5 Characteristics of a Good Growth Stock

Author: James Clark

Looking to invest in growing companies that promise higher and faster returns? Check out the five fundamental characteristics of a good growth stock.

Most savvy stock investors are looking to invest in companies that are more likely to outpace their competitors to not only generate higher returns but generate them faster. Due to this reason, growth stocks are often the go-to choice for traders looking for stability and security in the volatile stock market, especially during recessions and economic downturns. However, not all growth stocks are equal in terms of long-term returns, so there’s plenty to look out for when shopping for your portfolio.

This post will explain what growth stocks are and share five characteristics these stocks possess that separate them from cyclic, income, penny, security and speculative stocks, etc.

What are Growth Stocks?

In a nutshell, growth stocks are stocks of a company with a higher growth rate compared to the average growth rate of the respective industry in the stock market. Therefore, these stocks are expected to perform better due to faster and higher earnings generated and lower volatility. However, most of these stocks don’t pay any dividends, especially initially, but over time, they can evolve into dividend-paying ones.

5 Characteristics of a Good Growth Stock

Growth stocks belong to companies that focus on generating more sales and revenue, and therefore, they possess innovative leadership, a strong organizational culture, and often a global outreach.

Here are five characteristics you should look out for when investigating these stocks:

1. Innovative Leadership and Management

Jeff Bezos, Elon Musk, Steve Jobs, Warren Buffet, Mark Zuckerberg, Bill Gates, and Ray Croc – These are examples of great leaders that led their organizations to success through innovation. These leaders have overcome different obstacles in their respective industries by perfectly blending vision, leadership, and enthusiasm. Thus, stocks of these companies have a greater chance of maintaining high performance through momentum and low volatility.

2. Higher Risk Factor

Even though growth stocks can potentially offer great returns in the long term, they’re incredibly high-risk compared to security and income stock, especially since they don’t pay dividends. We’ve seen giant companies like Kodak, Blockbuster, Nokia, and Vine fall after capturing most of their market shares for years.

3. High Revenue Generation

Growth stocks don’t offer much for short-term investors since their dividends are either low or non-existent. However, things are different in the long term since they promise substantial capital gains following the company’s continuous growth and market penetration.

4. Market Dominance

Another characteristic that growth stocks possess is dominance in their respective industries. Think of companies like McDonald’s, Johnson and Johnson, Nestle, and Coca-Cola. These companies offer unique selling propositions that give them a competitive edge over others in the same market.

5. Loyal Customer Base

Due to the competitive advantage, growth companies also have a loyal and actively growing consumer base. Think of Sony’s PlayStation and Microsoft’s Xbox, or Marvel and DC. These companies have fans that are unlikely to switch to other companies offering similar products or services.


To sum up, growth stocks are among the best-performing and selling options in the stock market today. They make a valuable addition to any stock portfolio, especially for investors looking to diversify their trading while protecting their investments.

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