Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Value Stock

What it is:

A value stock is a security that is trading at a lower price than expected given the performance of the company and key performance indicators of the stock itself.

How it works (Example):

A value stock may have a high dividend yield (i.e. what percentage the stock yields relative to its price), low price to book ratio (i.e. current closing price of the stock as a percentage of the latest book value per share), and even a low price-to-earnings ratio (i.e. current share price as a percentage of its per share earnings).  All of these indicators are based on the fact that the market is not always efficiently matching price with performance.  Investors are betting that this inefficiency gives them an opportunity for substantial gains.

Why it Matters:

A value investor seeks stocks that are trading at a price less than they are worth. There are investment services and guides that monitor the indicators of value stocks, but investors must interpret these analyses and make decisions based on their own instincts and what they think is the value, performance, and the underlying fundamentals of the company itself and its stock.  

Related Terms View All
  • Marital Property
    Let's say John Doe and Jane Smith get married. On the day of the wedding, John owns a...
  • Incorporation
    Corporations have several distinguishing characteristics. A corporation is owned by...
  • Icahn Lift
    Carl Icahn was a corporate "raider" in the 1980s and made millions buying and selling...
  • Paid-Up
    Let's say John Doe takes out a car loan to purchase a 1985 Camaro. The loan requires 60...
  • Interchange Rate
    An interchange is an electronic transfer of information. In the business world, this...