Investing in growth companies

The potential for huge price appreciation lies with small cap stocks. These are emerging companies that just started to make a presence in the markets they compete in. The market capitalization of these companies is below $2 billion. This is the period in which these companies are beginning to commercialize their offerings. Because of their modest sales base, the potential for these companies to grow at a fast pace is promising. Multiplying annual sales from $17 million is less daunting than $7 billion.

Because these companies are still in the early stages of their development, they can be vulnerable to weak economic conditions and stronger more established competition. Very capable management teams helm small cap companies with the best chances of thriving and emerging into major corporations. They make sure that their companies come out with competitive offerings and are able to guide their companies through a high growth phase without compromising quality and profit margins. These companies have strong balance sheets, enabling them to fund rapid growth and even make acquisitions.

Small cap stocks offer potentially high returns but also bring high risks for investors. Because many of these companies have not yet built up a sizeable market presence, the possibility of failure remains high. To increase the odds of finding the best small cap stocks, these are the companies to avoid. These companies have non-distinctive me too offerings, have weak balance sheets and are delaying the commercialization of their products.