WOW! Look How Far These Popular Growth Stocks Have Fallen | FAST Graphs

Growth stocks can be very powerful long-term investments. To be called a true growth stock I need to see a growth rate of 15% or higher. This growth should be seen in important metrics such as earnings, cash flows, and sales. The classic definition of growth stock tends to be vague and imprecise. For example, the website Investopedia offers these key takeaways:

“Growth stocks are those companies expected to grow sales and earnings at a faster rate than the market average.

Growth stocks often look expensive, trading at a high P/E ratio, but such valuations could actually be cheap if the company continues to grow rapidly which will drive the share price up.
Since investors are paying a high price for a growth stock, based on expectation, if those expectations aren't realized growth stocks can see dramatic declines.
Growth stocks typically don't pay dividends.
Growth stocks are often put in contrast with value stocks.”

Although these notions are helpful, I prefer a more precise definition. Mathematically, I will only consider a growth stock if it is growing earnings, sales, and cash flows of rates of 15% per annum or better. This is a rate of growth where the true power of compounding comes into play. All 3 of the companies: Meta Platforms (META), PayPal (PYPL), and Nvidia (NVDA) covered in this video meet those qualifications on a historical perspective. Nevertheless, the true measure of a growth stock lies in its future growth potential, which although related to the past is not always a realistic assumption.

Consequently, since growth stocks do not pay dividends, shareholder returns are totally a function of growth of earnings, cash flows, or sales which in turn drive growth of price. However, if that growth falters sometimes even ever so slightly, years of gains can disappear in an instant. The 3 examples covered in this video provide real-life case in point examples.

Therefore, in order to successfully invest in growth stocks, and investor needs to properly assess future growth within a reasonable degree of accuracy. Future forecasts do not have to be perfectly correct, but to succeed they must be generally correct.

Time Codes
0:00 – PayPal Holdings (PYPL)
9:50 – Nvidia Corp (NVDA)
11:35 – Meta Platforms (META)

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Disclaimer: FAST Graphs is a tool designed to reveal and present information related to financial data and investment metrics. It is not intended to provide specific advice or recommendations. Instead, it offers a comprehensive view of relevant data, empowering users to make informed decisions based on their own analysis. It's your first step to a more comprehensive research and due diligence process. In short, it is a tool to think with. The opinions in this video are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned.

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