What is the 'Growth Industry'

A growth industry is the sector of the economy experiencing a higher-than-average growth rate. Growth industries are often associated with new or pioneer industries that did not exist in the past. Their growth is related to consumer demand for new products or services that firms within the industry are beginning to offer.

BREAKING DOWN 'Growth Industry'

Examples of growth industries so far in 2018 include virtual reality (VR), medical marijuana, green or sustainable energy sources, drones, mobile technology, biotechnology and content marketing.

Virtual reality is an immersive, computer-generated scenario that can simulate a real-life experience; many consumers purchase VR headsets for gaming. Medical marijuana has become increasingly popular with the legalization of this formerly illegal plant-based drug. Green energy includes the manufacturing and installation of solar panels, for example.

Mobile technology incorporates all of the apps that users rely on with their smartphones. Biotechnology continues to push the boundaries of drug development, and content marketing is the development of long-form, at times research-intensive blog posts that companies can use to serve and attract customers to their product and/or service.

Characteristics of Growth Industries

Particular characteristics of growth industries include companies across an industry exhibiting consistent and quickly growing sales figures and an influx of investments. This can often be accompanied by a lot of press hype. Growth industries tend to be composed of relatively volatile and risky stocks. Often investors are willing to accept increased risk in order to take part in the potentially large gains.

Additional risks that growth industries pose can include high rates of cash burn, lack of profitability despite consumer and investor excitement, bubbles, and technological setbacks that can obstruct progress.

Growth Industry and CAGR

Many analysts use the compound annual growth rate (CAGR) when determining the present viability and future potential of an investment. The CAGR is the mean annual growth rate of an investment over a set period of time longer than one year and can apply to companies in both growth and regular industries.

To calculate compound annual growth rate, analysts divide the value of an investment at the end of the period by its value at the beginning of the period. The analyst then raises the result to the power of one, divided by the period length, and subtract one from the subsequent result:

Formula for Compound Annual Growth Rate (CAGR)

CAGR is widely used to calculate the average growth of an investment. An investment may increase in value by 6% in one year, decrease in value by 3% the following year and increase again by 2% in the next. With inconsistent annual growth, CAGR may be used to give a broader picture of an investment’s progress; however, it doesn’t take into account external factors such as market volatility.

  1. Compound Interest

    Compound Interest is interest calculated on the initial principal ...
  2. Negative Growth

    Negative growth is a contraction in a country's economy as evidenced ...
  3. Growth Investing

    Growth investing is a strategy whereby an investor buys stocks ...
  4. Compound Return

    The compound return is the rate of return that represents the ...
  5. Biotechnology Industry ETF

    A biotechnology industry ETF tracks the performance of a group ...
  6. Rule Of 70

    A way to estimate the number of years it takes for a certain ...
Related Articles
  1. Investing

    Compound Annual Growth Rate: What You Should Know

    The Compound Annual Growth Rate, known as CAGR, is a good and valuable tool to evaluate investment returns, however it does not measure risk.
  2. Investing

    Learn simple and compound interest

    Interest is defined as the cost of borrowing money or the rate paid on a deposit to an investor. Interest can be classified as simple interest or compound interest.
  3. Tech

    What Are the 5 Hottest Emerging Industries in 2016?

    Discover five of the hottest industries among technology, construction and agribusiness sectors poised for tremendous growth in 2016.
  4. Tech

    How to Calculate CAGR in Excel

    Daniel Jassy, CFA, shows how to calculate CAGR in Excel.
  5. Small Business

    Emerging Industries Other Than Tech Startups

    What are the emerging sectors (other than tech start-ups) that look promising? Investopedia takes a look.
  6. Investing

    Green Technology: a Solid Investment Choice?

    With global investing in green energy on the rise, there are abundant opportunities for environmentally responsible, financially sound investments.
  7. Trading

    Stock Analysis: Forecasting Revenue and Growth

    Revenue and growth projections are important components of security analysis, measuring a stock’s future worth.
  8. Tech

    5 Predictions for Virtual Reality in 2016 (F, SNE)

    Discover the top five predictions for virtual reality (VR) in 2016, and why this is the year that it may finally get a mainstream introduction.
  9. Investing

    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.
  10. Tech

    FB's Oculus Rift Could Soon be 10% of its Revenue

    Facebook's much-hyped Oculus Rift has begun shipping to customers. For the VR world, the future is now, and it's worth as much as $30 billion as soon as 2016.
  1. How do I calculate compound interest using Excel?

    Learn how to calculate compound interest using three different techniques in Microsoft Excel. Read Answer >>
  2. How to calculate compound loan interest in Excel?

    Find out about compound interest and how to use the compounding interest formula in Microsoft Excel to calculate the compound ... Read Answer >>
  3. How do I use the rule of 72 to calculate continuous compounding?

    Find out why the rule of 72 does not accurately reflect the growth caused by continuous compounding, and which number can ... Read Answer >>
Hot Definitions
  1. Economies of Scale

    Economies of scale refer to reduced costs per unit that arise from increased total output of a product. For example, a larger ...
  2. Quick Ratio

    The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets.
  3. Leverage

    Leverage results from using borrowed capital as a source of funding when investing to expand the firm's asset base and generate ...
  4. Financial Risk

    Financial risk is the possibility that shareholders will lose money when investing in a company if its cash flow fails to ...
  5. Enterprise Value (EV)

    Enterprise Value (EV) is a measure of a company's total value, often used as a more comprehensive alternative to equity market ...
  6. Relative Strength Index - RSI

    Relative Strength Indicator (RSI) is a technical momentum indicator that compares the magnitude of recent gains to recent ...
Trading Center