What if you could find stocks on sale, ones that the market hasn’t fully appreciated yet, but you see their true worth? It’s like spotting a designer jacket at a regular price while everyone else walks by. This means that you see the true value of something that might be currently undervalued. It’s exactly how the value factor works. Value is one of the 5 key factors you should consider before making an investment decision. It can help you understand which stocks are overvalued or undervalued by analysing metrics like Price to Earnings (P/E ratio), Price to Book (P/B ratio), and more. 

In this article, we’ll explore what the value factor means, how to use Share.Market’s value score, and guide you to make smart investment choices. Let’s start!

What is the Value Factor?

Imagine you’re shopping for smartphones. Two models sit on the shelf: both have similar specs, but one is being sold at a sale price, not because it’s faulty, but because the seller or the market hasn’t realised its worth. In such a case, a smart buyer will happily buy it at the steal price, knowing they’re getting amazing value.

This is exactly what the value factor does in stock investing. It helps you find companies trading at prices lower than their fair value, based on what they own or how much they earn. The idea is simple: if a stock is undervalued today, the market will eventually realise its true potential and reprice it upward. On the other hand, if a stock is trading miles above its real value, it’s expected to fall as buyers become more cautious and understand it might be overvalued.

The value factor in the factor analysis tool gives an undervalued company a higher score and an overvalued company a low score to help you make quick, wise decisions.

How Does Share.Market Calculate the Value Score?

Share.Market takes the headache out of evaluating value by analysing many important financial ratios, including:

  • Price to Earnings (P/E Ratio): Compares the current share price to the company’s earnings per share. Lower is usually better.
  • Price to Book Ratio (P/B Ratio): Compares the price to the company’s net assets. A lower number means you’re paying less for every rupee of assets. 
  • Price to Sales Ratio: Compares price to revenue. Again, lower could mean better value.
  • EV to EBITDA: Looks at the company’s enterprise value versus its earnings before interest, tax, depreciation, and amortisation.

Share.Market analyses key ratios and shows it to you as a simple value score out of 5:

  • 5/5: The stock is undervalued compared to other companies, a prime value opportunity!
  • 3/5: It’s fairly valued relative to other similar stocks.
  • 1/5: The stock is trading much higher than other companies.

How Should You Use the Value Score?

Here’s how you can use the value score: 

1. Find the Undervalued Stocks

Check for high value scores (4/5 or 5/5). These stocks are attractively priced relative to other companies;  they’re your chance to buy in before the rest of the market catches on.

2. Be Cautious with Low-Value Scores

Low scores mean the share price is running far ahead compared to other stocks. These stocks could face corrections if sentiment drops.

3. Combine with Other Factors

Value alone isn’t always enough. Companies can stay undervalued for an important reason (like poor management or slow industry growth). Check value along with quality, momentum, volatility, and sentiment for a complete picture.

4. Revisit Regularly

Market prices and company fundamentals change, so value scores can move too. Make it a habit to check for updated value scores before making buy or sell decisions.

Why Does Value Work?

Over time, the market tends to correct mispricings. Stocks trading below their real value can bounce back as investors catch on to their potential. Value investing is a favourite strategy of investors like Warren Buffett, who built a fortune by finding companies selling for less than they’re truly worth. With Share.Market’s value score, you get a shortcut to spotting these stocks, without having to analyse numbers on your own! 

Conclusion

Finding value in the stock market is like discovering treasure. Share.Market’s value factor lets you skip the heavy research and see, at a glance, whether a company is trading below its true worth or if it’s overpriced.

You can use it to find undervalued stocks, but don’t forget to check the other factors too. With patience and smart use of the value score, you’ll put yourself ahead of the crowd, making investing feel less stressful!

FAQs

1. Does a High Value Score Mean the Stock Will Go Up Soon?

Not always right away! It means the stock is attractively priced now, but other factors like the business’s health and market trends also matter. Use value as one clue, not the whole answer.

2. Can a Stock Have a Low Score but Still Be a Good Investment?

It’s possible, especially if the company is growing very fast or has unique advantages. But generally, low value scores mean you need strong reasons to pay up.

3. How Often Can Value Scores Change?

Value scores can change quite often, especially after earnings reports or big price movements. Check scores regularly for the most up-to-date read on a stock’s value.

4. What if Everyone Knows a Stock Has High Value?

Sometimes a stock stays undervalued because of negative news or market uncertainties. It takes time for sentiment to shift, so patience is key in investing based on value.

5. Is Value Investing Risk-Free?

No investment is risk-free. Value stocks can face setbacks too, but focusing on value gives you a proven edge for long-term gains, especially when combined with other factors.