A growth stock is a company stock that is suspected to experience growth that surpasses the market average. Therefore, it is a faster-growing company when compared with its competitors. These companies typically do not offer dividends due to the fact they often reinvest any earnings that accrue to expedite their growth. Pharmaceutical stocks are a good example of growth stocks.
From a risk perspective, growth stocks are considered towards the higher-risk end of the scale. They are usually characterised by a medium sized market cap, lack of dividends and heavy investment into their growth. Therefore, they are considered a highly speculative investment in comparison with other investments, such as top stocks.
Growth stocks typically perform well during bull markets and are prevalent in sectors related to technology, in particular Chinese tech stocks. They are usually fuelled by their appetite for innovation, which provides them with a means to outperform industry rivals. However, the high potential of growth stocks can cause them to be overvalued due to the ‘hype’ that can surround the industry or company.