Growth Stocks vs Value stocks – A logical Comparison

There are many ways to approach investing in stock markets. However, a growth stock and a value stock are considered very important in deciding the strategy for many investors in different set of companies. Understanding growth stock vs value stock can help you to pick your investing strategy.

GROWTH STOCKS:

We can define a growth stock as a company which is growing at a very fast rate compared to its industry and market index. These stocks have a large PE ratio. The high valuation of these stocks is justified with the earnings as it grows very fast year after year. Typically, the growths of these companies are around 15% per year, while the rest of the nifty 50 stocks grow at an average of 5-7% per year.

A growth investor doesn’t care whether the stock is trading above its intrinsic value as long as the market price of those stocks keeps rising. As the growth and earnings of those companies are way higher than the peer companies, the investors expect those stocks to trade at a high PE.

Few examples of growth stocks from Indian stock market are- Eicher Motors, Hindustan Uniliver (HUL), Colgate etc.

VALUE STOCKS:

A value stock has completely different characteristics than the growth stocks. These companies do not have a high growth rate, rather they grow very slow. However, these stocks trade at a low market price.

The concept of value investing was introduced by Benjamin Graham (the mentor of Warren Buffett), back in 1930’s. In his famous book ‘The Intelligent Investor’, Ben graham has described the approach for a value investor, along with few other important concepts like Mr. Market & Margin of safety.

Value investors look at investing in stocks as buying super cheap company through finding its intrinsic value using company’s fundamentals as reported in quarterly and annual reports.

The value investing approach is simple. The value investors look for an opportunity to buy a stock which is way less valued in the market that it’s intrinsic value and buys it. A value investors believes that this stock will rise to its true intrinsic value in future. He holds that stock until it goes back to its normal value.

Few current examples of value stocks from Indian stock market are- HPCL, Coal India etc.

Both value stock and growth stock investing approach are an effective way to make money from the stocks. There is no fixed way of investing that you should choose and stick to it.

Most of the successful investors have first studied the value stocks vs growth stocks approach and then developed their own unique style.

I hope this article is useful. If you want to read the complete post, you can find it here:
Growth Stocks vs Value stocks – A logical Comparison

Further, do comment below few growth stocks and value stocks for the current market price that you are aware of.