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Growth Stocks

Growth stocks are issued by companies expected to have sustained high rates of growth in sales and earnings. These companies generally have high price/earnings (P/E) ratios and do not pay dividends.

Additional Comments:

Most growth companies pay no dividends. Rather than pay out their earnings in dividends, growth companies retain their earnings and reinvest them in the expansion of their businesses. Google is a good example of a growth company with a price-to-earnings ratio of 71. Investors are willing to buy Google at $404 per share, paying 71 times earnings of $5.70 per share.

Growth stocks are often referred to as high P/E ratio stocks because their greater growth prospects make investors more willing to buy them at higher prices. Investors do not receive returns in the form of dividends, so they buy these stocks for their potential capital appreciation.

Related Terms:

Value Stocks
Value stocks are stocks that have lower prices relative to their fundamental values (growth in sales ...

Blue-Chip Stocks
Blue-chip stocks refer to companies with a long history of sustained earnings and dividend payments. These ...

Cyclical Stocks
Cyclical stock prices move with the economy. Cyclical stocks often reach their high and low points ...

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