I want to check herd behavior in value stocks and growth stocks companies. I have bse 500 companies and book to market ratio data of these companies.
You can use the following financial metrics to differentiate growth stocks from value stocks: Price, Price-Earnings Ratio(P/E Ratio), Dividend Yield, Risk as measured by Volatility. Value stocks are currently undervalued (low price), have a low P/E ratio, offer a high dividend yield, and may not appreciate much (low risk and low volatility). Value stocks are usually stocks of larger, more well-established companies that are trading below the price that analysts feel the stock is worth. Value stocks will typically trade at a discount to either the price earnings, book value, or cash flow ratios. Growth stocks are currently overvalued (high price), have above average P/E ratio, offer a low or zero dividend yield, and carry a relatively high volatility (high risk). Growth stocks are the stocks of companies that are likely to show considerable expansion over the next few years because of a product or line of products that are expected to sell well or because they appear to be run better than many of their competitors. Growth stocks have the potential to perform better when interest rates are falling and earnings are rising. But they may suffer a set back when the economy is cooling. Value stocks, often stocks of cyclical industries, may do well early in an economic recovery but are typically more likely to lag in a substantial bull market.
Thanks for the detailed answer@ako doffou but suppose I have to make quantile portfolio based on P/E ratio and divide the companies into five equal parts,then what is the exact value will I take to for one company to divide them accordingly. I have data from 2009-2021. So shall I take any value from that period and divide the companies into quantile and then weight them monthly/yearly
P/E can be below one, equal to one or above one. Each case gives you a hint about the valuation of the company. Alternatively, you can compare the P/E of a given firm to the industry average P/E ratio to get a hint about the valuation of the firm. If you want to discriminate firms into five groups based on P/E ratio, then you have to define your own metric. For example, group1 can represent firms with P/E ratio below one. Group2 can represent firms with P/E ratio equal to one. Group3 can represent firms with P/E ratio greater than one but less than five. Group4 can represent firms with P/E ratio between five and ten. Finally, Group5 can represent firms with P/E ratio greater than ten.
Thanks for the wonderful suggestion sir @ Ako Doffou. It really help me a lot
You can try our ratings that we publish on obermatt.com. Happy to provide the data you need.
Growth stocks are those companies that are considered to have the potential to outperform the overall market over time because of their future potential. Value stocks are classified as companies that are currently trading below what they are really worth and will thus provide a superior return.
Firm size, market cap to earnings, dividend payout ratio, retained earnings, industry trends, ROA, PER,
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