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Growth investing is one of two main fundamental investment strategies, the other being value investing. Investors employing a growth investing strategy will typically place the majority of their portfolio in growth stocks, which are shares of companies whose earnings or sales are expected to grow at a significantly faster rate than the rest of the market. They generally don’t pay dividends at this stage since all earnings are usually reinvested back into the business to generate even more earnings or revenue in the future. The primary way investors expect to earn profits from growth investing is through capital gains. Classic examples of growth stocks include Facebook Inc. (FB), Amazon.com Inc. (AMZN), and Netflix Inc. (NFLX).
Growth stocks, as represented by the Russell 1000 Growth Index, have slightly underperformed the broader market over the past year. The Growth Index has provided a total return of 43.4% over the past 12 months, just behind the Russell 1000 index’s 44.6% total return, as of June 24. All statistics in the tables below are also as of June 24.
Here are the top 3 stocks with the fastest earnings per share (EPS) growth, the top 3 stocks with the fastest sales growth, and the 3 stocks ranked according to a 50/50 weighting of their combined EPS and sales growth.
Top Growth Stocks by EPS Growth
These are the stocks with the highest year-over-year (YOY) EPS growth for the most recent quarter. Rising earnings show that a company’s business is growing and is generating more money that it can reinvest or return to shareholders. Companies with quarterly EPS of over 2,500% were excluded as outliers.
Source: YCharts
- Fifth Third Bancorp: Fifth Third Bancorp is a diversified financial services company operating banks in the Midwest and Southeast parts of the U.S. The company offers retail and commercial banking, investment advisory, and other services. On June 22, Fifth Third announced it would acquire Provide, a digital platform for healthcare practices. The acquisition is expected to strengthen Fifth Third’s focus on the rapidly-growing healthcare sector by providing national digital capabilities to serve lending and banking needs of retail healthcare providers. Terms of the acquisition were not disclosed in the press release.
- Boston Scientific Corp: Boston Scientific develops, makes, and sells minimally invasive medical devices. Its products are used in a variety of medical areas, including urology, cardiac rhythm management, endoscopy, and neuromodulation. On June 24, the company announced that it had exercised its option to acquire the remaining 73% of the shares of Farapulse Inc. it does not own for about $295 million. As part of the deal, Boston Scientific also will pay up to $92 million on achievement of specific clinical and regulatory milestones, and additional revenue-based payments for the next three years. The acquisition adds the FARAPULSE Pulsed Field Ablation (PFA) System to the Boston Scientific’s existing electrophysiology offerings. PFA is used in the treatment of atrial fibrillation and other cardiac arrhythmias.
- The Interpublic Group of Companies Inc.: The Interpublic Group of Companies is a group of advertising and marketing service companies. It specializes in consumer advertising, digital marketing, communications planning and media buying, public relations, and data management.
Top Growth Stocks by Sales Growth
These are the stocks with the highest YOY sales growth for the most recent quarter. Rising sales can help investors identify companies that are able to grow revenue through organic or new ways, and find growing companies that have not yet reached profitability. In addition, EPS can be significantly influenced by accounting factors that may not reflect the overall strength of the business. However, sales growth can also be potentially misleading about the strength of a business because growing sales on money-losing businesses can be harmful if the company has no plan to reach profitability. Companies with quarterly revenue growth of over 2,500% were excluded as outliers.
Source: YCharts
- Zoom Video Communications Inc.: Zoom Video Communications is a provider of a video-first communication platform and Web conferencing services. On June 9, the company launched Zoom Phone Appliances, which is new category of hardware designed for the hybrid workforce. It features video and audio capabilities, touch display, interactive whiteboarding, and related services.
- Etsy Inc.: Etsy is an e-commerce company that sells art, supplies, housewares, paper goods, clothing, and similar products. The company announced in early June that it would acquire Depop, a privately-held, community-led marketplace for fashion, for $1.6 billion. Etsy says that about 90% of Depop’s active users are under age 26, and that Depop is the 10th most visited shopping site by Gen Z consumers domestically. The transaction is expected to close in Q3 2021.
- Essential Utilities Inc.: Essential Utilities is a regulated utility holding company that provides water, wastewater, and natural gas services to about 5 million customers in eastern, midwestern and southern states, including Pennsylvania, Ohio, Texas, Illinois, New Jersey, and Virginia under the Aqua and Peoples brands.
Top Growth Stocks by EPS and Revenue
These are the top growth stocks in the Russell 1000 index as ranked by a growth model that scores companies based on a 50/50 weighting of their most recent quarterly YOY percentage revenue growth and their most recent quarterly YOY EPS growth. Both sales and earnings are critical factors in the success of a company. Moreover, ranking companies by only one growth metric makes a ranking susceptible to the accounting anomalies of that quarter (such as changes in tax law or restructuring costs) that may make one or the other figure unrepresentative of the business in general. Companies with quarterly EPS or revenue growth of over 2,500% were excluded as outliers.
Source: YCharts
- Tesla Inc.: Tesla is engaged primarily in the design and manufacturing of electric vehicles, including luxury and mass-market sedans and trucks. It also produces solar energy generation and energy storage products.
- Zoom Video Communications Inc.: See above for company description.
- Everest Re Group Ltd.: Everest Re Group is a reinsurance provider serving property and casualty insurers and policyholders both in the U.S. and abroad. In Q1 2021, the company reported strong net income growth on a 38.4% YOY increase in total revenue, fueled partly by increases in written premiums.
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