Episode shuru karne se pehle main aapse ek sawaal karta hun: koi bhi investment kyun ki jaati hai? Simple : investors invest with the aim of growing their capital. They purchase stocks that show high growth potential so that they can receive good returns!
These stocks are often referred to as ‘Growth stocks’, well, as the name makes it clear.
Usually such growth stocks are from a company that is showing potential - ho sakta hai uss company ka projected revenue kaafi high ho, ya revenue growth ki speed overall market ke comparison me above average ho.
In any case, growth investor ka goal hota hai capital appreciation - chahe long term me ya short term me. Phir aapko ye jaankar hairaani nahi hogi ke growth investor start-ups ke taraf ya small companies ke liye biased hote hai, because these companies are poised to expand.
Company ke early stages me uske low-priced stock ko khareed liya jaata hai. Phir future me uske share prices badhne se growth investor ko profit hota hai.
Simply put, growth investing ka charm issi baat me hai ke ek emerging company me potential dekh kar uspar invest kiya jaaye, and if that company happens to grow successfully, you can take home impressive returns.
In a school, the student who shows the most promise and talent for a particular sport is trained intensively in that sport. Its the same principle: we see potential of success in a child and train them, invest in them, give them resources, taaki woh apne abilities ko hone kar sake, practice kar sake and ultimately tournaments jeet sake! Lekin ek possibility ye bhi hai ke sabhi resources hone ke bawajood student perform na kar paaye. The same possibility exists for companies: these growth companies are as such small, and if they do not perform, this could lead to losses.
Of course, koi bhi investor losses ko minimise karna chahta hai- in this case, losses minimise karne ka matlab hua ke hum companies ko achhe se assess karein aur tabhi invest karein jab hum convinced ho ke comapny achha hi perform karegi.
Toh aham sawaal toh ye hai ki hum kisi company ka growth potential kaise accurately evaluate kar sakte hain. Let’s look at the five key factors that help growth investors discover such companies.
Sabse pehla factor hota hai company ka track record. Company ke pichle kuch saalon ki financial statements se hume uska track record samjh a jaata hai. For instance, agar pichle paanch saalon me company ki earnings consistently badhti rahin hain, then that is a good indication of growth. Company ka market capitalisation bhi uske growth rate ko impact karta hai.
General trend dekha jaata hai - smaller companies grow faster but are at higher risk Jabki badi companies me slow and steady growth dekhi jaati hai.
Second factor to consider in growth investing are the forward earnings.
Jo companies stock exchange par listed hoti hai, woh har quarter ya har year apni earnings ki announcement karti hai. This announcement tells us about their profitability, but prior to the announcement, estimates are made about the company’s earnings by analysts. So we need to take into account the projected earnings - inn estimates se hume company ki growth ka andaaza hota hai.
Another factor to consider are the profit margins. The principle is very simple, really. Profit margin is basically all your operational expenses and capital costs subtracted from the total sales that the company makes. So this is the pre-tax amount that the company has made through its operation. Profit margin jitna zyada hoga, company ke growth prospects utne honge.
Iss case me trends study kiye jaa sakte hain to see if the company has been consistently having good profit margins and if the profit margins are rising each year - these are good signs!
This metric can be a life-saver! Sometimes, a company generates a lot of sales and revenue, lekin management cost control nahi karegi toh ultimate profits will not be commensurate with the level of sales. Management efficiency also strongly indicates the growth potential for the company.
Next parameter to consider is the return on equity. Isse hum company ka profit assess karte hain with respect to the money invested by shareholders.
To calculate return on equity, we divide the company’s net income by its shareholder equity. Company ke total capital ke kitne percentage ka return aa raha hai? Ye janne se we are able to look at and assess two things: one, if the return on equity is relatively stable then the company is doing a good job of keeping up its performance. This means that the company is able to ride out storms and hiccups and still manage to meet its performance goals with consistency. The second aspect is the trend of the return on equity as seen for say, the last five years. If the return on equity is is stable and increasing then it also shows that the company is poised towards growth.
And finally, we can have a look at the stock performance. The rule of thumb is that if a stock cannot double in five years, it is probably not a growth stock. Iske liye stock ka growth rate lagbhag 15% hona chahiye. Kuch growth investors immediate returns seek karte hain: so they look for short term capital appreciation and choose a company whose current performance is set to grow.
Others might look at a longer period of growth, like 5 years or so.
Ultimately, when you are investing in the market to bet on growth stocks, you need to look at the combination of these factors and arrive at a decision!