Value Stock
A share trading at a low price relative to accounting measures such as earnings, book value or cash flow.
How it is identified
Test: low P/E, low P/B or high earnings yield relative to the market and to the company's own history
Unit
qualitative
In depth
A low multiple is a starting question, not an answer — markets usually assign low multiples for reasons, and the analytical work is deciding whether the reason is temporary or permanent. Where the market is right, the low multiple simply tracks a declining business and the investor is in a value trap. Value investing in its original sense meant buying below intrinsic worth, which is not the same as buying a low ratio; the two got conflated when style indices needed a computable rule. Screening on a single ratio without examining why it is low is the most common way this goes wrong.
Worked example
Two companies trade at 8 times earnings. One is a cyclical business at a peak-earnings moment, so its multiple is low precisely because earnings are about to fall. The other has stable earnings and is simply out of favour. The screen cannot tell them apart; only the analysis can.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Value Stock” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.