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Fundamental Factors of Investing Part 3: What is the Growth Factor?

Tyler and Jordan review the growth factor for our third installment of the fundamental factors of investing. The growth factor or style of investing focuses on companies that have an above average rate of revenue or earnings growth. Growth investing typically favors younger companies with shorter track records but potentially a new or untapped economic market. They also include investments or companies in new technologies or services. Some companies classified as growth will pay a dividend but, historically, growth companies prioritize reinvesting earnings internally versus paying shareholders in the form of a dividend as they try to grow with their expending economic market. Typically, companies classified as value will return a larger percentage of their earnings to shareholders via dividends.

We review two of the largest ETF provider classifications for growth and the factors LVM uses for scoring companies based on growth including, five-year sales growth, five-year earnings per share growth, five-year dividend growth, and projected revenue growth for each of the next two-years.

Tyler and Jordan end with reviewing how to combine the value and growth factors for analysis including Craig’s quote during our value factor podcast “Value and growth are two sides of the same coin. A stock is not a good value if there is not some underlying growth, and a growth stock is not a good investment if you pay too high a price.”


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