Growth rate generally refers to a company's percentage change in either earnings per share or revenue over a given period. It also is applied to sectors or countries to show how fast (or slow) growth is occurring, in percentage terms.
A growth rate tells investors how quickly a stock, sector, economy, or other investment grouping is growing. High growth might indicate a good place to put your money, since things are on their way up, which could mean parallel growth in your holdings. But the growth might also be near its top if it's been on the way up for a while. There's no way to time the market, of course.
Analysts project future growth rates (based partly on past growth and predictions about future trends) and many investors use those figures when considering whether a stock is a "bargain." For instance, if a company's P/E is 13 and analysts predict 21% growth annually for the next five years, that could be one item to put in your "why buy this stock" column.
Investors should also look at growth rates in the past to see if current growth might be related to a one-time event instead of a hallmark of the stock.
Countries' growth rates -- in terms of something like gross domestic product (GDP) or market capitalization -- are also important. It's a rate, so a country could have a much smaller economy overall than the United States, but if it's growing at a faster rate (a so-called emerging economy), perhaps it is a good place to look for stocks.
David Gardner Explains
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