Many leading investment companies have a similar view on another next year’s basic tendency – relocation of the capital from the so-called growth companies into value companies. We will briefly explain the difference between them.
Investors buy growth companies mainly hoping for a fast growth of basic economic indicators by means of creation of new markets or blistering expansion of the old ones. As a rule, such companies either do not pay dividends in principle or their size is so small that it doesn’t influence the stock attractiveness. That is why, investors usually buy them for the sake of the stock value growth.
The main ratio, when assessing stock, is P / E (Price to Earnings) ratio. It is usually much higher than average with growth companies and some of such companies have this ratio at astronomical levels (it may reach 100 or even more than 1,000, as it is with Tesla, while the average value is 20).
A majority of technology companies from various sectors, from retail to software development and automobile manufacture, belong to growth companies. These are Amazon (AMZN), Apple (APPLE), Google (GOOG), Netflix (NFLX), Tesla (TSLA), Salesforce (CRM), Zoom (ZM) and so on. The ‘smartest’ growth stocks increased their companies capitalization twice despite all crises.