What Is Value Stock?
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What Is Value Stock?
A value stock is one that is worth more than its current market price indicates: that is, one that is undervalued. Over the long term, a value stock may prove to be a good bargain for the investor who purchases it.
Things To Know
- A value stock is worth more than its current market price indicates.
- A stock can be undervalued for any of several reasons.
Why are they undervalued?
Sometimes, a stock is undervalued because financial analysts are focusing on its price history, recent company earnings, or market trends, while paying less attention to the fundamental strength of the company itself. Yet a close review of the company’s earnings, its dividend yields, cash flow, debt load, net assets, and other factors may suggest that the stock is actually worth more than the price at which it is currently trading. A careful evaluation of the company may reveal that it has the resources to grow and therefore is worth more than its current market price indicates. In short, value investors aim to evaluate a stock on the basis of the company’s strengths and prospects, independent of the stock’s performance.
Value stocks need time to grow
Value investing is generally a long-term strategy, and value investors believe that the stock they buy is only temporarily out of favor. They expect it to rise in value in the coming months and then continue to perform well in the future.
