Often we want to know which growth stocks are the best to buy now. However, it’s much easier to know what to look for in a potential investment instead.
The best stocks to buy won’t always be the same. And since the markets are always moving, sometimes, it could be too late by the time you read an analyst report or stock recommendation.
So rather than looking to see which are the best growth stocks to buy now, here are three qualities to look for to help you identify these before the rest of the market.
Look for companies in a growing industry
One of the easiest ways to spot the best growth stocks to buy are companies in an industry that’s rapidly gaining in popularity.
When companies already have a natural tailwind from an increase in the popularity of their industry, it’s much easier to grow operations.
Of course, you can’t just buy any stock in the industry. You still want to find the most dominant businesses. However, investing in these stocks will offer far more potential than the top stock in a maturing industry.
There are several great growth industries to invest in today. Tech stocks are always companies offering a tonne of prospects for growth. Crypto stocks are another industry with some of the best growth investments to buy now. Even renewable energy is an industry you could consider for plenty of long-term growth.
The best growth stocks to buy will have impressive economics
What’s another key factor to look for when investing in growth stocks? Strong economics and consistently improving margins.
Sometimes when you invest in growth stocks early on, they are not yet profitable. In fact, being this early on in an investment can often offer you some significant possibilities to see your capital grow. However, an investment this early also comes with a lot more risk.
One of the ways you can analyze the quality of a business, though, besides how quickly its revenue is increasing, is how well its margins are improving.
For example, Shopify is one of the best growth stocks to buy now. A quick glance at its financials shows a consistent increase in its operating and net margins over the years.
The best businesses will have incredible economics, and each time revenue increases, margins should be expanding considerably.
This way, you know the company can scale, and as its revenue increases, its profitability can grow exponentially.
Catalysts in the stock price
If we are talking about the best stocks to buy now, you’ll want to make sure they have momentum or at least some catalysts to rally in the near term.
For example, you don’t want to be too quick to try and catch a falling knife. On the flip side, you don’t want to buy a growth stock that’s been overbought.
Sometimes there are great companies to own, but if they don’t have any catalysts to drive the shares higher, they may not necessarily be the best stocks to buy now. A great company doesn’t always mean a great stock. So often you’ll have to wait for a stock to be in a more favourable position for it to be worth a buy.
Keeping these three tips in mind will not only help you find the best investment for the long run but will also help you buy these at the most opportune prices, both of which will be key to maximizing your returns.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Daniel Da Costa has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Shopify. The Motley Fool recommends the following options: long January 2023 $1,140 calls on Shopify and short January 2023 $1,160 calls on Shopify.