A growth stock is a share in a company that is expected to grow at a rate that is significantly higher than average. When you invest in growth stocks, you invest in a company that has a prosperous future.
What you Should Know about Growth Stocks
- They have a competitive advantage, usually being an innovative product or service that no other company has (at least not to the same extent).
- Their customers are loyal, which drives up stock values.
- They usually don’t pay dividends, instead reinvesting profits into themselves. This means you may not make much money in the short term, but you usually will in the long term.
- They may look expensive now, but in a number of years after the company grows, the price you bought the stock for will look low.
- Their prices are ever-changing — when the company does well, stock prices soar, and when they don’t, they plummet.
How to Spot Growth StocksGrowth stocks can be hard or easy to spot — sometimes they already have a large following, sometimes they are less well known. It’s difficult to predict what the next “big” company is going to be, there are some things you can watch out for.
- Being aware of industry trends
- Find companies with strong competitive advantages
- Identify niche markets