Growth investing is a strategy that targets companies expected to grow their revenues and earnings at rates significantly above the market average, even if their current valuations appear expensive by traditional metrics.
Growth investors also track: Revenue Growth Rate, EPS Growth Rate, Free Cash Flow Growth, and Return on Invested Capital (ROIC).
A tech company trades at $200 with EPS of $5 (PE = 40). But earnings are growing 50% annually. PEG = 40 ÷ 50 = 0.8, suggesting it may still be undervalued despite the high PE. If EPS grows to $7.50 next year, the forward PE drops to 27. If growth continues, the "expensive" stock becomes cheap in hindsight.
Growth investing accepts higher current valuations in exchange for superior future earnings power. The key question is whether the company can sustain its growth trajectory long enough for earnings to "catch up" to the stock price. Companies growing EPS at 20%+ annually can justify PE ratios of 30–50, but only if the growth is durable and not cyclical. When growth slows, these stocks can fall dramatically.
Growth investing has generated some of the highest returns in stock market history. Philip Fisher, who pioneered the approach in the 1950s, believed that finding companies with exceptional long-term growth potential was more rewarding than bargain-hunting among mediocre businesses. His investment in Motorola grew over 100× from 1955 to 1997. The approach was later validated by Thomas Rowe Price Jr., who built T. Rowe Price into one of the world's largest investment firms by focusing on growth stocks.
The fundamental insight is that compounding is extraordinarily powerful. A company growing earnings at 25% annually will see its earnings increase nearly 10× in a decade. If you buy such a company at a reasonable price relative to that future earnings power, the returns can be astronomical. Amazon (AMZN) is the ultimate example — from 2001 to 2024, its revenue grew from $3.1 billion to $575 billion. Investors who bought Amazon at seemingly absurd valuations in the early 2000s earned returns exceeding 10,000%.
However, growth investing carries significant risk. The same high valuations that look justified when growth is strong become crushing when growth slows. When Netflix (NFLX) lost subscribers in Q1 2022, the stock fell 70% from its highs because the market had priced in continued rapid growth. Growth investors must be skilled at identifying durable competitive advantages and sustainable growth runways.
NVIDIA (NVDA) exemplifies growth investing. In 2015, NVDA traded around $5 per share (split-adjusted) with a PE of about 20. The company was pivoting from gaming GPUs to data center and AI applications. Revenue grew from $5.0 billion in 2015 to over $60 billion in 2024, and the stock price multiplied over 200×. Growth investors who identified the AI/data center trend early and bought despite rising valuations earned extraordinary returns. The key was recognizing that NVIDIA had a multi-year growth runway driven by secular trends in AI and data center computing.
Shopify (SHOP) is another growth investing success story. The e-commerce platform grew revenue from $205 million in 2015 to over $7 billion in 2023. Early investors who recognized the shift toward online commerce and Shopify's platform economics earned returns exceeding 5,000% from 2015 to 2021.
Look for "Growth at a Reasonable Price" (GARP): This hybrid approach, popularized by Peter Lynch, combines growth and value. Buy companies growing 15–25% annually at PE ratios of 15–25 (PEG around 1.0). This avoids overpaying while still capturing growth.
Focus on competitive moats: Growth is only valuable if it's sustainable. Look for network effects, switching costs, brand strength, and cost advantages that protect growth from competition.
Track insider ownership: When founders and management own significant stakes (10%+), their interests align with shareholders. Companies where insiders are selling heavily while growth is slowing are red flags.
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Try Valuation Calculator →What is growth investing?
Growth investing focuses on companies expected to grow revenue and earnings faster than the market average. Investors accept higher valuations (high PE ratios) for companies with strong growth trajectories. Think Amazon at $100B market cap — expensive by traditional metrics, but it grew 20x over the following decade.
Growth vs. value investing — which is better?
Historically, value slightly outperforms over very long periods. But growth has dominated in certain decades (2010-2021). The best approach for most investors: hold both. Growth and value rotate in and out of favor, and a blended portfolio captures both cycles without the stress of guessing which will win next.
What are the risks of growth investing?
High valuations mean high expectations — any growth disappointment causes sharp declines. Growth stocks fell 30-40% in 2022 when rates rose. Companies that fail to sustain growth face brutal repricing (Meta fell 70%+ in 2022 before recovering). Position sizing and diversification are critical when investing in growth stocks.