Glossary
Growth Stock
An informal label for a company whose revenue and earnings are expected to expand faster than the market average.
Growth is a description of expectations rather than a category with a boundary. A company gets called a growth stock when the market is pricing in substantial future expansion, which usually shows up as a high price-to-earnings ratio: people are paying today for earnings that have not arrived.
Such companies commonly pay no dividend, because cash is being put back into expanding rather than handed out. That is a consequence of the strategy, not evidence about whether the strategy will work.
The label is one half of a pair that market commentary uses constantly, the other being value. The pairing is useful for describing what a share price currently assumes. It is not a classification the companies themselves apply, and companies move between the two descriptions as expectations change.
Related terms
- Value StockAn informal label for a company trading at a low price relative to measures such as earnings or book value.
- P/E Ratio (Price-to-Earnings)The share price divided by earnings per share: how many years of current profit you are paying for at today's price.
- RevenueAll the money a company brought in from selling its products and services, before any costs are subtracted.
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