Growth stock

Said of shares of young companies with little or no earnings history. They are valued on the basis of anticipated future earnings and thus have high price-earnings ratios. They generally grow faster than the economy as a whole and also faster than the industry of which they are a part. They are risky because capital gains are speculative, especially in the case of young companies in new industries. An example of a growth stock is a high-tech company.

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The stock of a company which has achieved aboveaverage earnings growth in the past and has good prospects for continued increases in the future. Growth companies generally have other characteristics in common, including aboveaverage profit margins and return on shareholder’s equity , above average expenditures for product development and research, and patented and/or proprietary products. Markets served by growth companies are typically large and expanding and the company is usually a dominant force in the markets it serves. Earnings reinvestment in the business is high resulting in low dividends. Initially, capital appreciation potential is the primary attraction of growth stocks for investors. If aboveaverage growth continues for a long enough period, dividend payouts compared to original cost of purchased stock can become substantial.

Shares in a company whose earnings are expected to grow at an above-average rate relative to the market.

Also known as a "glamor stock".

Investopedia Says:
A growth stock usually does not pay a dividend, as the company would prefer to reinvest retained earnings in capital projects. Most technology companies are growth stocks.

Note that a growth company's stock is not always classified as growth stock. In fact, a growth company's stock is often overvalued.

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