Find Growth Stocks Through Fundamental Analysis

By Stock Research Pro • August 15th, 2009

Growth investing is one of the primary investing approaches investors may choose in finding worth stocks for their portfolio. Finding growth stocks is about seeking out those companies that show promise for high growth when compared to other stocks within their industry or the market as a whole. Growth investors are typically making qualitative judgments in finding the stocks with the best growth potential and are committed to a longer-term approach to stock investing than other types of strategies (e.g. technical investing). Most investors see a growth strategy as more of an art than a science as there is no guaranteed method for finding the best growth stocks.

Fundamental Analysis and Growth Investing

The growth investing approach is one of several methods of evaluation that fall within fundamental analysis, along with Value, Income, and GARP (Growth at a Reasonable Price) investing. While a growth investor employs fundamental analysis to assess the strength and viability of a company, a growth strategy places a greater emphasis on qualitative factors, including the company’s business model, the strength of its management team, business model and the overall prospects for the industry in which the company operates.

Steps to Find Growth Stocks

Look for financial strength: The first step to think about in choosing a good growth stock is in making sure that the company is and will likely remain financially viable. Looking at the company’s current ratio, for example, will give you an idea of whether the company will be able to pay its short-term debts.

Assess the company’s industry: The strategy for many growth investors starts with finding those industries that show the most promise for future growth, and then finding the company within that industry that is best positioned to emerge as the leader. A top-down investment strategy can help to identify the most promising industries for the near future.

Emphasize profitability: Make sure to look at the company’s profitability by examining its return on equity. ROE measures profitability and will tell you the level of profit the company is generating for its shareholders with the money they invest. Because earnings cannot exceed a company’s ROE, growth investors will look at the measure to as a means of determining growth potential.


The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax advisor.

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