Overview§
A growth stock is a stock of a corporation that has demonstrated significantly higher gains in earnings compared to the market average over the past few years. Investors in growth stocks expect the company to continue its rapid growth in the future, often focusing more on capital appreciation rather than receiving dividend payments. Growth stocks are typically characterized by high price-to-earnings (P/E) ratios and minimal or no dividends. These traits make growth stocks riskier investments than average stocks, but with the potential for substantial returns.
Examples§
- Amazon.com Inc. (AMZN) - Amazon has been a notable growth stock given its substantial and consistent growth in revenue and earnings over the past decade, driven by its expanding e-commerce platform and cloud computing services.
- Tesla Inc. (TSLA) - Tesla is a prominent example of a growth stock with accelerated earnings growth fueled by the increasing acceptance of electric vehicles and advancements in energy solutions.
- NVIDIA Corporation (NVDA) - Known for its graphics processing units (GPUs) used globally in gaming and professional markets, NVIDIA has shown significant earnings growth driven by demand in sectors like artificial intelligence and gaming.
Frequently Asked Questions (FAQ)§
What is a growth stock?§
A growth stock is a stock of a company that has displayed faster than average earnings growth and is expected to continue to show high profit growth in the future.
Are growth stocks riskier than other types of stocks?§
Yes, growth stocks are generally considered riskier because they tend to have higher price-to-earnings ratios and often do not provide regular dividend payments.
Do growth stocks pay dividends?§
Most growth stocks pay little to no dividends as the companies prefer to reinvest earnings to fuel further growth.
How do growth stocks differ from value stocks?§
Growth stocks are associated with companies that are expected to grow at an above-average rate compared to others, whereas value stocks are typically undervalued relative to their fundamentals and may offer dividend payments.
Can growth stocks provide substantial returns?§
Yes, due to their ability to grow earnings rapidly, growth stocks can potentially provide substantial returns, making them an attractive option for investors seeking capital appreciation.
Related Terms§
- Value Stock: Stocks traded at relatively lower prices compared to their fundamentals, often providing income through dividends.
- Price-to-Earnings (P/E) Ratio: A valuation metric for measuring how much investors are willing to pay per dollar of earnings.
- Dividend: A portion of a company’s earnings distributed to shareholders.
- Capital Appreciation: An increase in the value of a stock or asset over time.
Online Resources§
- Investopedia - Growth Stocks
- Yahoo Finance - Growth Stock News
- Motley Fool - Understanding Growth Stocks
Suggested Books for Further Studies§
- The Intelligent Investor by Benjamin Graham
- Common Stocks and Uncommon Profits by Philip Fisher
- One Up On Wall Street by Peter Lynch
- Growth Investing: The Ultimate Guide to Investing in Growth Stocks by William Ebur s.
Fundamentals of Growth Stock: Finance Basics Quiz§
Thank you for exploring the intricacies of growth stocks and participating in our educational quiz. Keep honing your financial acumen!
