Growth Vs Value Investing

Growth and value are two fundamental approaches in equity investing. Investing in companies whose potential for growth in sales and earnings are better compared to peers or sectors generally called growth investing.

Growth companies usually pay little or no dividends and re-invest their profits in their business for further expansion .These companies generally have high Price to earnings ratios and price to book ratios.Generally growth companies will have very less assets compared to the price of the stock. Companies like RCOM ,Educom,pantaloon etc will come into this category.

In contrast Value stocks are generally fallen out of favour in the market place and are considered bargain-priced compared with book value, replacement value, or liquidation value. Typically, value stocks are priced much lower than stocks of similar companies in the same industry. This lower price may reflect investor reaction to recent company problems, such as disappointing earnings, negative publicity, or legal problems, all of which may raise doubts about the companies’ long-term prospects. These stocks will have relatively low price-to-earnings and price-to-book ratios. These companies generally have huge assets like real estate , inventories,subsidaries etc.Companies like MTNL,Aravind Mills,Hindustan motors etc will come in to this category

Which strategy — growth or value — is likely to have higher return potential over the long term? We cann't conclude any thing but generally growth stocks will have high volatility compared to value stocks and potential to give high returns . In value stocks we can get good returns in some kind of cyclical business like commodities etc .

RK