A stock can be said to be classified as a growth stock if it has certain criteria. The criteria for growth stocks themselves include having sales and income levels that are growing very rapidly or growing high beyond general economic growth and beyond other stocks.
Growth stocks usually move aggressively, and continue to aggressively expand their business, but on the other hand because they are focused on business expansion, it is often found that issuers classified as having the characteristics of growth stocks do not distribute dividends to their shareholders, this is because the company is more focused on accelerating the company’s business growth.
Growth stock has the prospect of rapid revenue and profit growth in the future even though its performance is currently still recording a net loss. Growth stocks can usually be found in small and medium-sized issuers because their business activities are just being carried out, but with the potential for rapid future business growth.
Characteristics of Growth Stocks
The following below are the characteristics of growth stocks that need to be observed, including:
- Issuers classified as growth stocks generally have competitive advantages that are not owned by their competitors in the same industry.
- Issuers classified as growth stocks generally have a relatively higher price to earnings ratio (PER).
- Issuers classified as growth stocks often do not distribute dividends or if they do, it is in a low amount because the company will focus more on using retained earnings for the benefit of its business expansion.
