Legal Definitions - growth stock

A growth stock refers to the shares of a company that is expected to grow its earnings and revenue at a faster rate than the overall market or its industry peers. Investors typically purchase growth stocks because they anticipate significant capital appreciation (an increase in the stock's price) rather than regular dividend payments. These companies often reinvest their profits back into the business to fund expansion, research and development, or market penetration.

Here are some examples to illustrate the concept of a growth stock:

• Imagine a relatively new company, "Quantum Innovations Inc.," that has developed groundbreaking artificial intelligence software for optimizing logistics in supply chains. While the company is not yet highly profitable and pays no dividends, its revenue has been doubling year-over-year, and it is rapidly acquiring new clients globally. Investors might consider Quantum Innovations Inc. a growth stock because they believe its innovative technology and expanding market share will lead to substantial future earnings and a significant increase in its stock price over time.

• Consider "EcoPower Solutions," a company specializing in advanced battery technology for electric vehicles and grid-scale energy storage. The demand for electric vehicles and renewable energy infrastructure is surging, and EcoPower Solutions has secured several large contracts for its proprietary battery systems. Despite high research and development costs that limit current profits, the company is aggressively expanding its manufacturing capacity and entering new markets. Investors would likely view EcoPower Solutions as a growth stock, betting on its ability to capture a large share of a rapidly expanding industry, leading to substantial long-term value appreciation.

• Think of a pharmaceutical startup, "BioHeal Therapeutics," that has several promising new drugs in late-stage clinical trials for rare diseases. The company currently generates minimal revenue, and its stock price is volatile, but if even one of its drugs receives regulatory approval, it could generate billions in sales. BioHeal Therapeutics would be considered a growth stock because investors are buying shares based on the potential for explosive future revenue and profit growth, rather than on the company's current financial performance or dividend payouts.