A value stock will have bargain-price as the company is seen as unfavorable in the marketplace. A value stock will have an equity price lower than stock prices of companies in the same industry. Negative publicity relating to unsatisfactory earnings reports or legal problems are indicators of a value stock as the market will negatively view the company’s long-term prospects.
A value stock will most likely come from a mature company with a stable dividend issuance that is temporarily experiencing negative events. However, companies that have recently issued equities have high value potential as many investors may be unaware of the entity.
For all their potential upsides, value stocks are considered riskier than growth stocks. This is because of the skeptical attitude the market has towards the value stock. For a value stock to turn profitable, the market must alter its perception of the company, which is considered riskier than a growth entity developing.
For this reason, a value stock is typically more likely to have a higher long-term return than a growth stock because of the underlying risk. The investing duration must be taken into consideration a value stock may need some time to emerge from its undervalued position. The true risk in investing in a value stock is that this emergence may never materialize.