A growth stock?

It seems like we only invest in growth stock lately. But what is that? When does a stock clasify as a growth stock? And why do we like them so much? A growth stock:

  • Has higher price-to-earnings ratio than the broader market
  • Has a record for high earnings growth
  • Tends to be more volatile than broader market
  • Is often considered a riskier investment
  • Generally doesn’t pay dividends to shareholders

You will often hear people describe a particular security as a GROWTH STOCK. What is it? A growth stock typically refers to a business that’s shown above-average earnings and has the potential to grow faster than the overall economy. These stocks generally increase in price more quickly than other stocks. As a result you may pay more for each share as a multiple of the company’s earnings (P/E) than you would for the stock of a slower-growing company. Growth stocks are usually more volatile, and perceived to be a riskier investment.

Growth stocks react faster to market swings, bringing a lot of volatility into a portfolio. Therefore, it’s a good idea to always consider your investment time horizon (how long you can leave the money invested) as well as your immediate cash needs. There is a related set of stocks often called “emerging growth stocks” – these include companies that have the potential to achieve high earnings growth but don’t yet have a long history to support that expectation.

Over the Wiseguy

Stock trader, Owner and Administrator of "the-wiseguy.com". . . "TA is like surfing. You don't have to know a lot about het physics of tides to catch a good wave. You just have to be able to sense when it's happening and have the drive to act at the right time"

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