Small-Value Stock

AAA

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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Interlisted Stock

    A security that is listed on multiple stock exchanges. An interlisted ...
  2. Fama And French Three Factor Model

    A factor model that expands on the capital asset pricing model ...
  3. Value Stock

    A stock that tends to trade at a lower price relative to it's ...
  4. Market Capitalization

    The total dollar market value of all of a company's outstanding ...
  5. Undervalued

    A financial security or other type of investment that is selling ...
  6. Small Cap

    Refers to stocks with a relatively small market capitalization. ...
Related Articles
  1. Achieving Better Returns In Your Portfolio
    Bonds & Fixed Income

    Achieving Better Returns In Your Portfolio

  2. The Five Biggest Stock Market Myths
    Investing Basics

    The Five Biggest Stock Market Myths

  3. Warren Buffett: How He Does It
    Active Trading

    Warren Buffett: How He Does It

  4. Using The Price-To-Book Ratio To Evaluate ...
    Forex Education

    Using The Price-To-Book Ratio To Evaluate ...

comments powered by Disqus
Hot Definitions
  1. Harvest Strategy

    A strategy in which investment in a particular line of business is reduced or eliminated because the revenue brought in by ...
  2. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  3. Pareto Principle

    A principle, named after economist Vilfredo Pareto, that specifies an unequal relationship between inputs and outputs. The ...
  4. Pareto Principle

    A principle, named after economist Vilfredo Pareto, that specifies an unequal relationship between inputs and outputs. The ...
  5. Budget Deficit

    A status of financial health in which expenditures exceed revenue. The term "budget deficit" is most commonly used to refer ...
  6. Floating Exchange Rate

    A country's exchange rate regime where its currency is set by the foreign-exchange market through supply and demand for that ...
Trading Center