The Australian Stock Exchange possesses several high-profile growth stocks. Here is a list of 10 of the biggest and most well-known.
What is a growth stock?
A growth stock refers to a company that is expected to see its financial performance and share price grow at a rate ahead of the market average.
With that in mind, growth stocks are often smaller companies, have elevated revenue and earnings expectations from the market and tend to reinvest the majority of their profits directly back into the company. As a result of this, growth stocks also typically don’t pay out dividends.
Secondly, investors should also realise that because growth stocks are often in the early stages of their life cycle – or operating in new and ever-changing business areas – for many fast-growing companies their grand ambitions often fail to become reality. Because of this, growth stocks generally have a higher risk profile than other investments. Of course that also means that they also offer potentially higher rewards – should a company successfully execute on their ambitions.
Growth vs value stocks: what’s the difference?
Another way to think about ‘growth stocks’ is to look at how they compare to ‘value stocks’.
Indeed, if value stocks trade on low-multiples, inhabit out of favour industries and are seen as inherently boring – growth stocks represent the exact opposite. That is, they tend to trade at above market multiples, in cutting edge industries and they are the opposite of boring: both their business models and the prospect of investing in them seems exciting!
Yet the reality is growth and value stocks aren’t exactly opposites. Looking at some of Australia’s ‘Top 10’ growth stocks below we see that such contrasts – while helpful – can also be misleading. Not every growth stock is a flashy tech stock; and nor are they always part of the next ‘BIG’ trend.
It was Warren Buffet after all – an investor who many associated with a strict value approach to investing – who said:
‘In our opinion, the two approaches are joined at the hip: Growth is always a component in the calculation of value, constituting a variable whose importance can range from negligible to enormous and whose impact can be negative as well as positive.’
Top 10 growth stocks on the ASX right now
Now that we have touched on what a growth stock is, we take a look at the ‘Top 10’ growth stocks that investors, speculators and traders can take advantage of on the ASX right now.