growth stock

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Related to Earnings multiples: E/P ratio

Growth stock

Common stock of a company that has an opportunity to invest money and earn more than the opportunity cost of capital.

Growth Stock

Share in a company performing better, or expected to perform better, than its industry or the market as a whole. Shares generating a return on equity of greater than 15% are generally classified as growth stocks, but not all growth stocks are classified as such. Such stocks usually pay little to nothing dividends as the companies reinvest most of their earnings. Some believe that many or most growth stocks are overvalued, citing for example the large number of growth stocks during the dotcom bubble.

growth stock

The stock of a firm that is expected to have above-average increases in revenues and earnings. These firms usually retain most earnings for reinvestment and therefore pay small dividends. The stock, often selling at relatively high price-earnings ratios, is subject to wide swings in price. Examples include Intel, General Electric, and Dell.
References in periodicals archive ?
The price to earnings multiple compares a stock's price to its forward earnings per share.
Then, we present the analysis of changes in earnings multiples, followed by our earnings smoothing tests and supplementary tests based on the multiple applied to book value.
To provide initial descriptive evidence on changes in earnings multiples over time, we estimate a regression after splitting the sample period into two subperiods, comprising the first six years and the last six years.
In general, the results suggest a narrowing of differences in earnings multiples over the sample period for all countries, with results strongest in the traditional code-law countries.
Because earnings multiples are a function of economic factors like expected growth and risk, the results based on these tests may simply reflect convergence in other economic factors.
Our second approach to controlling for economic effects on earnings multiples is to explicitly control for several factors identified by previous research that might affect earnings multiples.
To the extent that the pattern in earnings multiples is being driven by convergence in economic factors captured by the control variables, there should be evidence of convergence in GDP, earnings and sales growth rates, interest rates, and returns.
01 level, indicating that, even controlling for several economic variables, the importance of country-specific variables in explaining the dispersion in earnings multiples has decreased over time.
Another possibility is that convergence in earnings multiples reflects risk shifts or changes in market segmentation.
A related possibility is that earnings multiples are converging simply because the underlying economics of our sample firms are becoming more similar.
As noted above, there is some evidence that cash flow multiples change between periods, so controlling for the cash flow multiple may mitigate the effects of omitted economic factors on earnings multiples.