Value Stock vs. Growth Stock
September 14, 2013
Growth and value are styles of investing in stocks (Emerald, 2013). Analysts commonly classify companies with low market-to-book ratios as value stocks, and firms with high market-to-book ratios as growth stocks (Berk & DeMarzo, 2011). Neither approach is certain to give appreciation in stock market value; both carry the possibility of risk. The return and primary worth of stocks vary with changes in the stock market conditions. Shares, when sold, may possibly be value more or less than the original rate. In addition, investments looking to attain higher rates of return also entail an increased level of risk (Emerald, 2013). Value Stock normally have good essentials, however they are classified as falling out of goodwill in the market. Some investors look at value stocks as great bargains when compared to others. The stock market has undervalued the stock for a number of reasons and the investor anticipates buying in prior to the stock market increasing it prices. Value stocks are defined as: A stock that is likely to trade at a lower price comparative to its fundamentals (i.e. dividends, earnings, sales, etc.) and is also deemed undervalued by a value investor (Investopedia, n.d.). Characteristics of value stock include a high dividend yield, low price-to-book ratio and/or low price-to-earnings ratio (Investopedia, n.d.). Growth stocks are defined as shares in a business whose earnings are anticipated to mature at a higher-average rate comparative to the market. Growth stock typically doesn’t issue a dividend. Normally the company would rather reinvest retained earnings in capital appreciations and projects (Investopedia, n.d.). They normally have high price-to-earnings (P/E) ratios and high price-to-book ratios. The open market frequently places a high value on growth stocks; as a...
References: Arends, Brett. (2013, April 27). Upside: Rethinking Apple: Growth Stock, Value Play Or Both. Wallstreet Journal. Eastern Edition. Retreived from: http://search.proquest.com.ezproxy.saintleo.edu/docview.
Berk, J., & DeMarzo, P. (2011). Corporate Finance: The Core. (2nd ed.). Boston, MA: Prentice Hall.
Emerald (2013). Growth Stocks vs. Value Stocks. Retrieved from:http://www.ashtonphillips.com/ Growth-Stocks-vs--Value-Stock.
Investopedia (n.d.). Value Stock. Retrieved from: http://www.investopedia.com/terms/valuestock.asp.
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