What is value investing in stock Market ?


What is a value investing strategy?

In value investing, the market is dependent on the good, and the bad news is that it leads to a change in the stock price, which is not consistent with the long-term fundamentals of the business. 

That is why a lot of investors would like to choose at the moment is that the price of the stock is less than the initial share price. They are constantly on the lookout for undervalued stocks. 

value investing

Some value investors look at the value to earnings ratio (P/E ratio), some look at current earnings and assets and don’t have much impact on a stock’s future growth potential.

On the other hand, some value investors formulate their entire strategies based on estimating future growth and cash-flows.

Analysts use a variety of techniques to calculate the initial value of a stock and decide whether a stock is undervalued or overvalued.

Undervalued stocks are those stocks whose current stock price is less than their initial value. Value investors prefer to invest in these stocks.

Overvalued stocks are those whose current stock price is more than their initial value. Value investors want to stay away from such stocks.

let’s understand Value Investing with an example

Most of you would agree that you buy a new phone on sale, or at full price you are getting the same phone with the same screen size, and picture quality. Stock works in a similar manner.

The stock price of the company even changes when the company valuation has remained the same. Value investing is the process of doing a. detective work to find these secret sales on the stock. And buying those stocks at a discount compared to how the market values them.

What is value investing according to Benjamin Graham?

Important terms in value investing are

1. Intrinsic value: Intrinsic value is the perceived true value of a stock /any other assets.

Based on Intrinsic value the stock is divided into three categories:

1) Undervalue

2) Overvalue

3) Rightly Value

CMP < IV- Undervalued

CMP > IV- Overvalued

CMP = IV- Rightly Valued

(CMP Current Market Price)

(IV = Intrinsic Value)

Using different financial models and calculations, it is possible to determine the intrinsic value.

Some of those calculations are:


2. Free Cash Flow

3. P/B ratio

4. P/E Ratio

5. Revenue Growth

6. business model, Etc.

Value investing vs Growth investing.

Here, we compare both investing strategies.

Value investing and growth investing are two sides of the same coin.

With my knowledge and experience, I am sharing my thoughts on value investing and growth investing.

As we know, investing is multidisciplinary. Famous investors like Benjamin Graham believe that forecasting the stock future is useless, they believed buying the stock when it is undervalued means the stock price is less than book value and sell stocks when they overvalue.

These are the most popular investing strategy of fundamental analysis. Growth investing is like a fast and furious approach and it has successfully given good returns to investors in the past. On the other side is value investing where it is like a slow and steady philosophy and popular by warren buffet himself.

Value Investors focus on the companies revenue, profit, cash flow on annual basis. Where growth investors focus on that company that grows faster than the market or gives more returns from stocks as compared to market returns.

In growth investing investors search for companies that are of small size and have the potential to grow at a high growth rate and it is difficult for large-cap companies to maintain a high growth rate because they already grew more. but it does not mean large-cap companies did not part of growth investing. Amazon, Microsoft companies which are good growth returns in past years almost give more than 20%.

Value investors who do not focus on flashy companies or breaking records. These investors put their money in stable companies it does not mean value.

I hope you understand the difference between value and growth investing well so choose or decide which strategy you want to follow.

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