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What Is A Value Stock?

Views 1812022.09.13
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Core points

● value stocks are those stocks that are undervalued by the market.

● value stocks often have the characteristics of low price-to-earnings ratio, low price-to-book ratio and high dividend.

The risk of ● investing in value stocks is when to realize the return of value.

Concept understanding

Value stocks tend to refer to stocks that may be undervalued in contrast to growth stocks. Value stocks generally have the characteristics of low price-to-earnings ratio, low price-to-book ratio and high dividend.

Compared with the rapid profit expansion of growth enterprises, the earnings growth of value enterprises is relatively lower, but the growth rate is also more steady.

How to judge the value stock

The key to distinguish value stocks from growth stocks is to look at book value.

There are three most common criteria for judgment:

First, the price-to-earnings ratio index, the stock price divided by the profit per share to get a multiple, the lower multiple is the value stock, and the higher multiple is the growth stock.

Second, the price-to-book ratio index, the stock price divided by the net asset value per share to get a multiple, the lower multiple is the value stock, and the higher multiple is the growth stock.

Third, the dividend yield index, the dividend per share divided by the share price to get a ratio, the proportion is high is the value stock, the proportion is low is the growth stock.

Summary

Although value stocks tend to have the advantage of steady growth, many times the market is skeptical of value stocks, and investors still prefer to chase growth stocks with high valuations.

It may take some time for value stocks to get out of their undervalued position. The risk of investing in value stocks also lies in whether investors can wait until the valuations of value stocks return to reasonable levels.

Disclaimer: The above content does not constitute any act of financial product marketing, investment offer, or financial advice. Before making any investment decision, investors should consider the risk factors related to investment products based on their own circumstances and consult professional investment advisors where necessary.

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