Growth vs value investing: How two investing styles differ and what you need to know before opting for either In the 18th part of this series, Riju Mehta explains the difference between growth and value investing styles
Among the various investing strategies followed by market enthusiasts, a popular tussle is between growth and value investing. Success in either strategy depends on various factors and neither can be followed indefinitely, while many also choose a combination of both to elevate their portfolio performance. To decide which strategy is more suited to your risk appetite and aligned with your goals, find out how the two investing styles differ and what you need to know before opting for either.What is growth investing?
#sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;} This strategy involves focusing on companies that are growing at a much faster clip than the average stock in the market. They register high earnings and profit growth, and are likely to outperform their peers and the market. These stocks are valued much higher than their intrinsic value.
However, there can be a higher risk associated with growth stocks if they don't live up to expectations or the idea flops, especially if it's a new company with no history of performance or track record.
How to identify growth stocks
They have a very high growth rate compared to the average growth rate in the market.They typically have strong revenue and earnings growth, and a positive cash flow. They also offer high return on equity (RoE).They have high metric ratios like price to earnings (PE), price to book value (PB), and earning per share (EPS).They offer very low or no dividends at all because they are typically small or new companies and reinvest their earnings for expansion and growth.What is value investing?
According to this strategy, investors go for companies that are large and well-established with strong fundamentals, but are priced lower than their intrinsic value. This could be because of short-term developments that are likely to rectify themselves over time. Consequently, these stocks have the potential of giving good returns but could take a longer time as they inch slowly towards their intrinsic value.
Artificial Intelligence(AI)
Java Programming with ChatGPT: Learn using Generative AI
By - Metla Sudha Sekhar, Developer and Lead Instructor
Artificial Intelligence(AI)
Basics of Generative AI : Unveiling Tomorrow's Innovations
By - Metla Sudha Sekhar, Developer and Lead Instructor
Artificial Intelligence(AI)
Generative AI for Dynamic Java Web Applications with ChatGPT
By - Metla Sudha Sekhar, Developer and Lead Instructor
Artificial Intelligence(AI)
Mastering C++ Fundamentals with Generative AI: A Hands-On
By - Metla Sudha Sekhar, Developer and Lead Instructor
Artificial Intelligence(AI)
Master in Python Language Quickly Using the ChatGPT Open AI
By - Metla Sudha Sekhar, Developer and Lead Instructor
Office Productivity
Zero to Hero in Microsoft Excel: Complete Excel guide 2024
By - Metla Sudha Sekhar, Developer and Lead Instructor
Astrology
Vastu Shastra Course
By - Sachenkumar Rai, Vastu Shashtri
Data Science
SQL for Data Science along with Data Analytics and Data Visualization
By - Metla Sudha Sekhar, Developer and Lead Instructor
Web Development
A Comprehensive ASP.NET Core MVC 6 Project Guide for 2024
By - Metla Sudha Sekhar, Developer and Lead Instructor
Office Productivity
Mastering Microsoft Office: Word, Excel, PowerPoint, and 365
By - Metla Sudha Sekhar, Developer and Lead Instructor
Marketing
Digital marketing - Wordpress Website Development
By - Shraddha Somani, Digital Marketing Trainer, Consultant, Strategiest and Subject Matter expert
Web Development
Mastering Full Stack Development: From Frontend to Backend Excellence
By - Metla Sudha Sekhar, Developer and Lead Instructor
Finance
Financial Literacy i.e Lets Crack the Billionaire Code
By - CA Rahul Gupta, CA with 10+ years of domain experience, trainer
Leadership
Business Storytelling Masterclass
By - Ameen Haque, Founder of Storywallahs
Marketing
Future of Marketing & Branding Masterclass
By - Dr. David Aaker, Professor Emeritus at the Haas School of Business, UC Berkeley, Author | Speaker | Thought Leader | Branding Consultant
HR
Human Potential and the Future of Employment
By - Lynda Gratton, Prof. at London Business School, Speaker, Author, Global Thought Leader
Strategy
ESG and Business Sustainability Strategy
By - Vipul Arora, Partner, ESG & Climate Solutions at Sattva Consulting Author I Speaker I Thought Leader
Finance
Financial Reporting and Analytics
By - Dr. C.P. Gupta, Professor: Department of Finance and Business Economics, University of Delhi
The risk in these stocks is much lower because these are usually older, bigger companies with strong fundamentals. So even if the target price is not reached, there is always the probability of capital growth.
How to identify value stocks
These companies have a track record of high earnings growth, free cash flow, and low debt to equity ratio.They have low metric ratios like PE, PB and EPS. According to Benjamin Graham, PE should be less than 9, and PB less than 1.2. Look for companies that have been offering dividends consistently.Growth vs Value
#sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;}
This story originally appeared on: India Times - Author:Faqs of Insurances
