Growth Theory of Common Stock Valuation

The Growth Theory studies the analysis of corporate and industry data to select reputed concerns that show continuing growth from one business cycle to another and a growth rate that exceeds the overall economy. Embedded in growth theory is that, the investor seeks returns in the form of capital growth rather than dividend income. If an investor can classify and obtain the stock of such companies in their early developmental and growth stages, and the companies go on to become leaders in a growing field, the investor most likely will have impressive results. Another approach of the growth theory is to purchase mutual funds that focus on certain industries which the investor considers to be growth industries. An alternative is to invest in funds with growth or belligerent growth as investment objectives. This way the investor gets professional management in selecting growth stocks. However, if the investor analyzes are fully and invests for long-term, then the growth stock approach will yield handsome results.

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