The crux of Growth Stocks vs. Value Stocks

economictimes.indiatimes.com:

Hence, generally, they provide a low dividend payout. Given the high growth outlook, they are in high demand and trade at a high valuation, like Price/Earnings Per Share (P/E), which may be substantially higher than the market and peers’ range. Contrary to growth stocks are the value stocks.

Currently they are not in high demand because of the muted outlook compared to the market growth. Consequently, these stocks trade at a lower valuation. The duration of this situation can vary, being either short or long-term, depending on the business and industry conditions of the company.

For example, it may trade at a low level for a long period of time if the industry cycle is in a mature stage, there is negative industry policy, and the business model of the company is laggard compared to its peers. Or the valuation may have worsened in the short-term because of abrupt disruptions in the company, like a subtle deterioration in the balance sheet, a promoter issue, a fall in market share, unexpected mergers & acquisitions, etc. Largely, growth stocks are of high risk and high return, while value stocks, on contrary, are of low risk and low return.

It’s a good investment class based on the investor’s risk appetite. Whatever it is, there are certainly investment opportunities in both categories. Mostly, growth stocks perform better when the market is in a rally, while value stocks outperform during weak and consolidation period.

To capitalise on this cyclical trend, active investors must analyse the market and companies, which can be a challenging task. Over the long term, the performance gap between growth and value stocks may significantly reduce. Basically, to perform better than the market, the portfolio may need to be twisted