The Key Difference Between Value Investing and Growth Investing

value investing vs growth investing
Feature	Value Investing	Growth Investing
Definition	Investing in stocks that appear undervalued based on fundamentals.	Investing in companies expected to grow earnings and revenue faster than the market.
Focus	Focus on intrinsic value, low price-to-earnings (P/E), and solid fundamentals.	Focus on high growth potential, earnings growth, and market expansion.
Typical Companies	Established companies with stable earnings but temporarily undervalued.	Innovative or emerging companies with high growth prospects.
Risk	Generally lower risk due to buying undervalued assets with margin of safety.	Higher risk due to dependence on future growth assumptions.
Return Expectation	Returns come from price appreciation as market corrects undervaluation and dividends.	Returns come mainly from capital appreciation as earnings grow rapidly.
Valuation Metrics	Low P/E, low price-to-book (P/B), high dividend yield.	High P/E ratios, high price-to-sales (P/S), low or no dividends.
Investor Psychology	Contrarian approach; buying when others are pessimistic.	Momentum-driven; buying when others expect rapid growth.
Market Conditions	Performs well in stable or recovering markets.	Performs well in bull markets and economic expansions.
Dividends	Often pays dividends regularly.	Often reinvests earnings, pays little or no dividends.
Investment Horizon	Medium to long term, waiting for value realization.	Long term, betting on sustained high growth.
Example Sectors	Financials, utilities, manufacturing.	Technology, biotech, consumer discretionary.
Typical Investor	Risk-averse investors seeking safety and steady returns.	Risk-tolerant investors seeking high capital gains.
Historical Proponents	Warren Buffett, Benjamin Graham.	Peter Lynch (also blended style), growth fund managers.
Challenges	Value traps where undervalued stocks remain cheap due to poor prospects.	Overpaying for growth leading to sharp corrections.
Tax Impact	Dividends may incur regular income tax.	Mostly capital gains tax on appreciation.
Summary	Value investing seeks bargains in undervalued companies with stable fundamentals.	Growth investing targets companies with high earnings growth and capital appreciation potential.