Value Stocks and Growth Stocks
Growth stocks are the stocks whose value is expected to grow in the future because its sales is expected to grow. In the same examples as above, if the price of facebook stock is $100 rather than $50, which is its original value, then a growth investor can decide to invest in it. This is because he may calculate that the price of stocks to rise further. If the investment is done this way then they are growth investors.
The characteristics which the growth funds can show are as follows::::::::::
- Growth stocks can be Higher priced than broader market::::: It can be seen that growth funds are higher priced than rest of the other funds in the market. This is because investors can be seen willing to pay higher price to earnings multiples price. This is done by investors because they expect these stocks can be sold in higher prices as the company grow further in the future.
- Growth stocks have higher earnings growth records:::::::::: During the time of slower economic growth, the earnings of some companies may be depressed. But growth companies may continue to achieve higher growth regardless of what the economic conditions are.
- Growth stocks are more volatile than broader market::::::::::::::: Generally it is found that the growth stocks are more volatile and can fall sharply overnight.
Value stocks are the stocks whose Market value is less than its underlying value. Thus they provide a very good opportunity to trade. If invested in time, when the values of these stocks correct, it can exponentially boost the earning of the investor. Let us take an example for this: If the value of $50 of facebook stocks sell for $45, then it can be said as undervalued. This is because the market prospects of growing of facebook is high. Thus as a value investor i can expect the price of its stock to reach $50 or higher soon. Thus i will decide to invest in it.
- Value stocks are lower priced than broader market:::::: The value stocks are lower priced than broader market because general investors haven't realized its importance yet. The main earning idea is that the lower price of the stocks will correct in future and will match its true value.
- Price of value stocks can be below similar companies in the industry:::: The opinion of value investors can be that the majority of value stocks are created because investors have overreacted to the recent company problems and it will solve in the future. The investors may be overreacting to the disappointing earnings of the company problems. They may also be reacting to the negative publicity or legal problems.
- Value stocks carry somewhat less risk than broader market::::: Value stocks are more suited to long term price fluctuations in comparison to growth stocks.
