:

• money to invest
• a brokerage account
• time to research

1. 
    
   higher than average earnings means a growth stock

   Know what a growth stock looks like.
   A true growth stock can be more volatile and risky than Blue Chip or dividend stocks. But there is greater potential for profit too.
   A growth stock is a stock from a company that is expecting above average growth in earnings.
   So, you're looking for optimistic predictions of future earnings from the experts.

2. Use a stock screener to sort for a growth stock.
   Set the stock screener to show you only stocks with estimated earnings growth greater than 5%, 10%, 15%, etc. Get the number of results down to a manageable number.

3. 
    
   this is not growth, so use common sense

   Use common sense and think about the results of your stock screen. Sometimes, the future earnings predictions don't account for recent market activity.
   For example, if an automotive stock has high predicted earnings but the entire industry just tanked, don't buy that one-- unless you're looking for very long term growth and are willing to ride out some ups and downs for a while.

4. Look for the cheapest growth stock.
   One indicator used to determine if a stock is "cheap" is the Earnings per Share (EPS) number. All else being equal, a lower EPS is better. This means that you are getting more earnings for your investment. As the growth stock increases in value the EPS will increase as well. A relatively high EPS indicates that the stock may be over valued.

5. Diversify your growth stock portfolio.
   Buy growth stocks in several different sectors, or industries. This protects you from losing your entire investment with one bad pick.

6. 
    
   re-evaluate every few months

   Re-evaluate your growth stocks every few months. Many growth stocks will increase in price then stall out. Maybe the company has hit it's earnings potential or the whole market sector is in a down turn. Whatever the reason, take your profit and invest in a new growth stock, one that's primed to grow and make you money.

7. Be patient with your growth stock.
   Sometimes the market price of a growth stocks takes a while to reflect earnings growth. If earnings keep going up, the stock price will too, eventually.

Tips & Warnings

• dollar cost average to smooth out the bumps and take advantage of the lows
• the stock market is risky. You can lose your investment.