Although there is no strict definition, growth stocks generally have earnings growth rates that are greater than the market average. They are often younger companies in new markets without a lot of entrenched competitors. They are usually reinvesting most of their earnings back into the company, rather than paying dividends. They usually have price earnings ratios that are above the market average. Technology stocks in the late 1990s were classic growth stocks.

Value stocks, on the other hand, are stocks of companies that for a variety of reasons might be trading for less than their intrinsic worth. Perhaps they had a bad quarter or they are facing a serious lawsuit or they could be in an industry that is out of favor, such as utilities or aluminum or steel in the late 1990s. In general, value stocks are growing more slowly than growth stocks and generally trade at a below-average price earnings ratio. They often pay out part of their earnings to shareholders as dividends.

A growth stock can become a value stock and vice versa.

Many mutual funds often specialize in either growth or value stocks.