- Growth companies have a high P/E ratio.
- Investors look to them for capital gains.
- Growth companies usually have a low dividend ratio.
High-growth companies are characterised by high price-to-earnings ratios. They usually don’t pay dividends. Growth companies create value by expanding their earnings, having a free cash flow and spending money on research and development.
Growth companies grow their earnings and sales faster than other companies. They can be identified through a robust business strategy, product lines and expansion plans.
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Against this background, let’s look at 3 growth companies listed on the NZX.
VGL is a provider of technology solutions throughout the world. In its full-year results declared on 1 March, it reported revenue growth of 12% at NZ$98.1 million. EBITDA also improved by NZ$17.9 million. Operating cash flow was up by 277% at NZ$11.3 million over pcp. VGL retains 50% of its market share and has acquired new customers like Odeon Cinema operating in countries like Spain and Portugal.
On 01 April, the stock was trading down by 2.15% at NZ$1.820, at the time of wiritng.
ERD provides technology solutions to handle vehicle fleets. The Company in its Q3 update announced on 24 January reported that growth in total contracted units was up by 53%. This was due to the acquisition of Coretex. The Coretex acquisition was successfully completed, and the integration is on track. This acquisition is significant as it is likely to present opportunities in North America and New Zealand.
On 01 April, the stock was trading up by 1.14 at NZ$ 4.43, at the time of writing.
Serko Limited (NZX:SKO)
SKO is a travel solutions provider and is famous for its specialised travel app called Zeno. In its trading update provided recently, it said that travel volumes had declined in key markets due to the Omicron outbreak. This would likely reflect in its revenues. The Company update also said that in addition to the seasonal reduction in travel volumes in December and January, the current period was the worst hit due to disruptions caused by the Omicron spread.
On 01 April, the stock was trading up by 2% at NZ$4.750, at the time of writing.
Growth stocks offer capital gains as compared to value stocks which offer a steady stream of income.