What is a value stock?

Cliff’s notes:

  • Price-to-earnings ratio at or lower than the broader market

  • Priced below peers in its industry

  • Generally less volatile than the broader stock market

  • More likely to pay dividends to shareholders

You will sometimes hear investors talk about a VALUE STOCK. What is it? It’s a stock whose price appears low despite the company's seemingly strong overall performance. In other words, the stock is said to be undervalued. A stock’s fundamentals are assessed by reviewing the company's revenue, dividends, yield, earnings and profit margins. Buyers of value stocks assume that the price will eventually rise, reflecting the true health and potential of the company. As the stock is seen to be relatively undervalued, investors expect its growth will outpace the growth of its competitors (or the market overall.)

Most commonly, value stocks are stocks of mature companies that have proven histories of financial performance (in contrast to “growth” and “emerging growth” stocks.) Because value stocks can take longer to increase in value, you should take into account your investment horizon (how long can you lock away the money for) when considering a value stock. Value investing can require a lot of time and patience. On the bright side, value stocks are more likely than growth stocks to issue dividends, providing some return along the way.