Value stock
A value stock refers to a company whose shares are trading at a lower price compared to the estimated value of the company.
To determine the fundamental value of a company, one commonly looks at indicators such as the price-to-book ratio (P/B ratio) or the price-to-earnings ratio (P/E ratio). A low P/B ratio or P/E ratio suggests that the company’s stock may be undervalued, making it a potential value stock.
Value stocks are characterised by their lower prices, as investors perceive the company to be unfavourably positioned in the market. Typically, value stocks are associated with mature companies that offer stable dividend payments but currently face temporary challenges or adverse circumstances.
However, newly listed companies that have recently entered the stock market by issuing equities can also hold significant value potential, as many investors may not be fully aware of their potential and future prospects.
Several factors can contribute to a stock being undervalued:
- Investor sentiment
- Market dynamics
- Unfavourable news or pessimism surrounding a specific industry, business, or market
- Legal challenges faced by a company
- Changes in the managerial board.
