Growth Stock

Growth stocks are shares of companies that are expected to grow significantly faster than the overall market, driven by high earnings growth, innovative products, or expanding market share. These companies typically reinvest profits into the business rather than paying dividends, aiming for capital appreciation. Growth stocks are often found in sectors like technology and healthcare, where innovation drives rapid growth. While they offer high return potential, they also come with increased risk due to their dependence on continued expansion.

Example

A technology company developing cutting-edge software is considered a growth stock because of its potential to rapidly increase sales and earnings, attracting investors seeking capital gains.

Key points

• Stocks of companies expected to grow faster than the overall market.

• Focus on capital appreciation rather than dividends.

• Often found in innovative sectors like technology and healthcare.

Quick Answers to Curious Questions

What attracts investors to growth stocks?

Investors are drawn to the potential for high returns driven by rapid earnings growth, market expansion, and innovation.

What are the risks of investing in growth stocks?

Growth stocks carry higher risk due to their dependence on continued expansion, market conditions, and the potential for volatility.

How do growth stocks differ from value stocks?

Growth stocks focus on high growth potential and capital gains, while value stocks are considered undervalued relative to their fundamentals and offer dividends.