Value vs. Growth Investing: What's the Difference? (2023)

Growth and value are two styles or fundamentals of investing in stocks or mutual funds. Often growth investors invest in stocks that have the potential to offer strong earning growth. In contrast, value investors look for stocks undervalued in the stock market. Here we will discuss the major differences between value vs. growth investing and understand which is better. 

Value vs. Growth Investing: What's the Difference?

The primary difference between value and growth stocks is that growth stocks tend to deliver a higher return than average. In contrast, value stocks are undervalued in the market. Other than stocks, there are also growth and value stock mutual funds that investors can consider to make investments.

 

Factors	Value Stocks	Growth Stocks
Nature of Company	Mature companies	Young companies
Size of Company	Big or large	Small to mediums level
Price of Stocks/Mutual Funds	Undervalued	Overvalued
Growth Possibilities	Limited growth potential	High growth potential
Dividend Amount	High dividend value	Low or no dividend
Price to Earning Ratio	Low P/E ratio	High P/E ratio
Holding Duration	Long term holdings	Short or long term holding
Risk Potential	Normal to moderate	Comparatively high risk potential

Read: What is P/E Ratio

Value Stocks

Value stocks are the stocks of good growth and stable companies, but these stocks are generally traded below par value. The stocks can have below-average prices because of factors like the company's major stakeholders being found in a scandal or the company might discover unethical practices. However, if the company's financial state is still sound and stable, it might be a great entry point for investors because they may think that the public will soon forget the event and stock prices again start rising. 

Features of Value Stocks:

1. Lower prices in the open market

2. Below price than the industry standard

3. Comparatively less risky due to its less volatile nature 

Growth Stocks

Analysts generally select growth stocks due to the potential of delivering substantial returns in the industry or a particular stock segment for a given period. Generally, small, mid, and even large-cap sectors have growth stocks and can retain their fast growth for a fixed period. Growth companies have substantial growth opportunities because of their single line of products that can sell well in the market or they can outperform their competitors. 

Features of Growth Stocks:

1. Higher market price

2. Substantial growth rate

3. Contain high risk than the market average 

Summary

Investing in growth or value stocks depends on the individual investor's preferences. If an investor is willing to gain a higher return than the market average and is focused on short-term investment, investing in growth stocks or growth stock mutual funds can be suitable. In contrast, investing in value stocks can be great if the investor is willing to invest for the long term and interested in earning a higher dividend per year.

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