- 1True growth stocks combine revenue acceleration with profitability and economic moats
- 2Unprofitable "growth" stocks underperform profitable ones by 3-5% per year
- 3Our model surfaces growth stocks with high composite scores across all six factors
- 4The strongest growth stocks have expanding margins, not just expanding revenue
- 5Sector concentration risk is real — diversify beyond just tech and healthcare
#What Is a Growth Stock?
A growth stock is a company whose revenue and earnings are expanding faster than the broader market. But not all growth is created equal.
Sustainable growth comes from: - Expanding addressable markets - Strong competitive advantages (moats) - Improving margins as the company scales - High returns on invested capital (ROIC)
Unsustainable growth comes from: - Selling below cost to gain market share - Aggressive acquisitions funded by debt - One-time demand spikes (pandemic winners) - Accounting tricks that inflate revenue
Our model naturally favors sustainable growers because they score well on profitability AND momentum, while unsustainable growers score well on momentum but poorly on profitability and value.
#How We Identify Top Growth Stocks
We don't have a single "growth factor" — instead, growth characteristics emerge from three of our six factors:
Growth Factor (10% of composite)
Measures year-over-year asset growth and revenue expansion. Companies growing revenue 15%+ with conservative balance sheet expansion score highest.
Momentum Factor (25% of composite)
Strong growth companies typically exhibit sustained price momentum. Our 12-month return (ex. last month) captures the market's recognition of growth.
Profitability Factor (30% of composite)
This is the key differentiator. We filter for growth stocks that are also highly profitable — ruling out money-burning "disruptors" that rarely recover their cost of capital.
Deep dive: Why profitability beats growth →
#Growth Stock Red Flags Our Model Catches
| Red Flag | What Our Model Sees |
|---|---|
| Revenue growing, margins shrinking | Low profitability score |
| Price spike on hype | Low value score (overvalued) |
| Funded by dilution | Low investment score (aggressive capital) |
| Analysts skeptical | High short interest → low SI score |
| Volatile price swings | Low stability score |
A stock growing 40% but scoring 25/100 overall is a growth trap. Our model flags these by weighing growth against quality, value, and risk.
#Growth Sectors to Watch in 2026
| Sector | Growth Drivers | Our Assessment |
|---|---|---|
| Technology | AI infrastructure, cloud migration | Selective — margins matter |
| Healthcare | GLP-1 drugs, gene therapy, aging demographics | Strong quality-growth overlap |
| Industrials | Reshoring, infrastructure spending | Underappreciated growth |
| Consumer Discretionary | E-commerce, experiential spending | Look for pricing power |
| Communication Services | Digital advertising, streaming | Consolidation creates winners |
#The "Quality Growth" Sweet Spot
Academic research consistently shows that the best investment strategy combines growth with quality. Specifically:
- High profitability + high momentum = the strongest return signal in our backtest
- High growth + low profitability = the classic growth trap
- High growth + high value = rare but extremely powerful when it occurs
Our composite score naturally surfaces "quality growth" stocks because profitability (30%) and momentum (25%) together represent 55% of the total score.
#How Growth Stocks Perform in Our Model
Looking at our backtest, stocks scoring 75+ (Strong Buy) with above-median revenue growth outperform the market by approximately 12-15% annually. This premium shrinks dramatically when you remove the profitability filter.
The lesson: growth without profits is speculation, not investing.
#Finding Top Growth Stocks Today
- 1Start at our rankings page — sort by composite score
- 2Filter for momentum — high momentum stocks are often growth names
- 3Check profitability scores — ensure profitability is 60+ for quality growth
- 4Review individual stock pages — look at revenue growth rates and margin trends
- 5Monitor our upgrades page — stocks recently upgraded to Strong Buy with growth characteristics
Last updated: February 23, 2026