GROWTH RATE FOR STOCKS

The rate at which the stock price appreciates for a given period of time is known as growth rate for the stock. Literally it shows the rate at which the company is growing, because the price appreciation of the stock usually depicts the growth of the company. The investor uses various methods to find the growth rate of the stock. It is known fact that different industry show different kind of growth. Investor must be in a position to know these factors in order to find out the growth rate of the stock. The stock performance varies with period. The investors use historical data format to identify the price for the stock. The growth rate is used by investor to make investment decision. The growth rate of a stock depends on various external factors as well like economic condition, industrial performance, sister group of the company performance etc.

Any company if they want to have a long stand in the industry must have a very good growth rate. It is therefore evident that higher the growth rate better is the stock.

The stocks of the companies with rapid growth are usually called as growth stock. Dividend cannot be expected from such companies as they invest back what ever profit they yield back into the business. There are companies whose stocks are called as value stock those include companies which has a lower performance now, but is expected to grow at a very fast rate in the future. Investor will try to identify such stocks and invest in them as they know that these kinds of stocks will yield in the future. Value stocks are usually less prone to market shocks. They can withstand market collapse to a greater extend.

Growth rate can also be determining using EPS method. The formula used in this method is,

Growth rate of a stock = (EPS of the share at the beginning of the buying period-EPS of the share end of the period)/ EPS of the share at eh beginning of the buying period

Investor uses this as one of the tool in deciding investment decision.

Question

• What is growth stock and value stock?
• Give the formula for growth rate of a stock?