T. Rowe Price was one of the first successful growth investors. His methods have become conventional wisdom for growth investors, much as Ben Graham is seen as the one that introduced and value investment as a discipline. A typical growth company is referred to as a "T. Rowe Price Stock", just as one might identify a very cheap stock as a "Ben Graham Stock".

Price identified a growth stock as a stock with "long-term growth of earnings, reaching a new high level per share at the peak of each succeeding major business cycle and which gives indications of reaching new high earnings at the peak of future business cycles." Earnings may decrease during less favourable business conditions however.

T. Rowe Price identified a favourable opportunity to buy a growth stock when a company had:

• Superior research to develop products and markets.

• A lack of cutthroat competition.

• A comparitative immunity from government regulation.

• Low total labour cost, but well-paid employees.

• Statistically, 10% return on invested capital, sustained high profit margins, and superior growth of EPS.

Price had a top-down approach, he selected the most promising industries, and a bottom-up approach, he would buy the most promising company or companies in that industry.

His favourite measures of a top company were unit volume growth of sales and net earnings. Both improving throughout the business cycle and into recessions, and reaching higher peaks at the top of each cycle.

In particular, Price valued the following factors in assessing a company.

• Superior management.

• Outstanding research.

• Patents.

• Strong finances.

• A favorable location.  

Price was heavily into picking business cycles. At what Price regarded to be the bottom, he would buy heavily into depressed cyclical industries to get a big push coming out of the recession, then after taking a profit on those he would go into more stable growth stocks in the usual sense of the word to grow his capital throughout the boom time.

As a buy signal, Price would target companies trading at a PER 33% of the lowest PER reached in the previous few business cycles. When this target was reached he would buy vigorously.

As a sell signal, he would sell 10% of his holding when the stock has appreciated 30% above his buy target, and sell 10% more every time the stock gained 10% again. He would also sell out of any stock he held that was showing a decline in return on invested capital, this was a sign that a growth stock was maturing.

Price believed that the most profitable and least risky time to own a share is during its early stages of growth.

He held great disdain for forecasting methods, "no one can see ahead 3 years, let alone 5 or 10" and felt that most valuation models, such as discounting cash flows or asset valuation methods were unreliable, if not useless.