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Simple English definitions for legal terms
growth stock
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A quick definition of growth stock:
A growth stock is a type of stock that belongs to a company that is expected to grow quickly in the future. These companies usually reinvest their profits back into the business, so they don't pay out a lot of dividends to their shareholders. Instead, investors buy these stocks hoping that the company's value will increase over time, allowing them to sell their shares for a profit. Growth stocks are different from other types of stocks, like those that pay high dividends or those that are considered safe investments.A more thorough explanation:
A growth stock is a type of stock issued by a company that is expected to grow faster than the average company in its industry. These companies usually reinvest a large portion of their profits back into the company, so they pay lower dividends than other companies. However, the price of the stock usually increases over time.
For example, a technology company that is developing a new product may issue growth stock. The company may not pay high dividends because it is using its profits to fund research and development. However, if the product is successful, the company's stock price may increase significantly.
Another example is a startup company that is just beginning to grow. The company may issue growth stock to raise money to fund its expansion. If the company is successful, the stock price may increase as the company grows.
Overall, growth stocks are a good investment for people who are willing to take on more risk in exchange for potentially higher returns.