Growth stock

A growth stock is a stock or share of a company that is expected to grow at an above average rate when compared to other companies in the same market. To be classified as a growth stock, analysts generally expect companies to achieve a 15 percent or higher return on equity.

Few information technology companies are considered as growth stocks since their revenues increase at a higher rate than manufacturing companies where the output is dependent on the infrastructure.

Growth stocks typically do not pay dividends as they prefer to invest the profit back into the business to further accelerate its growth. Growth Stocks also tend to have some competitive advantage over their market rivals. It can be a patented technology or a captive customer base or even the ability to scale up in a very short time with limited infrastructure.  It may also be result from the introduction of a new product, a new technology, or an innovative marketing strategy.

Investors compute Return on Equity by dividing a corporation’s net proceeds into average common equity. To be taken as a growth stock, specialists normally assume corporations to accomplish a fifteen percent or greater return on equity. CAN SLIM is a technique that classifies growth stocks and it was invented by William O’Neil . He was a stock broker and publisher of Investment Business Daily.