| || InvestHub.com's |
Finance Dictionary and Glossary of Investment Terms
A stock that is considered to be a good stock at a great price, based on its fundamentals, as opposed to a great stock at a good price. Generally, these stocks are contrasted with growth stocks that trade at high multiples to earnings and cash.
A value stock is one that is undervalued by the stock market. Value stocks can be identified on the most basic level simply by examining the financial statements and looking at some key ratios. Is the P/E ratio well below that of the market and of other companies in the same industry? Is the price anywhere close to book value? Has a loss been reported in the past five or 10 years? Is the current ratio 2 to 1 or better? Is the quick ratio well in excess of 1? Is the interest coverage ratio 5 to 1 or better? Is there twice as much equity as debt? Every savvy value investor has his or her own favorite ratios, but the goal in identifying value stocks is to find ones whose financials are almost irresistible. The company should also be in a desirable industry that is not continually roiled by technological change, and it should not be heavily regulated. Look for a high dividend, too, but with plenty of coverage -- a company paying out more than two-thirds of earnings might not be able to keep it up.
A stock that is considered undervalued by a value investor. Common characteristics of such stocks include a high dividend yield and low price-to-book ratio.