What to Look for in Growth Stocks to Buy

There are several key features you want to have in growth stocks.  Most people look at historical earnings per share.  That is important for the very fact that everyone looks at it.  But there are other more hidden things you can look for as well.  Just use your brain, pick your stocks and the markets should follow sooner or later.  This is how Warren Buffett and many other finance professionals who know how to invest in stocks think.

I like to see EPS growth, but I mainly want to see sales growth with growing margins and little financing.  If I see revenue rising, it tells me that the company has a good product or service that they are selling.  There is a demand, and one that is growing, for whatever the company has to offer.

I also look for a company that can do this without excessive costs.  Groupon, for example, is growing revenues, but are doing at very high marketing costs.  If they don’t find a way to manage their costs and break the current correlation of expenses to revenues, they won’t make it.

Lastly, I look for companies that can grow revenues, manage costs and do it with little or no debt.  That is important to me because I need to know that management has the discipline to fund themselves with their own success.

This is not always viable or even prudent, but it’s my default.  If a company is liberally financing their growth, it can all come crashing down on them.  I like to see companies that are growing with their own operational free cash flow.

These are just a few things I look for.  They are not hard and fast rules, but things I like to see.  I don’t like to make big bets on future events that may or may not happen the way I predict.  For more info, go to Finance World.

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