Basically, investing in stocks is a form of long-term investment. Investing in stocks should take into account the fair value of a stock obtained from analyzing the company’s performance.
Value stocks are a type of stock character where the shares traded in the stock market are lower than the real value of the company.
In this case, the fair value of the company can be said to be the company’s performance on its financial statements which is reflected in the company’s revenue, assets, cash flow, operating expenses, and so on.
Characteristics of Value Stocks
Below are the characteristics of value stocks, including:
- Valuation ratios used for the basis of stock valuation show that the currently traded stock price is lower than its fair value. The commonly used ratio is Price to Book Value (PBV) which is below 1, it can be said that the stock is still undervalue because the stock is traded below its book value, or the price to earnings ratio (PER) is said to be undervalue if it is smaller than the historical average PER or below the average of other competitors in the same industry.
- Value stocks are generally large companies, with good company performance, but market participants are not interested in their shares, so the price of shares traded is not high.
- Value stocks can occur where the perception of market participants assesses the stock pessimistically so that the share price drops, even though the financial performance of this stock has more value.
