In Search Of Growth Leaders With Strong Momentum

Investing in companies with superior growth can lead to outstanding returns over the long term. However, picking the best growth stocks is easier said than done, and a good idea without the right implementation can do more harm than good. This is especially true among growth stocks because these kinds of companies are particularly volatile and risky, so picking the wrong names can produce severe losses.

This article is presenting a quantitative screener that looks for companies with consistently above-average growth rates over different periods and vigorous momentum in terms of both fundamentals and price performance.

The main idea is focusing on companies that have proven their ability to outperform the competition over different time frames since this generally indicates that the business has superior fundamental qualities and competitive strengths.

In order to accelerate returns and also at the expense of increasing volatility, the strategy will also focus on companies exhibiting strong momentum. In simple terms, we are looking to buy leading growth stocks, and we are looking to buy them when they are producing solid price gains and outperforming earnings expectations.

Looking For Consistent Growth Leaders

Growth investing can be a particularly profitable and exciting investment strategy. However, growth stocks also trade at relatively expensive valuations, which is always a major risk factor. A high growth stock obviously deserves to trade at a higher valuation level than a low growth stock. But the sustainability in growth rates is the key variable to consider.

If growth rates decelerate more abruptly than is expected, high-growth stocks trading at demanding valuations are vulnerable to big drawdowns. Conversely, companies that can sustain superior growth rates for long periods of time are the ones that can deliver explosive returns for shareholders over the years.

The quantitative system starts with a screener that requires companies to have positive sales growth over the past 12 months, and the company also needs to deliver revenue growth rates above 50% of stocks in the industry over 3 different time frames: The most recent quarter, a trailing twelve-month period, and the past three years.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Disclaimer: I wrote this article myself, and it expresses my ...

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