Growth Stock

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Term Definition
Growth Stock

A company focused on rapid revenue and earnings growth, even if it means reinvesting profits rather than paying dividends

A growth stock is a company stock that is expected to experience above-average growth in its earnings and share price compared to the overall market. These companies typically reinvest most of their profits back into the business to fuel further expansion, rather than paying out dividends to shareholders.

Here are some key characteristics of growth stocks:

  • High growth potential: The main characteristic of a growth stock is its potential for above-average growth in earnings and share price. This growth can be driven by a variety of factors, such as a new product or service, expansion into a new market, or a strong competitive advantage.
  • Low dividend payouts: Growth stocks typically reinvest most of their profits back into the business in order to fund further growth. This means that they typically pay out low or no dividends to shareholders.
  • Higher volatility: Growth stocks tend to be more volatile than the overall market, as their share prices are more sensitive to changes in their growth prospects.
  • Higher valuations: Growth stocks often trade at higher valuations than value stocks, as investors are willing to pay a premium for their future growth potential.