Value Stock

A value stock trades at a low price relative to the company's earnings or assets. Such shares typically show a P/E or P/B below their industry average, on the view that the market has not yet recognised what the business is worth.

If growth investing buys the future, value investing buys the present. The case rests on profit already being earned and assets already owned, so mature companies paying steady dividends dominate the category.

The skill is telling cheap from merely cheap-looking. Declining industries and companies losing competitive ground also screen as inexpensive. That trap has a name: the value trap.

So ask whether the discount is temporary or structural. One weak year can be an opportunity; a business model quietly falling apart only gets cheaper. Understanding why the market set that price comes before deciding it is wrong. A discount can also take years to close, so value investing assumes money you are able to leave alone for a long time.