Published: 17 November 2021

Investors often distinguish between high growth companies ("growth stocks") and defensive companies ("value shares"). The purpose of this distinction is to take into account the expected future growth in the frame of the valuation of the share price. Indeed, this is the only realistic way to compare a growing company with a company whose business is at a more mature stage.

Depending on the market conditions, and depending on their risk appetite, investors will rather seek to take additional risk for the potential for future gains with growth stocks, or on the contrary, look to take refuge in more defensive stocks that have a lower potential of declines in case of market shocks.

Currently, as illustrated in the chart above, investors are much more risk-taking, and this can be seen with a measure of how expensive growth stocks are compared to defensive stocks.

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Published: 12 October 2021

Intuitively, changes in company shares should follow changes in company profits. The more a company grows its profits, the greater the creation of shareholder value should be.

However, interest rates and injections of liquidity by central banks have distorted this relationship between earnings and stock price development.

Here are some examples of well-known values.

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