How Much Should You Pay for a Growth Stock?
We're studying the records of 50 growth stocks to find out.
Investing in great growth stocks is entirely consistent with buying only at a margin of safety. Growth, after all, is a component of value. We think the best growth stocks often present the widest margins of safety, especially if you catch them early. Rather than "paying up for growth," astute investors may actually be getting the best of both worlds--buying into fast-growing firms at discounts rarely glimpsed elsewhere in the market. Yet we're often greeted with intense skepticism--at best!--when we raise ideas like these with other margin-of-safety-oriented investors, especially more traditional value investors. So we've decided to plant a stake in the ground and examine the record.
We'd like to share some interim results from our quantitative growth investing research. We're studying the return earned by investors in a sample of 50 widely known growth stocks over periods starting in 1990, 1995, and 2000, in an attempt to increase our insight into growth stock valuation--and just how much you can pay for growth. Of course, there's no chance that we'll abandon our preference for investing with a margin of safety--this remains a core Morningstar principle. In our view, one of the most frequent investment sins is overpaying for growth. It's entirely unnecessary, as an informed investor is well positioned to determine when growth is attractively priced--and when it isn't. Margins of safety remain vital, but when it comes to the best companies, there's often more to consider than most investors realize.
Dreyfus Neenan does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.