A value stock is a company stock that is undervalued when compared to its intrinsic value. Investors attempt to estimate a company’s intrinsic value by vigorously analysing a company’s fundamentals. Therefore, a value stock generally has a good price relative to the company’s success on paper. Investors often buy value stocks as they can provide consistent dividend yields and stable growth forecasts.
The price of a value stock can be undervalued for several reasons, with some contributing to a better motive to buy than others. Perhaps the company has a low stock valuation as the industry is becoming less relevant, or it has seen bad press or tighter regulations. Given these reasons, there could be little future utility in purchasing a value stock.
However, investors often look for value stocks where they believe in the opposite of the above. That is, regulations loosening in the future, press coverage and public perception improving and the industry becoming more relevant. Beyond a company’s intrinsic value, a value investor should also look at macroeconomic drivers to forecast future growth opportunities.