In the growth-potential comparison, which stock is more likely to have higher growth potential?

• A. The stock with fewer shares outstanding (lower market capitalization) would have higher growth potential.
• B. The higher-priced stock would have higher growth potential.
• C. Price alone determines growth potential.
• D. Growth is independent of shares outstanding.

Answer: (A)

Growth potential is about how much a company’s earnings per share can rise as the business grows. If there are fewer shares outstanding, the same amount of additional earnings translates into a larger jump in earnings per share, so the per-share growth appears stronger. A smaller company with fewer shares also typically has more room to grow into a larger size, which can support higher upside as it scales. Price level by itself tells you nothing about future growth, and growth isn’t determined by price alone or independent of how many shares are outstanding—the number of shares directly affects per-share growth and dilution, making the stock with fewer shares outstanding the most likely to exhibit higher growth potential.