Difference Between Growth and Value Stocks
Growth Stocks are stocks where the increase in stock price is expected because of capital appreciation or the growth in net income whereas, 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; .
The stocks can be divided into two types.
- 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 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 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.
Value vs Growth Stocks Infographics
Let’s see the top differences between value vs growth stock.
- 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 (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 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 in the 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.|
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.
Growth vs Value Stocks Video
This has been a guide to Growth vs Value 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 –