In plain language — Value groups relatively inexpensive stocks under stated fundamentals; growth groups stocks carrying higher growth expectations. Neither label promises a return.
Value and growth are two ways of grouping stocks or portfolios. In a value style, price is relatively low compared with one or more company fundamentals, such as book equity, earnings, or cash flow. In a growth style, price incorporates relatively high growth expectations and valuation multiples are often higher. These are classification labels: value does not automatically mean undervalued, and growth does not automatically mean better future growth.
How a style is assigned
To use the label well, read the methodology of the index, fund, or study. The Kenneth French Data Library, for example, forms value and growth portfolios with ratios that compare fundamentals with price. In the classic book-to-market sort, a high ratio identifies the value side and a low ratio the growth side. For international portfolios, the same library also publishes sorts based on earnings-to-price, cash-earnings-to-price, and dividend yield.
Two providers can therefore classify the same company differently. Price can also change faster than accounting data: even without an immediate change in the business, a strong rise or fall alters valuation ratios and may move the stock along the spectrum. Classification does not replace an estimate of fair value, debt analysis, or a review of earnings and cash-flow quality.
Advanced: the value factor and its limits
In the Fama-French model, HML is the return on a portfolio of high book-to-market stocks minus the return on low book-to-market stocks. It is a relative factor return observed in a sample, not a promise that every value stock or every value period will outperform growth. The spread can be negative, and results depend on the market, interval, costs, and construction rules.
Economic interpretation also requires care. A low multiple may reflect undervaluation or genuine distress; a high multiple may reflect valuable growth opportunities or expectations that are too demanding. Simple narratives about interest rates or sector rotations do not turn a style into a reliable timing signal. Value and growth describe exposures and selection rules, not absolute quality or future returns.
Sources
Kenneth R. French, Data Library — data and methods for value and growth portfolios formed with several fundamental-to-price ratios.
Kenneth R. French, Portfolios Formed on Book-to-Market — breakpoints and operational construction of book-to-market portfolios.
Eugene F. Fama and Kenneth R. French, The Cross-Section of Expected Stock Returns — primary academic study of book-to-market and average returns in the sample examined.
CFA Institute Research Foundation, Stocks, Bonds, Bills, and Inflation — Growth and Value Investing — uses of investment styles and variation among operational definitions.