Growth Stocks vs. Value Stocks: What’s the Difference?

Stock investing involves owning an interest in a public company and evaluating both the business and the price paid for that ownership. This guide explains the key concepts in practical terms.

What is a growth stock?

Growth stocks are generally associated with companies expected to grow revenue or earnings faster than the broader market or their industry. Investors may accept higher valuations because they expect stronger future growth.

What is a value stock?

Value investing generally focuses on stocks that appear inexpensive relative to fundamentals such as earnings, book value or cash flow. A lower valuation can reflect opportunity, but it can also reflect genuine business problems.

Different return drivers

Growth stocks can be especially sensitive to changes in expectations about future growth and interest rates. Value stocks may depend more heavily on improving fundamentals, sentiment or the market recognizing an undervalued business.

The labels are not permanent

A company can move between growth and value classifications as its business, valuation and market expectations change. Some companies exhibit characteristics of both.

Diversification can include both styles

Investors do not necessarily need to choose one style exclusively. Broad-market funds often hold both growth-oriented and value-oriented companies.

Neither style always wins

Growth and value can lead during different market periods. Past leadership does not guarantee future performance, and style labels should not replace company or fund research.

Educational note: This article is for general educational purposes and does not provide individualized investment, tax, or legal advice. Investing involves risk, including possible loss of principal.