A stock is said to outperform when it generates better returns than a particular index or the overall market. A company may outperform in relation to a major stock index, other companies in the same industry, or other companies with a similar level of market capitalization. A company can outperform by growing revenue and earnings faster than the competition, or by getting a new product to market quickly, increasing market share. Portfolio managers generally try to increase holdings in stocks that outperform in relation to the benchmark index.
Outperform can also refer specifically to an analyst’s rating on a security. Outperform is considered a better rating than neutral (a security that behaves in line with the rest of the index) or worse (a security that produces poorer returns than the index). A stock rated outperform is not quite as good as a strong buy recommendation; just because an individual stock is outperforming does not necessarily mean it is the best performer in the index. Money managers that oversee portfolios that consistently outperform an index may also have an outperform rating.