Stock market basics · updated October 21, 2026
What are value stocks and how do you spot them
Value stocks are the ones that look cheap compared with what the company earns or what it has on its balance sheet. Value investors buy solid businesses at a low price and wait for the market to recognize their worth.
How it works
You find them with price ratios: a low P/E, a low P/B, a high dividend yield or a high free cash flow yield, all compared with the sector. The style's famous investors, like Benjamin Graham and Warren Buffett, stressed the margin of safety: the gap between the estimated value and the price.
Worked example
What the numbers of a value stock usually look like:
Low numbers need checking: sometimes a stock is cheap because the business really is deteriorating.
Worth knowing
On our pages, the fair value and the Value pillar show how cheap a stock looks compared with its business.
When value stocks can fool you
The value trap: a cheap stock can stay cheap for years or fall further if profit shrinks. Sectors that are cheap for a reason: banks and cyclical companies always have a low P/E.
Related terms
Learn it in the Academy
Questions about value stocks
What is a value trap?
A stock that looks cheap on P/E or P/B, but is cheap because the business is getting worse. The price never comes back.
Value or growth?
Each style has had long winning stretches. Many investors combine them or pick an ETF on the whole market.
These explanations are for information only. They are not a recommendation to buy or sell.
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