- Investors have high expectations of growth stocks.
- Investors need to select growth stocks very carefully.
- Growth stocks usually don’t give dividends.
Growth stocks are of those companies that grow their earnings and sales at a faster pace than other companies. Growth stocks may seem expensive to investors, but their valuations could work out cheaper if they continue to grow.
These companies don’t pay dividends, as they choose to plough back their cash flows for their growth. Since investors pay a high price for a growth stock, there are expectations of higher returns, if those are not realised, then growth stocks can see a significant decline.
How to differentiate a growth stock?
Growth companies have few common features. Growth companies can be recognised through their unique product lines. These companies may have their own patents or have access to certain technologies that put them ahead of their competitors in the industry. In order to stay ahead, they reinvest their money in innovating newer technologies.
Because of their innovations, they usually have a loyal customer base. Technology companies usually comprise a majority of growth companies.
Growth stocks can fall in the category of small caps, but many larger companies can also be growth companies. They could be trading on any exchange but very often, they are found on innovative exchanges like NASDAQ.
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Growth versus value stocks
Growth stocks differ from value stocks. Growth stocks have the potential for strong growth, and they can deliver good capital gains due to growth in a particular company. This can make the stock appear overvalued due to its high price-to-earnings ratios.
Value stocks, on the other hand, are often underrated or ignored by the market. They are dividend payers and investors who make profits from the dividends they pay. They trade at a low price to earnings ratio.
Some prudent investors diversify their portfolios with these stocks, however, there are some investors who focus on either growth stocks or value stocks.
There are several growing companies of which technology companies form a substantial share of 36%. Not all growth companies are listed on the NZX. Let’s have a look at some growing companies of New Zealand that are also listed on the stock exchange.
EBOS is a dual-listed company, which is the largest wholesale distributor, and seller of pharma and healthcare products. The Company has reported strong performances in both of its main segments - healthcare and animal care. It is also expected that while healthcare is set to grow, animal care will also grow in the coming years. Despite hit by the COVID-19 pandemic, EBOS has continued to grow and given the position and scale of the company, it expects to grow even more in the short to medium term.
SPK has good growth prospects due to its involvement in the 5G roll-out programme. It is also involved in the roll-out of new telecom technologies. In FY20, it beat the COVID-19 pandemic to perform well, reporting a 3.9% growth in its mobile data revenue. All its new products have also performed well and continue to perform well.
AFT Pharmaceuticals Limited (NZX:AFT)
AFT is always introducing new products and expanding into other countries. It is one of the high growth companies of NZ. Its new ventures include a tie-up with a US company to sell its new product - IV fluid. It also introduced a new product called Cystawash, which was in demand in several markets around the world for its upgraded features.
Blis Technologies Limited (NZX:BLT)
BLT is also a company that is growing through innovating its products and expanding its footprint. It has introduced several products like UltraBLIS, which is immunity-boosting supplement. In FY20 and FY21, it continued to build its BLIS® brand. It’s expanding in several countries but its main focus currently is on China.
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Freightways Limited (NZX:FRE)
FRE is likely to deliver results big once the economy opens up. It is likely to do well in all segments except for one. Recently, the new hiring is likely to result in changes in its operations.
Mercury NZ Limited (NZX:MCY)
MCY is NZ’s electricity generation and retailing company. Most of the company’s electricity generation is through renewable sources. It operates nine hydroelectric generating stations and five geothermal plants in the Taupo area. It is a high-growth company as green companies are going to be the future of the world.