The stock market has been on a roller-coaster ride in the first quarter of 2021. Over the past months, investors grappled with inflation fears and rising Treasury bond yields, witnessed a rotation into value shares, and in recent weeks, watched as technology and growth stocks retook the market’s reins.
Where the market goes from here is anyone’s guess. Growth stocks have dominated for over a decade. But the resurgence of value stocks this quarter has reignited the age-old debate between the merits of value and growth. Is one necessarily better than the other?
What are value stocks?
Value stocks trade at prices below their fundamental value. They are usually defined as those with low price/book ratios and low price/earnings ratios.
Price/book ratio lets investors know how a company is valued by the market compared to how it is valued based on the book value of its business. Price/earnings ratio simply...