What is characteristic of a "growth stock"?

A growth stock is characterized by its potential for above-average growth compared to other stocks in the market. These companies tend to reinvest their earnings back into the business to fuel further expansion, rather than paying out dividends. This reinvestment strategy is a key reason why investors are attracted to growth stocks; they anticipate that the company's earnings will increase significantly over time.

The fundamental expectation is that these stocks will demonstrate rapid expansion in revenue and profits, outperforming more established companies in the same sector. This focus on future growth opportunities rather than immediate returns distinguishes growth stocks from other types, such as value stocks, which may prioritize steady performance and dividends.

While high dividends and stable price histories are typical of more mature or established companies, growth stocks thrive on their potential for innovation and market expansion, often found in emerging industries rather than mature ones. Thus, it is this outlook for accelerated growth that makes the identification of a growth stock clear.