Growth stock

A growth stock is the common stock of a business that is considered to have the potential to expand at a rate faster than the average firm in its industry. The sales and profits of this type of company are expected to grow at an above-average rate. Because of the high growth rate, a firm usually suffers from negative cash flows and so is unable to pay dividends to its investors. Instead, investors rely on continuing increases in the market price of the stock to earn profits. The prices of growth stocks tend to spike or drop suddenly if the latest earnings report from the issuer is outside of the expectations of investors. Thus, growth stocks are considered to be riskier investments.