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What Are Growth Shares?

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  • Written By: Laura M. Sands
  • Edited By: Heather Bailey
  • Last Modified Date: 04 September 2016
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Growth shares are stocks that a brand new company, which is experiencing abnormal profits, sells to outside investors. The money raised from the issuance of these stocks is usually reinvested into the company to facilitate even more growth. Not every new company offers growth shares, as such are only offered by companies showing impressive gains that investors hope will continue for the long term.

Also known as growth stock or glamor stock, investors who purchase growth shares typically have an investment style where immediate returns are not expected. Investors, instead, rely on a company’s continued growth and expansion to help their shares appreciate over a long period of time. The ability and willingness to take risks on companies that are in a growth phase, even when they are profitable, is also a common characteristic of investors who invest in growth shares. Many investors even specialize in this type of investing and regularly maintain a growth fund consisting of growth shares from multiple companies. Growth rates may vary, but these types of companies tend to experience more growth at a faster rate than other companies in their same industry.

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A growth company is identified as one in which significant and often unexpected growth occurs over a set period of time. While a mature company can also experience record profits that are attractive to investors, companies selling growth shares are those that are chronologically immature, yet are experiencing growth and profits above most other immature companies in their same genre. An example of a growth industry is the technology industry, where it is not uncommon to discover a start-up venture that has quickly become a growth company while surpassing revenues even of other more mature technology companies.

Many new companies offer growth shares as a way of raising capital to grow and expand a business even further. With this understanding, investors who purchase these shares do not expect to profit from these shares right away. For this reason, most experts do not consider investment in growth shares to be the right vehicle for all investors, but rather only for those who can afford to make such long-term investments. These shares are also considered to be rather risky, in that new companies, even those that are exceeding industry averages, do not have long earning records and it is mostly unknown whether strong earnings will continue or not.

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