We might have heard the the beautiful term, ‘growth stock’ and ‘value stock’. But, what is growth stocks and value stocks and what all are the differences in both? This article provide you an exact idea to answer to all the above questions.
In the investment world we come across terms such as Growth stocks, Value stocks etc. Companies whose potential for growth in sales and earnings are excellent, are growing faster than other companies in the market or other stocks in the same industry are called the Growth Stocks.
These companies usually pay little or no dividends and instead prefer to reinvest their profits in their business for further expansions.
The task here is to look for stocks that have been overlooked by other investors and which may have a ‘hidden value’. These companies may have been beaten down in price because of some bad event (mostly macro economic), or may be in an industry that’s not fancied by most investors.
However, even a company that has seen its stock price decline still has assets to its name – buildings, real estate, inventories, subsidiaries, and so on. Many of these assets still have value, yet that value may not be reflected in the stock’s price. Value investors look to buy stocks that are undervalued, and then hold those stocks until the rest of the market realizes the real value of the company’s assets.The value investors tend to purchase a company’s stock usually based on relationships between the current market price of the company and certain business fundamentals. They like P/E ratio being below a certain absolute limit; dividend yields above a certain absolute limit; Total sales at a certain level relative to the company’s market capitalization, or market value