Long-term investing
Growth stock
Definition
A share in a company whose revenue and earnings grow much faster than average. It usually trades at a higher P/E than the market.
Example
Say company XYZ grows its revenue about 30% a year, earns $2.00 a share and trades at $100, a P/E of 50 while the market averages 20. Buyers are paying today for earnings they expect later: if earnings double to $4.00, the same $100 price works out to a P/E of 25. If growth slows instead, the P/E can shrink and the share price fall even while profits keep rising.
Hypothetical numbers, for illustration only.
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