Strategies based on the “value” factor focus on companies whose stock price seems low when judged by important company fundamentals – for example price-to-book ratio, price-to-earnings ratio, price-to-sales ratio or similar metrics. Numerous studies have shown that value stocks tend to outperform their peers, a reflection of the fact that investors take on additional risk through investing in cheap stocks.* Value stocks are particularly sought-after in periods when market valuations are distorted.
*Finding Value: Understanding Factor Investing, MSCI. July 2015.