Growth vs Value Stocks: Differences, Examples and Performance

The difference between growth vs value stocks comes down to what you are paying for. Growth stocks are shares in companies expected to increase sales and profits faster than the overall market, and investors pay high prices relative to current earnings for that future. Value stocks trade at low prices relative to their earnings, assets or dividends, usually because the business is mature, out of favor or facing doubts.

Neither style wins all the time. Decades of US data show value stocks beating growth stocks on average, a pattern known as the value premium. Then growth crushed value for most of the 2010s, before value staged a sharp comeback in 2022. Long stretches where one style dominates are normal.

This guide explains how each style is defined and measured, how style indexes sort stocks, what the research says about long-term performance, a worked example comparing two hypothetical companies, and practical ways to combine growth and value in one portfolio.

What Is a Growth Stock?

A growth stock is a share in a company whose revenue and earnings are expected to grow significantly faster than the average company. Investors buy it mainly for future expansion rather than for current profits or dividends.

Typical traits include:

• High valuation multiples: price-to-earnings (P/E), price-to-sales and price-to-book ratios well above the market average.
• Fast sales and earnings growth: often 15% a year or more, sometimes from a small base.
• Little or no dividend: profits are reinvested in research, hiring, marketing or acquisitions.
• Large, expanding markets: technology, software, online platforms, biotech and newer consumer brands are common examples.

Because so much of a growth stock’s value depends on profits years in the future, its price is very sensitive to changes in expectations. A small cut to forecast growth, or a rise in interest rates, can trigger an outsized fall.

What Is a Value Stock?

A value stock is a share that trades at a low price relative to a measure of the company’s fundamentals, such as earnings, book value, sales or cash flow. Value investors believe the market has been too pessimistic and that the price will move closer to the company’s worth over time.

Typical traits include:

• Low multiples: a P/E, price-to-book or price-to-sales ratio below the market and below the company’s own history.
• Slower growth: mature businesses in banking, energy, industrials, utilities, consumer staples and healthcare are common value candidates.
• Higher dividends: many value companies return a larger share of profits to shareholders. Our guide to dividend stocks covers how that income works.
• A reason for doubt: cyclical earnings, a scandal, disruption fears or simply a boring industry.

The biggest risk is the value trap: a stock that looks cheap because its business really is declining. A low P/E means little if earnings are about to shrink.

Growth vs Value Stocks: Key Differences

Metrics Used to Separate Growth and Value

There is no official definition of either style. Analysts, index providers and fund managers use a mix of measures.

Value metrics

• Price-to-earnings (P/E): share price ÷ earnings per share. Our P/E ratio guide explains trailing and forward versions.
• Price-to-book (P/B): share price ÷ book value per share, where book value is assets minus liabilities on the balance sheet.
• Price-to-sales and price-to-cash-flow: useful when earnings are temporarily depressed.
• Dividend yield: annual dividend ÷ share price.

Growth metrics

• Historical sales and earnings growth: typically over three to five years.
• Forecast earnings growth: analysts’ consensus estimates for the next two to five years.
• Return on equity and profit margins: high returns on capital help a company fund its own growth.

How style indexes sort stocks

Style indexes turn these metrics into rules. FTSE Russell, for example, builds the Russell 1000 Growth and Russell 1000 Value indexes using one value characteristic, book-to-price, and two growth characteristics: forecast medium-term earnings growth based on I/B/E/S two-year analyst estimates and five-year historical sales-per-share growth. Stocks that sit between the two camps can be split, with part of their weight in each index.

S&P Dow Jones Indices (S&P 500 Growth and S&P 500 Value), CRSP (used by several Vanguard funds), MSCI and Morningstar each use their own formulas. That is why two “value” funds can hold quite different stocks, and why the same company can be labeled growth by one provider and blend by another. Before buying a style ETF, read its index methodology and look at its top holdings.

Growth vs Value Stocks Long-Term Performance

The academic case for value began in earnest with Eugene Fama and Kenneth French. Their 1992 paper, “The Cross-Section of Expected Stock Returns,” found that stocks with high book-to-market ratios (cheap relative to book value) earned higher average returns than stocks with low ones. In 1993 they built this into a factor model with a variable called HML (high minus low): the return of a portfolio of cheap stocks minus the return of a portfolio of expensive stocks.

Kenneth French publishes HML returns going back to 1926 in his online data library. Calculating from the annual series in that library (data through 2025), the picture looks like this:

Two cautions. HML is a hypothetical long-short portfolio that includes small companies and ignores trading costs and taxes, so no fund delivers it directly. And returns of real growth and value index funds differ from HML, often by a lot. Still, the direction is clear: value led over most of the 20th century, then suffered its worst stretch on record.

Why value historically outperformed

Researchers disagree about why. Fama and French argue that value stocks are riskier, because cheap companies are often financially weaker and suffer more in bad times, so higher returns are compensation for that risk. Josef Lakonishok, Andrei Shleifer and Robert Vishny offered a behavioral explanation in a 1994 study: investors extrapolate past growth too far, overpaying for glamorous growth companies and underpricing unloved ones, then get surprised when the trends revert.

Why growth dominated the 2010s

Several forces lined up for growth in the decade after the 2008 financial crisis:

• Low interest rates. When rates are low, profits far in the future are worth more in today’s money, which helps growth stocks most.
• Winner-take-most technology. A handful of large tech and platform companies delivered growth that justified, and then exceeded, their high multiples.
• Intangible assets. Book value misses spending on software, brands and research, so many profitable modern companies look “expensive” on price-to-book even when they are not.
• Weak value sectors. Banks, energy and traditional retail faced low rates, falling commodity prices and digital disruption.

Is value investing dead?

After 2020, many commentators declared value dead. A 2021 paper by Ronen Israel, Kristoffer Laursen and Scott Richardson of AQR, “Is (Systematic) Value Investing Dead?”, tested the main criticisms and concluded that the claim was premature, noting that value premiums appeared across several measures, not just price-to-book. The rebound in 2022, when rising interest rates hit expensive growth stocks hard, supported that view, but value lagged again in some later years. The honest summary is that nobody knows which style will lead over your investing horizon.

Worked Example: A Growth Stock vs a Value Stock

The lesson: growth investors are betting that rapid growth continues long enough to outrun a shrinking multiple. Value investors are betting that a low multiple already reflects the bad news, and that a modest business at a cheap price can deliver decent returns. Both bets can fail.

Growth vs Value Investing: Pros and Cons

Blend and GARP: The Middle Ground

You do not have to pick a side. Two middle-ground approaches are common.

Blend (core) funds

A blend fund holds both styles in roughly market proportions. A total market or S&P 500 index fund is effectively a blend fund: the growth and value indexes are simply two halves of the same market. If you own an S&P 500 index fund, you already own both styles.

GARP: growth at a reasonable price

GARP investors look for companies with above-average growth whose valuations are not stretched. A popular screen is the PEG ratio, which divides the P/E by the expected growth rate. A company with a P/E of 24 and 20% expected growth has a PEG of 24 ÷ 20 = 1.2; a PEG near or below 1 is often treated as reasonable. Peter Lynch, who ran Fidelity’s Magellan fund from 1977 to 1990, is the best-known advocate of this approach.

How to Combine Growth and Value in a Portfolio

For most long-term investors, the question is not growth or value but how much of each. A practical approach:

1. Start with a broad core. A low-cost total market or S&P 500 fund gives you both styles at market weights without any forecasting.
2. Add a tilt only if you have a reason. Some investors add a value fund because of the long-run premium in the research; others add growth exposure because they expect technology to keep leading. Keep any tilt modest, for example 10% to 30% of your stock allocation.
3. Check overlap. Large growth funds and the S&P 500 share the same top holdings, so adding a growth fund to an index fund can concentrate you in a few companies.
4. Compare costs. Style index ETFs are often cheap; actively managed growth and value funds usually cost more and many trail their benchmarks. See our comparison of index funds vs ETFs.
5. Rebalance on a schedule. If one style surges, rebalancing back to your target weights trims the winner and adds to the laggard, which keeps your risk where you intended.
6. Match to your horizon. Style cycles can last ten years or more. If you may need the money sooner, your mix of stocks, bonds and cash matters far more than your growth-value split.

Bottom Line

Growth stocks cost more because investors expect fast profit growth; value stocks cost less because expectations are low. Nearly a century of US data shows a value premium on average, yet growth won decisively through the 2010s, and either style can lag for a decade. A broad index fund holds both, and any tilt toward growth, value or GARP should be modest, low-cost and held with patience. For more on building a stock portfolio, explore our stocks and ETFs guides.

Sources

• The Journal of Finance (via RePEc) – Fama and French, The Cross-Section of Expected Stock Returns (1992)
• Journal of Financial Economics (via RePEc) – Fama and French, Common Risk Factors in the Returns on Stocks and Bonds (1993)
• Tuck School of Business at Dartmouth – Kenneth R. French Data Library
• NBER – Lakonishok, Shleifer and Vishny, Contrarian Investment, Extrapolation, and Risk
• AQR – Israel, Laursen and Richardson, Is (Systematic) Value Investing Dead?
• LSEG FTSE Russell – Russell US Style Indexes
• Investor.gov (US SEC) – Asset Allocation and Diversification