Value Stock

A stock that appears to be undervalued to its true value. Common measurements include P/E ratios, P/B ratios, dividend yields etc.

An investor invests in a value stock in hope that the market will recognize the true value of the stock and the price of the stock will rise accordingly.

Practised correctly, value investors can occasionally find stocks that are mispriced and undervalued by the market. However, many investors invest in value stocks with a “buy-low-sell-high” mentality. This is not to say that this mentality is wrong, but many experienced traders believe a stock is cheap for a reason. There may be a hidden story behind the low valuation numbers and it takes more than just a few common metrics such as a low P/E to uncover an undervalued stock. Investor caveat.

See “Value Trap for more.”

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