- Valuation Basics
- Discounted Cash Flows
- Going Concern concept
- Dividend Discount Model (DDM)
- Gordon Growth Model
- Discounted Cash Flow Analysis (DCF)
- Free Cash Flow to Firm (FCFF)
- Free Cash Flow to Equity (FCFE)
- Terminal Value
- Cost of Equity
- CAPM Beta
- Calculate Beta Coefficient
- Market Risk Premium
- Risk Premium formula
- Weighted Average Cost of Capital (WACC)
- Security Market Line (SML)
- Systematic Risk vs Unsystematic risk
- Free Cash Flow (FCF)
- Free Cash Flow Yield (FCFY)
- Mistakes in DCF
- Treasury Stock Method
- CAPM Formula
- Cash Flow vs Free Cash Flow
- Business Risk vs Financial risk
- Business Risk
- Financial Risk
- Valuation Multiples
- Equity Value vs Enterprise Value
- Trading Multiples
- Comparable Company Analysis
- Transaction Multiples
- (Price Earning Ratio (P/E)
- PE Ratio formula
- Price to Cash Flow (P/CF)
- Price to Book Value Ratio (P/B)
- Price To Book Value formula
- Price Earning Growth Ratio (PEG)
- Trailing PE vs Forward PE
- Forward PE
- EV to EBITDA Multiple
- EV to EBIT Ratio
- EV to Sales Ratio
- EV to Assets
- Other Valuation Tools
- Valuation Interview Prep
Value vs Growth 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.
These stocks can be divided into two types – Value Stocks vs Growth Stocks.
- 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 of growth stocks is “potential”. The prediction of these stocks is given by the financial analysts and they feel due to the great operations or efficient management, these stocks are growing super-fast, faster than any of its competitors.
- 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.
The similarity between Value vs Growth stocks is that both of them can be beneficial for the investors. If the investors invest in growth stocks, value vs growth stocks can expect that their money will grow faster than ever. And if they invest in value stocks, value vs growth stocks 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), value vs growth stocks would be able to sell the stocks.
But as you can guess, there’re many differences between these two types of stocks i.e Value Stocks vs Growth Stocks.
Value vs Growth Stocks Infographics
Here we provide you with the top 6 differences between Value Stocks vs Growth Stocks
Value vs Growth Stocks Key differences
Here are the key differences between value stocks vs growth stocks –
- Valued stocks are stocks that have a 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 the 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 (can be lower in certain cases).
- As per the research of John Dowdee, it was found that valued stocks did extremely well than growth stocks during the period of 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 Stocks Head to Head Differences
Here are the basic differences between value stocks vs growth stocks –
|The 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?||Valued stocks are preferred more than growth stocks. It’s because valued stocks can be bought at an undervalued price.||Growth stocks are not often preferred because investors can’t see it now (it may/may not outperform other stocks in near future). 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-sized (mid caps), 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.|
Value vs Growth 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 valued one first.
Of course, there are other factors as well 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 the investors than growth stocks.
This has a been a guide to the top differences between Value vs Growth Stocks. Here we also discuss the Value stocks vs Growth Stocks differences with infographics, and comparison table. You may also have a look at the following articles for gaining further knowledge –