Value investing seeks stocks that have a market price lower than their intrinsic value. Intrinsic value is an estimate of the true worth of an asset based on all available information. By determining how much a company is estimated to be worth, investors can determine how much its stock is actually worth. If the stock’s market value is lower than its intrinsic value, the stock is said to be undervalued. A value investor would consider buying this stock in anticipation of its market value eventually increasing to match its intrinsic value.
Growth investing seeks stocks with potentially high growth potential. Growth investors use fundamental analysis to help identify future growth in various areas of a stock’s business—such as sales, earnings, or cash. It places more emphasis on a company’s future earnings potential than its current intrinsic value or stock price.
Income investing seeks to find stocks that produce regularly increasing income through dividends. Income stocks can have characteristics of both value and growth stocks; however, the analysis process can be quite different. Income investors often use fundamental analysis to assess the company’s dividend history and consistency, as well as its ability to pay future dividends. Income investing assumes the stock’s price (and future price) is less important than the income it provides over time.