Growth Company


DEFINITION of 'Growth Company'

Any firm whose business generates significant positive cash flows or earnings, which increase at significantly faster rates than the overall economy. A growth company tends to have very profitable reinvestment opportunities for its own retained earnings. Thus, it typically pays little to no dividends to stockholders, opting instead to plow most or all of its profits back into its expanding business.

BREAKING DOWN 'Growth Company'

Growth companies are most often seen in the technology industries. The quintessential example of a growth company is Google, which has grown revenues, cash flows and earnings by leaps and bounds since its initial public offering. Growth companies such as Google are expected to increase profits markedly in the future, and thus the market bids up their share prices to high valuations. This contrasts with mature companies, such as diversified utility companies, which see very stable earnings with little to no growth.

  1. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing ...
  2. Law Of Large Numbers

    In statistical terms, a rule that assumes that as the number ...
  3. Multiple

    A term that measures some aspect of a company's financial well-being, ...
  4. Retained Earnings

    Retained earnings is the percentage of net earnings not paid ...
  5. Growth Rates

    The amount of increase that a specific variable has gained within ...
  6. Growth Stock

    Shares in a company whose earnings are expected to grow at an ...
Related Articles
  1. Markets

    Is Growth Always A Good Thing?

    Getting big quickly looks good, but companies can get into trouble when they do it too fast. Find out how to spot this trouble.
  2. Investing

    Venturing Into Early-Stage Growth Stocks

    Picking these potential winners is all about sizing up risk. We show you how.
  3. Investing Basics

    Pin Down Stock Price With Real Options

    How can you assign a value to what a company may do with its business in the future? We explain how it works.
  4. Markets

    The Amateur Investor's Guide To Analyzing Corporate Efficiency

    Find out how the amateur investor can measure the success of management.
  5. Active Trading

    Sell Growth Stocks The IBD Way

    Savvy investing is all about learning some smart rules and sticking to them. We give you the rundown.
  6. Stock Analysis

    4 Quick Service Restaurants for Your Portfolio

    Learn about the four quick service restaurants with attractive investment theses and growth prospects that can be valuable additions to your portfolio.
  7. Mutual Funds & ETFs

    The 4 Best Buy-and-Hold ETFs

    Explore detailed analyses of the top buy-and-hold exchange traded funds, and learn about their characteristics, statistics and suitability.
  8. Stock Analysis

    The 5 Best Buy-and-Hold Energy Stocks

    Understand why energy companies' stock are volatile when oil prices are volatile. Learn about the top five energy companies to buy and hold.
  9. Investing Basics

    Statistical Proof That Buy-and-Hold Investing Pays Off

    Learn about how the data suggests that the buy-and-hold investment strategy still works, even after the huge declines of the Great Recession.
  10. Stock Analysis

    AT&T Stock: A Dividend Analysis

    Discover analysis of AT&T dividend policies, and explore the dividend policies of its main competitors, China Mobile Limited and Verizon Communications.
  1. What types of corporations would be expected to have higher growth rates than more ...

    Investors looking for corporations with higher-than-average growth rates have several factors to consider. Although younger ... Read Full Answer >>
  2. Why would you use the TTM (trailing twelve months) rather than the data from the ...

    Public companies report their yearly financial statements along with an annual report. However, financial professionals are ... Read Full Answer >>
  3. What is the difference between passive and active asset management?

    Asset management utilizes two main investment strategies that can be used to generate returns: active asset management and ... Read Full Answer >>
  4. How attractive is the food and beverage sector for a growth investor?

    The food and beverage sector is attractive for a growth investor. The sector's high degree of volatility means it tends to ... Read Full Answer >>
  5. What techniques are most useful for hedging exposure to the insurance sector?

    Investing style determines the best hedging techniques for the insurance sector. This sector comprises three segments, two ... Read Full Answer >>
  6. How attractive is the retail sector for a growth investor?

    Retail is an attractive sector for a growth investor due to its propensity for turning in bigger-than-average gains when ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Section 1231 Property

    A tax term relating to depreciable business property that has been held for over a year. Section 1231 property includes buildings, ...
  2. Term Deposit

    A deposit held at a financial institution that has a fixed term, and guarantees return of principal.
  3. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s loss, so that the net change in wealth or benefit is zero. ...
  4. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  5. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  6. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!