Best Growth Stocks for September 2024

Growth stocks can be a good way to build wealth. These are some of the best growth stocks for September 2024

Reviewed by Charlene RhinehartReviewed by Charlene Rhinehart

Growth stocks are companies expected to generate earnings growth, revenue, and share prices that exceed industry peers. Instead of returning profits to shareholders through dividends, growth companies concentrate on increasing the share price by reinvesting in research, development, and expansion. While growth stocks can generate significant returns, they also carry higher risks because of market volatility.

The following returns are based on data from Aug. 20, 2024.

Growth Stocks in the Current Market Environment

Before investing in growth stocks, analyzing the sector and market conditions is crucial to determine if they favor the strategy. Growth stocks tend to perform better when the economy is expanding, and the cost of borrowing is low. Therefore, the current environment, characterized by higher interest rates, slowing growth, and historically elevated inflation, doesn’t necessarily bode well for these stocks.

However, not all growth stocks are the same. Companies with a dominant market position, with a competitive edge, or in an industry poised for future growth will continue to outperform, whatever the macroeconomic conditions. For example, technology stocks outpaced the broader market in 2023, given the widespread adoption of artificial intelligence (AI). This is all the more notable since these companies tend to be hypersensitive to interest rate increases because they rely more heavily on borrowing to fund research and development.

Health technology and biotech companies feature prominently among the top growth stocks. These sectors have navigated notable turbulence in the past few years; fewer breakthrough medical technologies have reached the market, while the post-pandemic period and the aging population mean healthcare spending is expected to reach a full fifth of U.S. gross domestic product by 2028. Despite the inherent volatility in the sector, the ongoing demand for medical treatments positions the health technology and related sectors as a potential safe harbor unlikely to see a dip in spending, even if the overall economy should slow.

How We Chose the Best Growth Stocks

We selected the 12 best growth stocks above based on the highest 30-day percentage return, among those listed on the Nasdaq or New York Stock Exchange. We excluded stocks under $5, those with a market cap of less than $300 million, and those with a daily trading volume below 100,000. Companies with growth in excess of 1,000% were excluded as outliers.

Stocks that are outperforming industry peers and the broader market over this period have short-term momentum from positive market sentiment, good company news, or bullish technicals. If conditions remain favorable, stocks generating the highest 30-day returns could trend higher. Nevertheless, you should keep in mind that short-term performance may not reflect a sustainable growth trajectory.

How to Invest Wisely in Growth Stocks

Besides using the 30-day return to find suitable growth stock prospects, you should review the following financial ratios. It’s best to compare candidates using several metrics to better understand their financial position, how the market views them, and their potential for generating future growth.

Earnings per share (EPS) growth

This reflects the percentage increase in a company’s earnings per share over a specific period, such as a quarter. For instance, Apple (AAPL) posted fourth-quarter 2023 EPS growth of 13.94% on a year-over-year basis, meaning its earnings in the fourth quarter of 2023 increased nearly 14% over the fourth quarter of 2022. Positive EPS growth indicates financial health and the potential to increase shareholder returns.

Price-to-earnings (P/E) ratio

This ratio measures a company’s stock price relative to its EPS. For example, Apple has a P/E ratio of 31.77, meaning investors pay $31.77 for every dollar the tech giant earns. A high P/E ratio suggests investors expect strong future growth but could signal an overvalued stock. Conversely, a low P/E ratio could mean the stock is undervalued or that the market expects it to generate slower earnings growth.

Compound annual growth rate

Abbreviated as CAGR, this calculates the annual growth rate over a specified period. It’s used to identify growth stocks by providing a smoothed average growth rate (rather than a simple average that can be thrown off by outliers) and can clarify if the company has sustained a certain level of performance and could still grow its share price over time. For example, Apple stock had a CAGR of 34.69% over the five-year period ending December 2023, showing higher growth than competitors like Microsoft Corporation (MSFT) and Alphabet Inc. (GOOGL), which had CAGRs of 29.15% and 19.63%, respectively, over the same period.

Price-to-book (P/B) ratio

The P/B ratio compares a company’s market value to its book value, which reflects the ratio between its stock price and net asset value per share. When analyzing growth candidates from a contrarian view, a low P/B ratio could indicate an undervalued stock with upward price potential. As with all financial ratios, it’s best to compare this metric with historical and industry averages before drawing a firm conclusion about the stock.

How to Find Growth Stocks

There’s no magic formula for calculating the most promising growth stocks. You should consider a company’s financial health, competitive edge (if any), management, and returns compared with industry peers and the broader market.

While researching a company, review its revenue growth, EPS, and profit margins. A consistent track record of rising earnings could imply strong growth potential. Don’t focus on stocks that pay dividends if you want to invest in growth stocks as a strategy. Growth companies typically reinvest profits for further expansion, prioritizing share price appreciation over dividend payments.

You can see if a company has a competitive advantage by identifying any unique products, technologies, or services within its industry. A sustainable competitive edge should translate into long-term growth. For example, Tesla, Inc. (TSLA) recently launched a virtual power plant that lets some residents in Texas sell excess energy from home backup batteries to the state’s grid, further cementing its position in the clean energy market.

Analyze a company’s management and corporate governance by their track record. How has management navigated challenges and capitalized on growth opportunities in the past? For example, you can look over previous earnings reports to see if the company met its financial and strategic goals. A company’s management team that has delivered in the past is more likely to do so in the future.

Finally, compare the company’s share price performance with the industry average and broader market returns. Ideally, you’re looking at prospective growth stocks that have outperformed both. For example, ridesharing company Lyft, Inc. (LYFT) returned 19.1% over 30 days into December 2023, outpacing the 5.9% return in technology stocks and the Russell 3000’s 6% gain over the same period. Although the stock trades below its $72 initial public offering price, it has shown relative strength recently, which makes it a potential candidate as a future top growth stock. By looking at these factors, you can improve your chances of identifying and investing in the best growth stocks.

Are These the Best Growth Stocks?

Determining the best growth stocks involves considering diverse factors. Just because the 12 growth names above have demonstrated relative strength against the broader market over the past 30 days does not mean they will continue to do so. Companies that have generated impressive returns often face new challenges or less favorable market conditions, leading to a sudden reversal in their share price. This means constantly being on the lookout for the top growth stock that will replace them.

It’s also important to acknowledge that growth stocks may not be suitable for all investors, particularly risk-averse investors. While they can deliver impressive returns, they usually have higher volatility and risks, leading to extreme price fluctuations. While growth stocks offer the potential for outsized gains, you should ensure they align with your financial circumstances, life stage, and investment strategy. Diversification, risk awareness, and focusing on long-term goals should all be considered before adding growth stocks to your portfolio.

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As of the date this article was written, the author does not own any of the above securities.

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