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In the world of stock investing, the quest for growth stocks is ever-present. These stocks, which exhibit consistent growth in earnings per share (EPS), have become a popular strategy among investors.
This article will guide you on utilizing the free FINVIZ stock screener effectively to find the best growth stock. By leveraging this powerful tool, you can filter and identify potential growth stocks that align with your investment goals.
Learn more about Stocks 101 here!
Understanding Growth Stocks
Before we jump into how to find the best growth stocks, what are growth stocks anyway?
Growth stocks are companies that can grow their profits and sales faster than the market average. You can identify a company’s growth based on forecasts and analysts’ estimates.
These companies are often innovators in their fields, creating new products or services that change the game.
Investing in companies with strong growth potential can lead to significant capital appreciation over time. However, not all growth stocks deliver exceptional returns, making it vital to filter out the most promising candidates.
Using the FINVIZ Stock Screener for Identifying Growth Stock Candidates
Since there are thousands of growth stocks out there, it is recommended to use a screener to filter out the best stocks that meet your criteria.
One of the most reliable ways to find growth stocks is by using the free tool FINVIZ stock screener. To begin your search, visit the FINVIZ homepage and click on the “Screener” tab.
This will direct you to the stock screener interface where you can start applying filters to isolate stocks of interest.
I will break down some of the key characteristics of good growth stocks and the filters to apply on Finviz. Please note that the following is not investment advice and the filters is just to narrow your search and give you growth stock ideas!
Market Capitalization
Market capitalization represents the size of a company.
In general, larger companies may have already experienced significant growth, making it more challenging to achieve substantial future growth.
Smaller or mid-cap companies often have more room for growth and may present attractive opportunities. Thus, we’ll filter for small and mid-cap companies.
To filter stocks by market capitalization, use the “Market-Cap” filter in the FINVIZ stock screener. Select the “-Mid” option to filter for companies under $10bln.
High Average Volume
To ensure sufficient liquidity and to allow larger players, such as hedge funds, to take positions without significantly impacting share prices, focus on stocks with substantial trading volumes.
Besides, you want shares with a relatively thin bid-ask spread so that buy and sell out of shares easily at a reduced transactional cost.
The “Average Volume” filter in the FINVIZ stock screener can help you identify such stocks. Select “Over 500K” to filter for stocks that trade at least 500,000 shares daily.
Gauge Future Growth Potential
Growth stocks are all about future growth prospects. However, it is unrealistic to analyze every single stock and come up with our own growth estimates.
Analyst forecasts provide insights into a stock’s growth potential and can give us a good estimate of what the pros think, although they are not infallible. For this purpose, utilize the analyst forecast filters available in the FINVIZ stock screener.
Specify “Over 15%” for each of the following filters: “EPS growth this year,” “EPS growth next year,” and “EPS growth next five years.” This will help you identify stocks with robust growth projections.
Additionally, use the “Return on Equity” filter and select “positive” to ensure the most recent EPS figure is a positive number, further indicating potential growth.
Low PEG Ratio
It’s important to find promising stocks that have the potential for strong growth. However, these stocks can become too expensive quickly if everyone wants to buy them.
To understand if a stock is reasonably priced, you can use a ratio called the PEG ratio. This ratio compares the stock’s price, compared to its earnings, with its projected growth rate for earnings in the future. The lower PEG ratio, the more undervalued a stock is in relation to its future growth rate.
By using the PEG ratio, you can get a better idea of whether a stock is a good value or if it might be too expensive based on its growth prospects.
In the FINVIZ stock screener, use the “PEG” filter and select “Under 1” to filter for stocks that exhibit favorable PEG ratios. This approach has been found to yield promising results in identifying undervalued growth stocks.
Current Ratio
When choosing growth stocks, one important financial ratio to consider is the current ratio. The current ratio is a measure of a company’s ability to meet its short-term financial obligations. It compares a company’s current assets to its current liabilities and provides insights into its liquidity and financial health.
Ideally, when selecting growth stocks, it is preferable to choose companies with a current ratio of over 1. A current ratio above 1 indicates that the company has more current assets than current liabilities, suggesting it has sufficient resources to cover its short-term obligations.
Here’s why it’s beneficial to look for growth stocks with a current ratio over 1:
- Financial Stability: A current ratio above 1 implies that the company has a strong financial position and is capable of paying off its current debts using its current assets. It indicates that the company is not overly reliant on external financing to meet its short-term obligations.
- Growth Potential: Companies with a current ratio over 1 are better positioned to invest in growth opportunities. They have the financial flexibility to fund expansion initiatives, research and development, and other strategic investments that can drive future growth.
- Risk Mitigation: A current ratio below 1 may indicate potential liquidity issues and an increased risk of defaulting on short-term obligations. By choosing growth stocks with a current ratio over 1, you reduce the risk of investing in companies that may face financial difficulties or struggle to manage their debt.
While a current ratio above 1 is generally preferred, it’s essential to consider the industry norms and compare the ratio to peers within the same sector. Different industries have varying working capital requirements, and a ratio slightly below 1 may still be acceptable depending on the specific circumstances.
High Institutional Ownership
Institutional players, such as mutual funds, possess deep knowledge and access to market information, making their investment choices significant.
To align your investments with these influential players, utilize the “Institutional Ownership” filter in the FINVIZ stock screener.
Specify “Over 40%” to filter for stocks that enjoy significant institutional ownership. This indicates that big players in the market have shown interest and confidence in these stocks.
Momentum: Above Moving Average
Another important factor to consider when identifying growth stocks is momentum. Momentum refers to the upward trend or positive movement in a stock’s price. One way to assess momentum is by looking at whether the stock is trading above its moving average.
The moving average is the average of a stock’s price over a specific period of time. By comparing the stock’s current price to its moving average, you can determine if it has been consistently trending higher or lower.
When a stock trades above its moving average, it indicates positive momentum and suggests that its price is likely to continue rising. This can be a good sign for potential growth stocks.
I like to use the 200-day moving average to identify stocks that are in an uptrend.
Further Consideration
Revenue Growth
Revenue growth is a crucial metric to consider when evaluating growth stocks. It indicates the increase in a company’s total sales over a specific period. Since FINVIZ does not have a filter for revenue growth, you can explore the company’s financial statements and annual reports or a website like Morningstar.
Look for the historical revenue figures and analyze the trend over the years. Positive revenue growth suggests that the company is generating more sales and expanding its customer base, which can be an indicator of potential growth.
Free Cash Flow
Free cash flow shows the company’s ability to generate cash after accounting for operating expenses and capital expenditures.
It represents the cash available to the company for expansion, acquisitions, dividends, or reducing debt. To evaluate free cash flow without using FINVIZ, you can review the company’s cash flow statement, which can be found in its financial reports.
A quick way to calculate the free cash flow is by subtracting capital expenditures from the operating cash flow. Positive and increasing free cash flow indicates the company’s ability to fund growth initiatives and potentially generate higher shareholder returns.
News
Staying informed about the latest news and developments related to a company is crucial when evaluating growth stock candidates.
News can provide insights into industry trends, new product launches, partnerships, regulatory changes, or any significant events that may impact a company’s growth prospects.
To gather news about the company you like, you can explore financial news websites, business news channels, company press releases, and industry-specific publications. Stay updated on company-specific news and broader market trends to make informed investment decisions.
Conclusion
In the pursuit of growth stock candidates, employing effective screening techniques can help filter for stocks that fit your criteria. The FINVIZ stock screener offers a range of filters to help you identify stocks that exhibit promising growth potential. Feel free to refine your search and increase your chances of finding the best growth stock candidates.
Remember, while these strategies can enhance your stock selection process, it is important to conduct thorough research and analysis before making any investment decisions. Stay informed, keep track of market news and trends, and adapt your strategy accordingly. With diligence and a well-executed approach, you can uncover growth stocks that may yield fruitful returns over time.
Disclaimer: The information provided in this article is for educational purposes only and should not be considered financial advice. Investing in stocks involves risks, and consulting with a qualified financial advisor is recommended before making any investment decisions.
This post may contain affiliate links. We may receive compensation when you click on links to those products at no additional cost to you. Read our full disclosure here.
