What characterizes growth stocks?

Growth stocks are characterized by their association with companies whose sales and earnings are expanding. Investors in growth stocks typically look for companies that are expected to grow at an above-average rate compared to their industry or the overall market. These companies often reinvest their earnings back into the business to fuel further growth, rather than paying out dividends. This focus on growth prospects makes them attractive to investors who are guided by potential future performance rather than current income.

The other options do not align with the defining features of growth stocks. For instance, companies that pay higher-than-average dividends tend to be more established and can be categorized as income stocks rather than growth stocks. Similarly, companies with declining sales do not fit the growth stock profile, as growth stocks thrive on the expectation of increasing sales and profits. Lastly, while some growth companies may indeed be recession-resistant, this characteristic is not exclusive to growth stocks, and many growth opportunities exist in various sectors.