Growth Stock vs. Value Stock
Growth stocks are shares of companies expected to grow earnings faster than the market with high P/E ratios and minimal dividends, while value stocks trade below their intrinsic value with lower P/E ratios and often pay dividends.
Exam Tip
Growth = high P/E, no dividends, future growth. Value = low P/E, dividends, undervalued. Growth does better in bull markets.
Growth Stock vs. Value Stock
Growth and value represent two fundamental investment styles with different characteristics, risks, and return patterns. Understanding these differences is essential for portfolio construction.
Growth Stocks
| Characteristic | Description |
|---|---|
| Earnings Growth | Above-average, expected 15-25%+ annually |
| P/E Ratio | High (often 25-50+) |
| Dividends | Low or none (reinvest in growth) |
| Industries | Technology, biotech, innovative companies |
| Valuation | Price reflects future potential |
Value Stocks
| Characteristic | Description |
|---|---|
| Earnings Growth | Slower, more stable |
| P/E Ratio | Low (often 5-15) |
| Dividends | Often higher yields |
| Industries | Financials, utilities, mature industries |
| Valuation | Trading below intrinsic value |
Side-by-Side Comparison
| Factor | Growth | Value |
|---|---|---|
| P/E Ratio | High | Low |
| P/B Ratio | High | Low |
| Dividend Yield | Low/None | Higher |
| Volatility | Higher | Lower |
| Bull Markets | Typically outperform | May lag |
| Bear Markets | May decline more | Often more defensive |
Growth Stock Examples
- Amazon (AMZN)
- NVIDIA (NVDA)
- Tesla (TSLA)
- Netflix (NFLX)
Value Stock Examples
- Berkshire Hathaway (BRK)
- JPMorgan Chase (JPM)
- Johnson & Johnson (JNJ)
- Coca-Cola (KO)
Metrics for Identification
| Metric | Growth Screen | Value Screen |
|---|---|---|
| P/E Ratio | > 20 | < 15 |
| P/B Ratio | > 3 | < 1.5 |
| Dividend Yield | < 1% | > 2% |
| Revenue Growth | > 15% | Any |
Exam Alert
Growth = high P/E, little/no dividends, future-focused. Value = low P/E, often dividends, currently undervalued. Know the key metrics that distinguish them.
Study This Term In
Related Terms
Dividend
SecuritiesA dividend is a distribution of a portion of a company's earnings to shareholders, typically paid quarterly in cash or additional shares.
Blue Chip Stock
SecuritiesA blue chip stock is a share of a large, well-established, financially sound company with a history of reliable performance, stable earnings, and often regular dividend payments.
Market Capitalization
SecuritiesMarket capitalization (market cap) is the total market value of a company's outstanding shares, calculated by multiplying the current stock price by the number of shares outstanding. It's used to classify companies as large-cap, mid-cap, or small-cap.