Published on 2 Apr 2024 on Zacks via Yahoo Finance
In the realm of investment strategies, value investing is a time-tested approach that involves identifying stocks trading below their intrinsic value. This method is rooted in the belief that the market often misjudges stock prices in the short term.
Value investing adopts a long-term perspective, evaluating companies based on fundamental strength, earnings potential and financials to determine their intrinsic value. The goal is to profit by investing in stocks that seem undervalued. The investment eventually yields substantial returns as the stock price aligns with its intrinsic value, reflecting the actual fundamentals.
While the P/E ratio is a popular metric for selecting undervalued stocks with significant upside potential, another useful ratio for value investors is earnings yield. This metric helps investors in discerning whether a stock is a hidden gem or a potential financial pitfall.