Growth vs Value Stocks
Growth stocks are companies whose sales and earnings are growing fast; investors pay high prices (high P/E) for that future. Value stocks trade at low prices relative to their earnings, cash flow or assets, often because their growth is slow or out of favour.
How to tell them apart
Growth: revenue and earnings rising well above the market’s pace, high P/E and price-to-sales, little or no dividend as profits are reinvested.
Value: low P/E and price-to-book, high free-cash-flow yield, often a solid dividend. Many are mature businesses in banking, energy, industrials or consumer staples.
Which has done better
Over much of the 20th century value stocks beat growth stocks, a pattern academics called the value premium. From about 2010 growth led by a wide margin, driven by large technology companies. Leadership rotates, and no one has reliably predicted when.
Broad index funds hold both. Tilting one way is a bet on that style’s next decade.
Put it to use
Growth stocks →Value stocks →Undervalued stocks →General information, not investment advice.