Ask Colin

What do you mean when you say a stock is a "value" stock?

This is a term that is used to describe a stock which is cheap on fundamentals. This means that its price is significantly lower than its intrinsic value.

Different analysts will have different ways to determine value. For example, the Russell organization classify all stocks into value and growth. They say they do this purely on Price to Net Tangible Assets per share ratios. They also say some stocks can have both value and growth components. I find this confusing.

The main measures that people use are price to cash flow per share, price to earnings per share (PE) ratio, dividend yield and price to net tangible assets per share.

For my scans, I use PE ratios as an indicator and then look at the other ratios as appropriate from the short list produced by the PE scan.

To invest in a value stock. I also require that its share price is rising, so that I have in place both a value and a timing component.

Keywords: