Quick answer
Growth stocks are shares in companies whose earnings or sales are expanding quickly; value stocks trade at low prices relative to measures such as earnings, book value or sales. Index providers like S&P and FTSE Russell sort stocks into these styles with published formulas [1] [2].
Key points
- Growth stocks tend to show fast-rising earnings or sales; value stocks tend to look cheap relative to earnings, book value or sales.
- S&P scores growth with three growth factors and value with three price ratios.
- FTSE Russell uses book-to-price for value and two growth measures for growth.
- Both providers can place part of one stock in the growth index and part in the value index.
- Style labels describe characteristics, not quality, safety or future returns.
#What is a growth stock?
FINRA describes growth stocks as shares issued by companies that are expanding, sometimes quite quickly and sometimes over a longer period [1]. They often come from newer, fast-expanding industries, but established companies positioned for future growth can qualify too. Because most growth companies reinvest their earnings in the business, FINRA notes that any return usually comes from price appreciation rather than dividends [1].
#What is a value stock?
FINRA describes value stocks as investments selling at what seem to be low prices given their history and market share [1]. People who buy them believe the market has underpriced them. That belief can be wrong: a low price may reflect real problems in the business. In its guide to value investing, FINRA warns that not every stock with a low P/E or price-to-book ratio represents true value, because a stock may have sold off due to a deterioration in its fundamentals that is not yet commonly understood [3].
Typical characteristics
Growth
- Earnings or sales rising quickly
- Higher price relative to earnings (higher P/E)
- Profits mostly reinvested
- Return, if any, mainly from price changes
Value
- Low price relative to earnings, book value or sales
- Often mature or out-of-favour companies
- More likely to pay dividends
- Risk that a low price reflects real problems
#How does S&P decide which stocks are growth or value?
S&P Dow Jones Indices publishes its rules in the S&P U.S. Style Indices methodology. Each stock gets a growth score from three factors and a value score from three factors [2]:
| Growth factors | Value factors |
|---|---|
| Three-year net change in earnings per share (excluding extra items) over current price | Book value to price ratio |
| Three-year sales per share growth rate | Earnings to price ratio |
| Momentum (12-month % price change) | Sales to price ratio |
Stocks are then ranked. The companies at the top of the growth ranking that make up 33% of the total index market capitalization form the growth basket, and 33% likewise form the value basket [2]. The 34% in the middle, which show mixed characteristics, have their market value split between the growth and value indexes based on how close they are to each basket [2]. The style indexes rebalance annually, effective after the close on the third Friday of December [2].
How S&P splits index market value by style
#How does FTSE Russell define growth and value?
FTSE Russell, which says it created the first style indexes in 1987, uses three variables [4]. Value is measured by the book-to-price ratio. Growth is measured by I/B/E/S forecast medium-term growth (two year) and sales per share historical growth (five year) [5]. The rankings are standardised and combined, with the value variable making up 50% of the score and the two growth variables the other 50%, to produce a composite value score [5].
Like S&P, Russell does not force every stock into one box. Stocks are always fully represented by the combination of their growth and value weights: a stock with a 20% weight in a Russell value index has an 80% weight in the corresponding growth index [5]. Stocks near the middle are shared; those at the extremes belong to one side only. These style indexes are built from parent indexes such as the Russell 2000 and, at S&P, the S&P 500.
#How do these ratios look for real numbers?
The value factors are just familiar ratios turned upside down. Earnings to price is the inverse of the P/E ratio; book value to price is the inverse of price-to-book. A higher number means more earnings, book value or sales per dollar of share price.
Worked example
Two hypothetical companies through a style lens
Company G trades at $150 with EPS of $3, book value of $15 per share and sales of $20 per share (up from $13 three years ago). Company V trades at $40 with EPS of $4, book value of $35 per share and sales of $80 per share (up from $75).
- Earnings to price — G ($3 ÷ $150) / V ($4 ÷ $40)
- 2.0% / 10.0%
- Book value to price — G ($15 ÷ $150) / V ($35 ÷ $40)
- 0.10 / 0.875
- Sales to price — G ($20 ÷ $150) / V ($80 ÷ $40)
- 0.133 / 2.0
- P/E — G / V
- 50.0 / 10.0
- 3-year sales per share growth, yearly — G / V
- 15.44% / 2.17%
Company G scores high on growth and low on value; Company V the reverse. A provider's formula would likely lean G towards growth and V towards value — but neither label says which will perform better.
Hypothetical figures calculated in Python. Real style scores are standardised across hundreds of stocks, so a single company's ratios cannot be scored in isolation.
#Does growth or value perform better?
Neither consistently. FINRA notes that a common approach is to focus on growth or value, or to mix the two, because their returns tend to follow a cycle of strength and weakness [1]. No one can reliably say which style will lead next. Owning both, as a broad market index fund does, is one way to avoid betting on a style; see diversification.
Common beginner mistakes
Treating "value" as "safe" or "undervalued"
Value is a statistical label based on low price ratios. A stock can screen as value because its business is declining.
Assuming every provider agrees
S&P and FTSE Russell use different factors and periods, so the same stock can carry different style weights in different index families.
Expecting growth stocks to keep growing
Growth scores look at past changes and forecasts. Forecasts can be wrong and fast growth often slows.
Picking a style based on recent returns
Style returns move in cycles. Choosing the style that did best last year is a bet on a pattern continuing, which it may not.
What's the bottom line?
Growth and value are not opinions in index terms: S&P and FTSE Russell publish the exact measures, from earnings growth and momentum to book-to-price and sales-to-price, and both let a stock sit partly in each camp. The labels describe characteristics at a point in time, not quality or future returns. To understand the ratios behind the labels, read the P/E ratio and how to read financial statements, or see how broad index funds hold both styles at once.
Frequently asked questions
Can a stock be both growth and value?
Yes, in index terms. S&P splits the market value of stocks with mixed characteristics between its growth and value indexes, and Russell gives each stock growth and value weights that add up to 100%.
Are growth stocks riskier than value stocks?
Not by definition. Both can lose money. Growth stocks often carry high expectations that can disappoint, while value stocks can be cheap because the business is struggling.
Do value stocks pay more dividends?
Sometimes. FINRA notes that most growth companies reinvest their earnings rather than pay them out [1], so dividends are more common among mature companies. It is a tendency, not a rule, and dividends are never promised.
What is a style index fund?
It is a fund that tracks a growth or value index, such as one built from the S&P 500 or the Russell 1000. Its holdings follow the provider's published formula rather than a manager's opinion.
Sources
Grade A = primary source (regulator, government agency, official rulebook or the index provider's own documents). Numbers in brackets in the text point here.
- FINRA. Stocks (2026). Accessed 2026-10-03.A
- S&P Dow Jones Indices. S&P U.S. Style Indices Methodology (2026). Accessed 2026-10-03.A
- FINRA. Value Investing (2026). Accessed 2026-10-03.A
- FTSE Russell (LSEG). Russell US Style Indexes (2026). Accessed 2026-10-03.A
- FTSE Russell (LSEG). Russell US Equity Indexes Ground Rules (construction and methodology) (2026). Accessed 2026-10-03.A
This page is general education, not personal financial, tax or legal advice. Figures in worked examples are hypothetical and calculated before taxes and fees unless stated. Rules and limits change; check the linked primary sources for the current version. How we check every page.
