Investor Education Centre > Investing as a Company > Believe it or not: Many Companies Pay 15%+ for Access to growth capital
Believe it or not: Many companies pay 15%+ for access to growth capital
To some, growth capital isn’t seen as an investment tactic that yields the best results. It almost feels unnatural to do anything other than purchase stocks that are trading at below their intrinsic value. However, many people also see the high potential that growth investments have. When you make the right investment in a company that’s emerging into a new market, you may enjoy impressive returns of 15% or more.
In order to see yourself hit the 15%+ target, you need to know what to look for. With some of our leading tips, investing in growth capital could become one of the wisest financial strategies you take.
Don’t ignore the strong historic growth numbers
When considering each company, examine their numbers from the last five to 10 years. If it has shown strong growth in the past, it’s likely to do so going forward. The growth percentages you’re looking for should remain realistic to the company’s size. For example, when a company is valued at $400 million or less, 12% is suitable. However, if they’re larger than $7 billion, 4% is passable.
Know your emerging markets
Some of the best growth investments come from targeting those companies that are moving into emerging markets. They may already hold a strong position in the market they serve, but they’re branching out into something similar. One example of this is Airbnb, a company that faced stiff competition in the increasingly challenging travel market. In a bid to keep up with the pace, the company expanded into tours. Similarly, Uber branched away from providing its taxi app service and created Uber Eats.
Look at the company’s profit margins
It’s possible for a company to experience astounding gains in terms of sales but suffer from poor profit. This is because the overheads eat into their sales, leaving them with poor profit margins that you can’t reasonably expect to generate returns of 15%+. To calculate a company’s profit margins, look at all the expenses from sales (minus taxes) and divide those expenses by the sales. If the company you’re looking at has enjoyed consistently high gains in earnings over the last five years, it’s likely a wise investment choice.
Aim for stocks that can realistically double in five years
A key indicator that a stock is a growth stock is whether or not it’s likely to double in the next five years. Naturally, nobody can predict the future. But you can use the public information you have to hand to see if this is likely. If a stock is to double in five years, it needs to have a consistent year-on-year growth of 15%. Look at historical trends alongside other determining factors and make your best judgement from there.
It’s possible to find growth stocks in almost any exchange. Overall, we recommend always keeping markets that are likely to boom in the back of your mind; the ones where consumer demand is likely to consistently increase have the best potential.
This website contains general information only and is not intended to provide any person with financial advice. It does not take into account any person's (or class of persons) investment objectives, financial situation or particular needs, and should not be used as the basis for making investments.