Growth Investing VS Value Investing
Let’s start with the basics first, I hope you have gone through my previous article on the Optimistic & Pessimistic Market as it has a small linkage over here which I would be showing you all in the end. If not just have a look over it: https://umangthakkar005.medium.com/optimistic-pessimistic-market-784c08000fd8
Value Investing in a layman's language means that you are looking for some value mainly in mid and large-cap companies as they might be trading below their worth price. Let’s understand with the example of MRF Ltd.
Here we can see that during the time of market correction due to Covid-19 the stock hit the low levels of 55,062 but as we can clearly see that the stock has a high potential and the pre-covid levels clearly suggested it. Along with it if we check out the PE ratio it’s 24.96 which is well below the sector PE of 32.56.
Supporting it were its financial statements which indicated stable profit and revenue. So it was an undervalued stock and a value investor would have never missed this opportunity. As Value Investor always buys the stock of a strong company when it’s going on lows so here value (price value) is important.
Growth Investing in a layman’s language means investing in a particular company as you are expecting high growth from it. It may be that it has bagged few new big orders which will help it grow rapidly or it might be expanding a new product line or a new innovative product which might be a game-changer. Let’s understand it with the example of Adani Green Energy Ltd.
It is one of the fasting growing stocks in the market and the reason is mainly simple as it is winning many new big projects of building solar and wind power plants. So investors are expecting huge growth from it in near future.
But if we financially check it out PE ratio is about 1153.33 and a sector PE of 18.73. A very huge gap can be observed here and also it should be observed that it has won contracts and projects and its not the real profit as when they will complete these tasks in future only after then they might be in profit or maybe somehow loss as we shouldn’t forget that it will require a handsome amount of money to complete these projects.
Conclusion
Value investing is based on real financial data, facts and figures thus it’s what a long-term investor does, along with that it also reduces the risk of losing out the investment due to proper analysis. But growth investing is based on the expected growth of a company due to some particular reasons so the risk is high and there are chances of losing out on your investment if the company fails to cross your expectations.
It is also observed that in a bull run or optimistic market growth stocks tend to perform very well as well as rapidly like the current situation but in a bear market or pessimistic market, value stocks tend to perform well and stand out of the crowd.
Thus it’s the choice of an investor’s profile, trend and risk capabilities that which one to go ahead with. If you ask me personally I would be recommending “Value Investing”.
Do check out my articles on Market Investment Tips: https://umangthakkar005.medium.com/market-investments-tips-part-1-55c9756392ed
https://umangthakkar005.medium.com/market-investment-tips-part-2-8fabf684f173
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Note: The shares which I have talked about in this article are as per the Indian Market.
