DEFINITION of 'Small-Value Stock'

A description of stock where the underlying company has a small market capitalization, and whose stock price is currently trading at or lower than its book value. Finding a stock that fits both of these criteria is difficult, but it could be a worthwhile venture, because small-value stocks generally yield high returns.

The name can be somewhat misleading as these stocks are not of lesser value; "small" in this case simply refers to the size of the company.

BREAKING DOWN 'Small-Value Stock'

According to Fama and French's three factor model, small-value stocks possess the two best qualities: size and value. According to the model, small cap stocks tend to outperform large cap stocks, because small stocks in general have a greater opportunity to grow compared to their larger counterparts.

In addition, value stocks generally have more upside potential compared to their growth stock counterparts, because growth stocks tend to already possess high valuations fueled by positive expectations for future growth. Therefore, it is difficult for such a stock to grow at this point in time compared to an undervalued counterpart.

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