Growth stocks are companies that are growing and developing rapidly, which triggers a fast rise in market price. These stocks offer attractive opportunities for quick capital gains. Growth stocks are also known as glamor stocks, because of their powerful allure to those investors who seek action, excitement and a big prize.
As a rule, companies with growth stocks reinvest all their profits in research, development, marketing and other arenas which in turn fuel company profits, and the increase in stock price that daring investors love. It's rare to find a good growth stock that also offers a dividend, at least one worth speaking of.
This classification exists in contrast to blue chips, defensive stocks, and income stocks, which remain relatively stable and are expected to reward investors with dividend payments rather than with capital gains.
Growth stocks are similar to value stocks, inasmuch as shareholders hope their investment capital will grow at a much faster rate than the market average. But value investors are specifically betting on a reversal in an unfortunate company's fortunes in the market, while investors in growth stocks tend to look at a growing company's fundamentals to determine whether that company is likely to continue growing in the future. While some growth stocks can also be classified as value stocks, many cannot, simply because they are already overvalued in the markets.
If there's one thing that investors in growth stocks certainly share in common with investors in value stocks, it's risk: the same volatility that causes the price of a stock to skyrocket one week can lead it to plummet the following week. There are methods with which losses may be mitigated but because of this high price volatility investors in growth stock must be dexterous, willing (and able) to sustain significant losses on their investments.