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 ?
(15) Another possibility is that changes in earnings multiples are related to changes in the market multiple applied to the book value of equity.
We document convergence in earnings multiples for a sample of firms from Australia, Canada, France, Germany, Japan, the United Kingdom, and the United States over the years 1987-1999.
Our goal is to provide descriptive evidence on whether accounting differences, as reflected in differences in earnings multiples, appear to have decreased over time and, if so, what factors explain the change.
We interpret our findings as most consistent with the notion that the convergence in earnings multiples reflects, at least in part, convergence in accounting practices over time, but that systematic accounting differences remain.
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.
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.
As before, the difference in [R.sup.2]s (not tabulated) is significant at the .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.
So, although there's no set rule on when to sell, with the current surplus in demand for deals, good pricing and earnings multiples and the likelihood of adverse tax changes in the near future, 2010 is looking a good year for sellers.
For example, Redwood Trust Inc., a mortgage REIT, has 2005 and 2006 earnings multiples that are very similar to that of Countrywide.