Growth companies are generally thought of as high-quality firms with an above-average chance of growing their earnings faster than industry peers or the market as a whole. That growth can come at a price, though, with these stocks often trading at high price/earnings and book/value ratios.
But paying a high price for growth isn't always a great idea. If there is no margin of safety (in other words, a discount to the stock's fair value estimate) built in to the share price, everything has to go smoothly in the company’s growth path in order to justify the premium valuations.
Karen Wallace does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.