What is a Growth Company?
A growth company is characterized by a rate of growth higher than that of the overall economy.
How Does a Growth Company Work?
Growth companies generate consistently high levels of earnings, and place greater weight on reinvesting earnings in continued expansion. They tend to be relatively young companies with ambitious product strategies and plans to grow.
Growth companies are exceptionally common in the technology sector. Companies like Google (Nasdaq: GOOG) have consistently posted increased revenues and earnings since going public. Because their business is growing rapidly, Google and other growth companies are expected to continually increase profits as well, which theoretically lead to increasing share prices.
Why Does a Growth Company Matter?
Since growth companies tend to reinvest nearly all of their retained earnings in continued expansion and market capitalization, growth companies distribute very little, if anything, via dividends. Therefore, they are often unattractive for income investors.
For investors, the appeal of growth companies comes from the expected increase in stock price as the company grows, i.e. capital gains.
Personalized Financial Plans for an Uncertain Market
In today’s uncertain market, investors are looking for answers to help them grow and protect their savings. So we partnered with Vanguard Advisers -- one of the most trusted names in finance -- to offer you a financial plan built to withstand a variety of market and economic conditions. A Vanguard advisor will craft your customized plan and then manage your savings, giving you more confidence to help you meet your goals. Click here to get started.
