What are 'growth stocks'? Definition & meaning

These are stocks in companies that are considered to be “growing”. These companies may be delivering new products and services, or entering new markets.

Investors view these companies as having a lot of potential to grow fast, so are willing to pay a higher price for their shares today because they expect big things tomorrow. Basically, investors expect their share price to grow significantly.

Growth stocks tend to have a high price-to-earnings (P/E) ratio, and are unlikely to pay dividends because they are reinvesting their profits to drive growth. There is potential for big returns but also higher risk of losses.

Tech companies, such those operating in the artificial intelligence (AI) or electric vehicle (EV) space, are viewed by some investors as “growth stocks”.

Growth stocks differ to value stocks.

More terms

Ponzi Scheme

A form of fraud designed to lure new investors, and pays the earlier backers by using the new investors' money.

Retail Prices Index (RPI)

An index published each month by the Office for National Statistics, which measures the level of retail prices in the UK. Cash flows on all index-linked gilts are linked to the RPI.

Bond

Learn what a bond is

Dividends

Find out what dividends are and how they can contribute to the growth of your investment portfolio.

Conventional gilts

Gilts where the dividends and principal repayments are fixed in nominal terms. This is as opposed to an index-linked gilt where the dividends and principal repayments are related to movements in the Retail Prices Index (RPI).

Gross Margin

The difference between a company's revenue and the cost to produce its goods/services, divided by revenue.

Value stocks

Stocks in companies that aren’t necessarily growing fast, but instead are dependable and stable.

Growth stocks