Strictly speaking, value stocks are equities that exhibit low price/book and price/earnings ratios. Compared with their growth counterparts, value stocks have sluggish cash flow and sales growth, and, importantly, their projected earnings growth is also low. The prospect of much slower growth is why investors aren't willing to pony up a lot of money to own shares of such a business.
Does that mean value stocks are destined to underperform? Not necessarily. In the early 1990s, Fama and French identified the "value premium" as part of their three-factor capital asset pricing model. Essentially, they argued that value stocks outperform growth stocks over time, on a risk-adjusted basis.
Karen Wallace does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.