What is a growth stock?

Growth stocks are those of companies that are known for generating revenue and profits faster than the industry average. Their stocks will be expected to grow faster and provide larger returns than the rest of the market. Let’s take a look at an example of a growth stock – Shopify (SHOP).

Why do investors buy growth stocks?

As such, companies that are considered "growth companies" are in the earlier stages of their business cycle and expected to grow their revenue faster than the market average. Investors usually buy growth stocks on the expectation of share price appreciation as the company grows.

Do growth stocks pay dividends?

A growth stock is any share in a company that is anticipated to grow at a rate significantly above the average growth for the market. These stocks generally do not pay dividends. This is because the issuers of growth stocks are usually companies that want to reinvest any earnings they accrue in order to accelerate growth in the short term.

Are growth stocks a bust?

The defining feature of growth stocks is their future potential, not necessarily their results today. They also have the potential to be a bust. When an investor is paying top dollar for shares in a company that they expect to outpace the market, a failure to meet those expectations can be detrimental.