Growth Stocks

Growth Stocks refer to shares of companies whose earnings are expected to increase at higher rate. They are characterized by low yields and high price. But the high price is owing to the belief of the investors that there will be an increase in the future earnings. They are stocks that appreciate in value and bring higher returns on equity (ROE).

Generally financial analysts calculate ROE by taking the net income of the company and dividing it by the equity of the company. A growth stock should see at least fifteen percentages of ROE. Financial analysts categorize only such stocks as growth stocks.

The return on investment generally comes from three areas. They are the return from the appreciation of the original investment, return from dividend payouts and return from the retained earnings reinvested by the firm. The companies with growth stocks will hardly issue dividends. So the return on investment comes from the remaining two sources.

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