Algo Trading


Stock Market Blogs

How to Invest in Growth Stocks? August 19 2022Stock Market Education

Visit Count: 286

How to Invest in Growth Stocks?

The stock market gives you ample options for generating returns, irrespective of your investment horizon. Whether you are an investor looking for quick growth or one who prefers less-risky options, the stock market has something for every investor.

If you belong to the first category and looking to grow your investment faster then you may consider investing in “Growth Stocks”.

Wondering what are growth stocks? Read on to find out what they are and how to invest in growth stocks.

What Are Growth Stocks?

Growth stocks are stocks whose growth rate is expected to be significantly faster than the rest of the stocks in the market.

Growth stocks represent equity in companies that tend to be growing their share prices, profits, revenue or cash flow at a considerably faster rate than the market at large. These companies are expected to outperform their peers in earnings and stock performance.

Growth stocks often represent relatively young, smaller companies, or industry disruptors. 

If you are wondering why should you invest in growth stocks, the answer is simple - to earn profits from the rapid price appreciation.

While investment in these stocks is known to offer capital appreciations and great returns, they seldom pay a dividend. Growth companies typically reinvest their earnings to rapidly expand and grow. But that doesn’t discourage investors from investing in growth stocks as investors who buy growth stocks are not looking for dividends, they are looking for the exponential growth of their investment.

One important thing to note here is, good returns don’t come without commensurate risks. There are chances that you could lose value in your investment if the company runs into trouble or the overall market environment is unfavourable.

Now that you understand the meaning of growth stocks, let us tell you how to find growth stocks.

How to Find Growth Stocks?

Although there is no specific formula to find growth stocks, there are certain broad indicators that you may use to spot the growth companies for investment. Consider the following factors:

· Company’s Strength

One of the primary factors to consider while finding growth stocks is to look at the strength of the business. Companies that have a powerful business model, strong foundation, solid business development plan and competent management have massive potential for growth and expansion in the future.

This can be assessed with the help of Return on Equity (ROE) value that is published annually. Companies representing growth stocks typically have 15% or higher annual ROE.

· Price to Earnings Ratio (PE Ratio)

Companies that are earning profits tend to be less risky as compared to companies that have not made money yet. Investors assess the current earnings of the company by looking at the PE ratio that compares current stock price to company earnings.

Companies having growth potential have a high bid value in the stock market. They have a high PE ratio that indicates high returns on investment. A PE ratio of 1 or higher indicates the stock is fairly valued.

A company having a higher PE ratio indicates that its stock’s market value is higher in comparison with its earnings.

PE ratio can be calculated as:

PE Ratio = Market Value Per Share / Earnings Per Share

Let us take an example to understand this better.

Let us say, the market value of XYZ stock is Rs. 100 and the earnings per share is Rs. 75.

Now to identify if this is a growth stock or not, let us calculate the PE ratio.

PE Ratio = 100 / 75 = 1.3.

Since a PE ratio of 1 or higher indicates higher growth potential of a company, XYZ stock can be considered as a growth stock.

Thus, PE ratio can be used as a factor to identify whether a stock can be considered a growth stock.

· Price to Earnings Growth Ratio (PEG Ratio)

There is a limitation of the PE ratio – it only takes into account the current earnings of the company. It does not take into account the rate at which the company grows.

This is where the PEG ratio is useful. It gives you a much clearer picture of the growth potential of the company, especially when the PE ratio is irrationally high.

PEG ratio takes into account the yearly rise in the total earnings per share of a company. It considers the company’s PE ratio as well as its expected earnings growth over a specific period of time.

A company having a PEG ratio of below 1, indicates a stock is undervalued and is a potential buy. If the PEG ratio is 1, it means the stock is fairly valued and if it is above 1, it means the stock is overvalued.

PEG ratio can be calculated as:

PEG Ratio = PE Ratio / Earnings Per Share Growth Rate

Let us take an example to understand this better.

Let us say, the market value of XYZ stock is Rs. 460, earnings per share this year is Rs. 20.9 and earnings per share last year is Rs. 17.4.

Now to identify if this is a growth stock or not, let us calculate the PEG ratio.

Therefore, PE Ratio = 460 / 20.9 = 22

Earnings Per Share Growth Rate = (20.9 / 17.4) – 1 = 20%

PEG Ratio = 22 / 20 = 1.1

Since a PEG ratio of higher than 1 means the stock is overvalued, it may not be considered as a growth stock.

The above-mentioned are the three important parameters to consider while investing in growth stocks.


Open a demat account with Indira Securities to start investing in growth stocks. When investing, you may want to consider your goals and risk tolerance. 

Blog Enquiry

Prevent Unauthorized Transactions in your demat and trading account --> Update your Mobile Number/Email id with your Depository Participant and Stock Broker. Receive alerts on your Registered Mobile for all debit and other important transactions in your demat/trading account directly from CDSL and Stock Exchanges on the same day.........issued in the interest of investors...

1. Stock Brokers can accept securities as margin from clients only by way of pledge in the depository system w.e.f. September 1, 2020.

2. Update your Mobile Number & Email Id with your Stock Broker/ Depository Participant and receive OTP directly from Depository on your Email Id and/ or Mobile Number to create pledge.

3. Pay 20% upfront margin of the transaction value to trade in cash market segment.

4. Investors may please refer to the Exchange's Frequently Asked Questions (FAQs) issued by NSE vide. Circular No. NSE/INSP/45191 dated: July 31, 2020 and NSE/INSP/45534 and BSE vide Notice No. 20200731-7, dated: July 31, 2020 and 20200831- 45 dated: August 31, 2020 and dated: August 31, 2020 and other guidelines issued from time to time in this regard.

5. Check your Securities/ MF/ Bonds in the Consolidated Account Statement issued by NSDL/ CDSL every month.

"As per the directives of CDSL and esteemed Exchanges, it has been made mandatory for every client to furnish their latest KYC details viz. Valid Mobile No., Email- Id & Income range on or before 31.05.2021 else your Account will be marked as Non Compliant and will be Freezed till the compliance of such requirement."
"No need to issue cheques by investors while subscribing to IPO. Just write the bank account number and sign in the application form to authorise your bank to make payment in case of allotment. No worries for refund as the money remains in investor's account."
"KYC is one time exercise while dealing in securities markets - once KYC is done through a SEBI registered intermediary (broker, DP, Mutual Fund etc.), you need not undergo the same process again when you approach another intermediary."
Dear Investor if you wish to revoke your un-executed eDis mandate, please mail us with ISIN and quantity on by today EOD."

INDIRA SECURITIES PVT.LTD. (SEBI REG.NO.):NSE TMID: 12866, BSE TMID: 663, CDSL DPID: 17000 SEBI REG. NO.: INZ000188930, MCX TM ID: 56470, NCDEX TM ID: 01277, CDSL REG. NO.: IN-DP-90-2015, CIN : U67120MH1996PTC160201




Shivkumar P. Email: Call : 0731-4797275

Investor grievance complaint :