Growth stocks are sold by new companies with impressive earnings to raise capital for further growth. Investors who buy these stocks rely on long-term growth and are willing to take risks. Growth companies experience unexpected growth and are attractive to investors, especially in the technology sector. Investing in growth stocks is considered risky and not suitable for all investors.
Growth stocks are stocks that a brand new company, which is posting abnormal profits, sells to outside investors. The money raised from issuing these shares is usually reinvested back into the company to facilitate even more growth. Not all new companies offer growth shares, as such they are only offered by companies showing impressive earnings that investors hope will continue over the long term.
Also known as a growth stock or glamor stock, investors who buy growth stocks typically have an investment style in which immediate returns are not expected. Investors, on the other hand, rely on a company’s continued growth and expansion to help its stock appreciate over an extended period of time. The ability and willingness to take risks on companies that are in a growth phase, even when they are profitable, is also a common characteristic of growth stock investors. Many investors even specialize in this type of investment and regularly maintain a growth fund made up of growth shares of multiple companies. Growth rates can vary, but these types of companies tend to experience more growth at a faster rate than other companies in the same industry.
A growth company is identified as one in which significant and often unexpected growth occurs over a period of time. While a mature company can also post record profits that are attractive to investors, companies selling growth stocks are those that are chronologically immature, but are experiencing growth and profits superior to most other immature companies of their same kind. An example of a growth industry is the technology sector, where it’s not uncommon to find a start-up that has quickly grown into a growth company, outpacing the revenues of even other more mature technology companies.
Many new companies offer growth shares as a way to raise capital to further grow and expand a business. With this understanding, investors who buy these stocks do not expect to profit from these stocks right away. For this reason, most experts view investing in growth stocks as not the right vehicle for all investors, but only for those who can afford to make such investments over the long term. These stocks are also considered quite risky, as new companies, even those that are outperforming industry averages, don’t have long earnings records and it’s mostly unknown whether or not they will continue strong gains.
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