Investing term
What is Growth stock?
A stock priced for above-average revenue or earnings growth — typically high multiples and reinvesting cash.
A growth stock is priced for above-average revenue or earnings growth, usually trading at high multiples and reinvesting its cash back into expansion rather than paying dividends. Investors accept the rich valuation because they expect rapid growth to justify it over time.
The appeal is obvious — the biggest long-term winners are often companies that grew earnings for years — but so is the risk. A growth stock's high price bakes in optimistic expectations, so if growth disappoints even slightly, the stock can fall hard as the market repriced it lower. Growth stocks are also more sensitive to interest rates, because much of their value sits in distant future cash flows that get discounted more heavily when rates rise. They sit at one end of the growth-versus-value spectrum: high expectations, high multiples, and returns that depend on the growth actually arriving.
A growth stock trades at a high multiple, reinvesting rather than paying dividends, on the promise of fast growth. Rewarding if it delivers — but a small disappointment can trigger a sharp fall.
For example
A fast-growing software company trading at 40× earnings and paying no dividend is a classic growth stock — investors are paying up now for expected rapid expansion.
Learn it by doing
That's Growth stock in theory — it clicks when you use it. Practise it hands-on in a free, interactive lesson (Stage 15, Valuation for Investors).
Try the free lesson →Why it matters to you
Growth stocks matter because they include many of the market's biggest long-term winners — and its most painful disappointments. Their high valuations mean returns hinge on expectations being met: meet or beat, and the stock can soar; miss, and it can collapse. Understanding that a growth stock's price already reflects optimism helps you judge whether the potential reward justifies the risk of paying up, and why these stocks swing so much on news and interest-rate moves.
⚠ Paying any price for growth
Growth is valuable, but a great company can still be a poor investment if you overpay. When a growth stock's price bakes in years of flawless expansion, even strong results may already be priced in, and any stumble triggers a sharp fall. Buying growth at any multiple, without asking whether the price is reasonable for the growth, is how investors lose money on excellent businesses.