Risk and Return of Value Stocks

A value stock is normally perceived to be riskier than a growth stock. This can be related to the skeptical attitude that the market has towards value stocks. For investing in value stock to become profitable, the stock market must change the way it perceives the company issuing the value stock, which is perceived riskier than a growth entity developing. As a result of this, there are possibilities that a value stock willusually have a higher long-term return than a growth stock due to the underlying risk. More so, the investment duration must also be taken into consideration.A value stock may be given more time to rise from its undervalued position. The actual risk associated with investing in a value stock is that there is likelihood that this rising in undervalued position may not occur.

Basics of Value Stock?
Generally, value stock has low current price to earnings ratios and low price to book ratios. People invest in value stocks with the hope that its value will increase when the broader market recognizes the full potential of the value stock, which would possibly lead to an increase in share prices.
A value stock can therefore be defined as a security that deals at a price lesser than how the performance of the company would have otherwise indicated. Investment in a value stock capitalizes on the inefficiencies in the stock market as the value of the underlying equity may not equal the company’s performance.

Category: