What is a growth stock? What does it mean to talk about growth stocks? What kind of stocks are we referring to? These phrases are often used by CNBC analysts and commentators, such as large-cap, mid-cap, small cal growth, value, etc.
These divisions can sometimes be blurred or rough, but they help to quantify the difference between a large and small-cap. To understand how a stock grows, we must understand its Price Earnings Ratio. You must browse online sources to find out the high growth stocks to buy.
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The P/E ratio can be calculated by subtracting the current stock price from the earnings per share for the company over the past year. Let's say company ABC stock is currently selling for $50 and its earnings per share were $5 in the previous year. Its P/E ratio would then be 50/5=10.
Stocks with a high P/E ratio are considered growth stocks, while shares with a low P/E are considered value stocks.
You might be asking yourself why growth stocks are performing poorly. This is most likely due to the fact that these stocks are too popular and get too much attention. These stocks are overpriced. This means that if you purchase a growth stock it is already too expensive. Their poor returns over time are why they are so expensive.
It is best to have a portfolio that is diversified among large-cap, mid-cap, small-cap, and value stocks.