Definition
Growth stocks are shares of companies expected to grow their revenues and earnings at an above-average rate compared to the market. These companies typically reinvest profits rather than paying dividends, prioritizing expansion over returning capital. Growth stocks often trade at premium valuations (high P/E, P/S ratios) reflecting expected future earnings. They tend to be more volatile and interest-rate sensitive. Growth stocks have outperformed for extended periods, particularly technology companies, but can suffer severe corrections when valuations become excessive.
Example
Amazon was a classic growth stock, reinvesting all profits into expansion for years. Despite minimal earnings, investors paid premium valuations for expected future dominance. Early investors earned 100x+ returns as the thesis played out.
FAQ
What is Growth Stocks?
Shares of companies expected to grow revenues and earnings faster than the market average.
Why is Growth Stocks important?
Growth Stocks helps investors evaluate industry terms and make more informed decisions.