What Makes a Growth Stock
Tech and growth companies are valued on where they are going, not where they are today. Here is what separates a true growth business from a company that is simply popular, and why these stocks swing so much.
The growth ingredients
- Fast revenue growth, often 20% a year or more.
- A large market still mostly untapped.
- High gross margins, so each new sale adds a lot of profit potential.
- A product customers keep using and paying for.
- Room to reinvest heavily and still expand.
Real growth rates
| Company | Revenue growth | Gross margin | 1-year price change |
|---|---|---|---|
| Palantir (PLTR) | About 93% | About 85% | −0.4% |
| Datadog (DDOG) | About 36% | About 80% | +72.5% |
| Snowflake (SNOW) | About 35% | About 67% | +52.4% |
| CrowdStrike (CRWD) | About 26% | About 75% | +95.5% |
| Salesforce (CRM) | About 11% | About 77% | −0.6% |
In our data as of Sept. 17, 2026; price changes cover the prior 12 months. Past performance does not predict future results.
Growth rate is not the stock return
The table shows that the fastest grower did not have the best year. Palantir grew revenue about 93% and its stock was flat, because investors had already paid a very high price for that growth. CrowdStrike grew more slowly and nearly doubled. The stock return depends on growth compared with what was already expected and priced in.
Investors pay for growth, but only growth beyond expectations moves the stock up.
Why the swings are big
Most of a growth company’s value comes from profits many years away. Small changes in expected growth or interest rates change that far-off value a lot, so growth stocks move more than the market in both directions.
Key takeaways
- Growth companies are valued on future profits.
- Look for fast revenue growth, high gross margins and a big market.
- The stock return depends on growth versus expectations.
- Distant profits make growth stocks swing more.