Screening For The Best Growth Stocks

Investing in companies with superior growth rates can produce outstanding returns over the long term. A stock is essentially a share in the ownership of a business, and the price of the stock will follow the value of the business over time. When the business is growing rapidly and ideally accelerating, investors can be rewarded with exponential returns.

On the other hand, investing in high growth stocks is not for the faint of heart. These kinds of companies can be particularly volatile and risky. High growth stocks are priced for demanding expectations, and if the company fails to deliver in accordance with those expectations, the stock price will naturally suffer the consequences.

When looking for the best growth stocks, it makes sense to focus on consistent growth leaders with a proven ability to outperform over time. No screener can guarantee future returns, but a track record of consistently strong growth can say a lot about the underlying quality of the business.

Growth Leaders By The Numbers

Finding companies that are growing at a good speed is not enough. Investment decisions should be made by looking through the windshield as opposed to the rear-view mirror. The most important thing is finding companies that can sustain rapid growth in the future and ideally outperform market expectations going forward. This is a critical consideration when screening for the best growth stocks in the market.

The screener considers only companies with a market capitalization value above $250 million to guarantee a minimum size for companies in the portfolio. This has a negative impact on performance since the smaller companies can many times produce the biggest growth rates, but it's still reasonable to include a size floor to guarantee liquidity.

The screener also requires companies to have positive sales growth in the past quarter, and the revenue growth rate has to be above the industry average over three different timeframes: The most recent quarter, a trailing twelve-month period, and the past three years.

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Disclosure: I am/we are long DOCU.

Disclaimer: I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any ...

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