Growth Stocks

Growth stocks are usually issued by companies expected to perform and grow at a rate well above their peers in the same industry average. These companies tend to be newer and smaller companies with high-growth potential. Growth investors anticipate their value to appreciate significantly in the long run, especially during a bull market. Growth stocks are characterised by:

• Higher volatility risk. There is no guarantee that the company will continue its exponential growth. If the company does not perform as expected, its stock price will likely take a hit, even when earnings are stable. Moreover, growth stocks are more vulnerable to negative news and the share price usually plunges significantly when investors lose confidence in the company.
• High P/E ratio. Growth stocks generally trade at a higher P/E ratio and are deemed overvalued or expensive. Usually, investors are paying more than the company's current worth when investing in growth stocks as they expect the price to soar even further.
• Little to no dividends. Instead of paying dividends, the issuing companies tend to reinvest the earnings to accelerate their growth potential.