What is a Growth Industry?
A growth industry is an industry that is growing more quickly than most other industries in a given market. That growth could be represented by earnings, revenue, or both. Investors who purchase securities in growth industries stand to gain large returns but are also at a greater risk for losses than those investors who invest in steadier, more stable securities. Some people believe that it is wise to put a portion of one's investments in these kinds of stable securities and just some investments in securities within a growth industry.
One of the reasons that it is risky to invest in a growth industry is that if these industries grow too quickly they may get into trouble. If a company makes a misstep in a period of fast growth, that misstep can lead to very serious problems for the company and, therefore, the stock holders. As such, although the stocks may go through a period of rapid growth in which the investors see their investments growing just as rapidly, the value of the stock can also decrease just as quickly. In fact, the stock can fall so dramatically it is worth is less than when investors purchased it.
One way to identify a growth industry is to look at a number of companies within a certain industry. If many of the companies are earning well and show strong revenues, then they may be part of a growth industry. Identifying these kinds of industries and speculating on how to best invest in them is a topic that is widely discussed by financial analysts and financial reporters. Likewise, these experts work to identify when a growth industry may begin to come out of a period of growth and when securities and investments in specific industries may begin to slow down in terms of their growth or even decline in value.
There are cases in which people invest in what they think is a growth industry to find that the industry is in a period of natural, rather than rapid, growth. All industries go through periods of growth from time and time. However, natural growth does not necessarily mean that the industry as a whole is growing as whole but that, rather it is in a growth period that is natural to the business and may be corrected later on. This fact about growth relates to both individual companies as well as industries as a whole.
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