Companies in this type have shown strong revenue growth (greater than four times the rate of GDP growth), but slower or spotty earnings growth (less than three times the rate of GDP growth, possibly with losses in some years). Companies which meet all three of the following conditions are also classified as Speculative Growth:
A recent IPO
Annual revenue less than $5 million
One-year revenue growth greater than four times GDP growth.
The combination of very fast revenue growth and slower earnings growth (or losses) captures companies that have the potential to rapidly increase earnings but have not yet done so, usually because they’re at an early stage in their development.