What is a Growth Stock?
A simple guide to understanding two types of growth stocks
In general, growth stocks are companies that are expected to have unusually high growth in their future sales and/or earnings.
Investors who buy growth stocks often believe the company will deliver strong financial results far into the future as it finds an ever-expanding market for its products.
Based on my experience, I think there are actually two different types of growth stocks, and it’s critical to understand the difference between the two.
Story Growth Stocks
One type of high growth stock is when investors believe the company is going to grow very rapidly over the next 5–10 years and somehow substantially disrupt or take over an industry.
With story growth stocks, the price is often tied more closely to the belief that the company will have an incredible future than to the fundamental reality of the company today.
A good example of a story growth stock is Tesla (TSLA). The company’s revenue growth has been incredibly strong (69% growth in 2021 vs 2020), so investors can envision a future where everyone drives a Tesla.
That future may come true, or it may not. But Tesla is a good example of a story growth stock…
