Martin Shkreli: A Lot of People Don’t Understand Growth Stocks

Investors tend to lump their stock investments into either growth or value. And most investors have an idea of what each of those terms mean. But they’re also investor-specific. One investor’s value play may be a more of a growth play to another.

It’s also easy to call a stock growth based on one or two factors. But it may be a confluence of factors that make an investment truly a growth story compared to a lucky trade.

For instance, some growth investors look for a company that’s building customers and revenues, but may not be earning a profit yet. Others may look for a company that can grow beyond cash flow to actual profits.

One component to identify growth stocks is a company with a high net profit margin. That can show what a company brings in before its expenses, before growth profits. That may be more important than the current valuation of a growth stock.

But no matter what metric an investor prefers for growth, understand that good investments compound. A company with compounding growth will be better than a more cyclical company that oscillates between growth and contraction.

Companies that can deliver long-term compound growth offer the best returns over time. Adding those companies to your portfolio gives you compounding wealth as well.

For the full read on why growth matters, click here.