WallStreetMojo

WallStreetMojo

WallStreetMojo

MENUMENU
  • Blog
  • Free Video Tutorials
  • Courses
  • All In One Bundle
  • Login
Home » Investment Banking Tutorials » Valuation Tutorials » Value vs Growth Stocks

Value vs Growth Stocks

By Madhuri ThakurMadhuri Thakur | Reviewed By Dheeraj VaidyaDheeraj Vaidya, CFA, FRM

Difference Between Value and Growth Stocks

Value Stocks are stocks in which the current stock prices are different from the perceived value of the stock and with the expectation that value is realized, the stocks are invested whereas, Growth Stocks are stocks where the increase in stock price is expected because of capital appreciation or the growth in net income.

The stocks can be divided into two types.

Value-vs-Growth-Stocks

  • Value stocks, on the other hand, are stocks of large organizations that have been traded below its worthy value. In simple words, value stocks are stocks that are undervalued for a reason. The reasons behind the under-valuation can be any scandal, flawed perception of the public, or any setback at the company.
  • Growth stocks are stocks that can outperform any other stocks of competitors. These growth stocks can be of small, medium, or large-sized organizations. The emphasis on growth stocks is “potential.” The financial analysts give the prediction of these stocks. They feel due to the great operations or efficient management; these stocks are growing super-fast, faster than any of its competitors.

The similarity between them is that both of them can be beneficial for investors. If investors invest in growth stocks, they can expect that their money will grow faster than ever. And if they invest in value stocks, they will get a cheaper price per share while buying, and when the value of the stocks will increase (which will happen eventually as per the predictions of financial analysts), they would be able to sell the stocks.

But as you can guess, there’re many differences between these two types of stocks.

Do you know why people choose to invest in stock over any other instrument? It’s because stocks grow faster than the inflation rate. To mitigate the risk, the investors may choose mutual funds, ETFs, but these are culminations of stocks too.

Popular Course in this category
Sale
Investment Banking Training (117 Courses, 25+ Projects)
4.9 (831 ratings)
117 Courses | 25+ Projects | 600+ Hours | Full Lifetime Access | Certificate of Completion
View Course

Value vs. Growth Stocks Infographics

Let’s see the top differences between value stock vs. growth stock along with infographics.

Value vs Growth Stocks

Key Differences

  • Valued stocks are stocks that have great potential and are currently undervalued due to a scandal, a bad name, or public perception. Growth stocks, on the other hand, have great potential for outperforming similar stocks in a similar industry.
  • If you invest in valued stocks, the risk & volatility are lower (they can be higher in few cases). On the other hand, growth stocks have more risk & volatility (which can be lower in some instances).
  • As per the research of John Dowdee, it was found that valued stocks did exceptionally well than growth stocks from 2011 to 2013. The valued stocks in the study were more risky and volatile than the growth stocks.
  • Valued stocks are undervalued stocks. That’s why investors prefer valued stocks more. Growth stocks, on the other hand, are overvalued stocks.

Value vs. Growth Stock Comparative Table

Basis for Comparison Value Stocks Growth Stocks
Meaning These stocks are undervalued than it should have been. That’s why investors prefer to invest in these stocks. As per the prediction of financial analysts, these stocks will outperform every other stock in the similar industry.
Which stocks investors prefer more? They are preferred more than growth stocks. It’s because valued stocks can be bought at an undervalued price. They are not often preferred because investors can’t see it now (it may/may not outperform other stocks shortly). Plus, growth stocks can sometimes be overvalued and expensive.
Overvalued/Undervalued Valued stocks are undervalued stocks. Growth stocks are overvalued stocks.
Risk & Volatility Valued stocks have lower risk & volatility because even if the price doesn’t go higher, you wouldn’t lose anything. Growth stocks have more risk & volatility. No-one knows how growth stocks will be priced. All predictions of financial analysts don’t come true.
Companies associated Valued stocks are associated usually with large organizations (Large Caps) Growth stocks can be associated with small (small caps), mid-caps Stock, and also large-sized organizations.
Outperformance (as per the research of John Dowdee) From the research, it was found that valued stocks outperformed all growth stocks even if the former were more volatile than the latter. As per the research, growth stocks did poorly even if the risk & volatility were lesser than that of valued stocks.

Final Thoughts

Even if valued stocks are undervalued due to a scandal or bad reputation, it has more value in the investors’ eyes than the growth stocks. That’s why if we can keep two stocks in front of an experienced investor, she will pick the valued one first.

Of course, there are other factors that one needs to consider, e.g., volatility, risk, market reputation, prediction of financial analysts, historical performance, etc. But clearly, investing in valued stocks is more beneficial to investors than growth stocks.

Value vs. Growth Stocks Video

Recommended Articles

This article has been a guide to Value vs. Growth Stocks. Here we discuss the top differences between value and growth stocks along with infographics and comparison table. You may also have a look at the following articles for gaining further knowledge –

  • Notional Value
  • Dividend Growth
  • Stock Turnover Ratio
  • Stock vs. Option
0 Shares
Share
Tweet
Share
Primary Sidebar
Footer
COMPANY
About
Reviews
Contact
Privacy
Terms of Service
RESOURCES
Blog
Free Courses
Free Tutorials
Investment Banking Tutorials
Financial Modeling Tutorials
Excel Tutorials
Accounting Tutorials
Financial Statement Analysis
COURSES
All Courses
Financial Analyst All in One Course
Investment Banking Course
Financial Modeling Course
Private Equity Course
Venture Capital Course
Excel All in One Course

Copyright © 2021. CFA Institute Does Not Endorse, Promote, Or Warrant The Accuracy Or Quality Of WallStreetMojo. CFA® And Chartered Financial Analyst® Are Registered Trademarks Owned By CFA Institute.
Return to top

WallStreetMojo

Download Coursera IPO Financial Model

By continuing above step, you agree to our Terms of Use and Privacy Policy.
WallStreetMojo

Free Investment Banking Course

IB Excel Templates, Accounting, Valuation, Financial Modeling, Video Tutorials

* Please provide your correct email id. Login details for this Free course will be emailed to you

Book Your One Instructor : One Learner Free Class
WallStreetMojo

Free Investment Banking Course

IB Excel Templates, Accounting, Valuation, Financial Modeling, Video Tutorials

* Please provide your correct email id. Login details for this Free course will be emailed to you

Let’s Get Started
Please select the batch
Saturday - Sunday 9 am IST to 5 pm IST
Saturday - Sunday 9 am IST to 5 pm IST

This website or its third-party tools use cookies, which are necessary to its functioning and required to achieve the purposes illustrated in the cookie policy. By closing this banner, scrolling this page, clicking a link or continuing to browse otherwise, you agree to our Privacy Policy

Login

Forgot Password?

Coursera IPO Financial Model & Valuation Free Download