The U.S. stock market reflects the enterprise and wealth of the most dynamic economy in the world. Investing in emerging growth companies can be one of the best ways to participate in the U.S. market today.

Growth Investing Defined

Emerging growth companies are typically innovative, smaller businesses managed by aggressive owner/entrepreneurs. Given their smaller size, such businesses are usually nimble and unbureaucratic in their relationship to the marketplace, innovative in product development and design, and firmly customer focused. Typically, they also experience higher growth rates in revenues and earnings than larger companies in the economy or the market as a whole. IBM and Microsoft were once emerging growth companies. The ideal growth investment is finding tomorrow's market leader today.

The Formula Is Above-Average Earnings Growth

As growth managers, the investment professionals at Formula Growth buy businesses that can sustain above-average earnings growth over the long term. Formula Growth defines "above average" as a minimum 20% annual increase in earnings, although growth in revenue and cash flow and strong returns on shareholders' equity are also important yardsticks. Besides the attributes of a good business model, Formula Growth also looks for a high degree of stock ownership by management. Successful growth investing is an ideas business, requiring the ongoing examination of new business concepts and constant reappraisal of existing investment opportunities. Responding early to changes in the fundamental outlook of a company, positive or negative, is also an important part of the investment process.

An Extensive U.S. Information Network

In addition to rigorous security analysis, all potential and existing portfolio holdings are vetted with external sources, including Formula Growth's contact network in the U.S. analyst and investment community. Over the past 40 years, Formula Growth has developed long-standing relationships with leading analysts and other money managers in the U.S. In addition, Formula Growth deals regularly with boutique or regional U.S. investment dealers outside the realm of mainstream Wall Street firms. This information and idea-sharing network provides Formula Growth with a pipeline to outstanding investment opportunities, usually long before they are discovered by the national U.S. brokerage firms or other investment managers. A great deal of time is also spent by the portfolio managers travelling throughout the U.S. visiting the managements of prospective and existing investments and attending conferences sponsored by investment dealers or trade associations.

A Consistent And Disciplined Style

In Formula Growth's experience, companies in the early phases of rapid earnings growth provide the greatest potential for long-term stock price gains. Successfully identifying growth opportunities at all stages of the economic and stock market cycle is a highly specialized investment skill requiring a consistent and disciplined style honed by many years of asset management experience.