Value stocks are companies that investors believe are underpriced based on the performance of their underlying businesses. Growth stocks are stocks of companies that are generating above-average growth in sales or profits, and have the potential to outperform over time as their businesses expand.
Value stocks are considered to be attractively priced based on their current business metrics. Growth stocks may appear overpriced based on their current businesses, but are expected to grow into and even exceed their current valuations in the future.
Value stocks typically have attractive fundamental valuation metrics, such as low P/E ratios and low P/S ratios. Growth stocks often have relatively high P/E and P/S ratios, but they typically generate consistent annual revenue growth at least in the double-digit percentage range.
Value stocks are typically predictably profitable companies that often pay attractive dividend yields. Growth stocks are often not profitable and do not pay dividends.
Value stocks are generally considered low-risk, dependable investments with limited near-term upside potential. Growth stocks are usually considered more volatile, higher-risk stocks that have potential for significant near-term upside.
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