How long would you be part of the stock market? Has it been long, or have you just walked in? The longer tenure that you stay in the stock market – the easier it becomes for you to understand patterns and trends and understand the movements of the stock market. But, though you do understand all of these factors, there will come a time when you will be given a brand new situation that you have never dealt with before. What happens then? That is why you can never stop learning in the stock market.
Here, we are going to talk about High priced stocks and low-priced stocks. Along with that – we can also talk about what would be the best choice that gives you the greatest of returns, shall we?
Before we get to that – let’s first set the foundation with the basics of it.
What are High-Priced and Low-Priced Stocks?
When investing in the stock market, it is critical to consider not only the price but also the worth of the stocks. In general, many investors prefer lower-priced stocks in the stock market. Remember that lower-priced equities are riskier than higher-priced stocks. There are no precise definitions of low-priced stocks.
However, according to numerous financial professionals, equities priced below Rs 20 are considered low-priced stocks. Stocks valued above Rs 500, on the other hand, are deemed high-priced. Potential investors are drawn to the lower-priced stocks since they have the possibility to purchase more stocks in a restricted amount.
How are the Two Different from Eachother, and Which is the Better Choice?
When it comes to risk, low-priced stocks are riskier than high-priced equities. The major reason that low-priced equities are dangerous is that they are traded seldom. They have been involved in the stock market for a long time but maybe underperforming. As a result, they are inexpensive to investors. As a result, their risk factor rises. High-priced equities, on the other hand, are less hazardous due to their repute and market capitalization. As a result, they are seen as risk-free investments.
The average price of a stock fluctuates due to volatility. Because low-priced stocks are less expensive, they are considered very volatile. They have a higher tendency to decline swiftly in price since they rise and fall in a short period of time and frequency. As a result, investors seeking security and stability do not like low-priced equities. However, high-priced stocks behave differently than low-priced equities. They are deemed less volatile due to their market value. As a result, investors buy high-priced stocks since they are known for their ability to generate long-term gains.
Low-cost equities are normally accessible to all new investors who have recently entered the stock market. Because they are easier to buy and handle, low-priced stocks are preferred by rookie investors over high-priced stocks. In the case of blue-chip stocks, however, there are significant restrictions on new investor entry. Many novice investors are unable to raise their investment in high-priced companies due to portfolio constraints or other key factors.
How to Tell When a Stock is Over or Undervalued?
It’s tempting to buy as many low-priced stocks as you can in the belief that their value may rise one day. However, the cheapest stock may not offer the best true value.
At first glance, a Rs. 5 stock may appear to be a steal. However, if you are dealing with an unstable startup, you may not realize the optimum return on your investment. A more expensive stock that trades at Rs. 150, on the other hand, may be more difficult to decide whether to buy in. However, if it comes with dividends and a track record of consistent growth, it may be a safer bet.
The value of a stock is determined by factors other than the company’s age. Aside from the share price, there are three data points that can accurately indicate a stock’s value. Earnings per share (EPS), price-to-earnings (P/E), and price/earnings-to-growth (PEG) ratios are examples.
Many inexperienced investors believe that the price of a stock, whether “cheap” or “expensive,” is the same as its value. However, seeing these as the same thing can lead to poor investing decisions.
High-Price or Low-Price, Which has the Better Return?
Return is the most important factor for investors. A stock’s retail price is not necessarily the greatest signal. While lower-priced equities may quadruple in value, this is uncommon. On the contrary, higher-priced stocks worth more than Rs 500 have exhibited significantly better and larger returns. This is seen throughout both short and lengthy time periods. For higher-priced stocks, investors must make a significantly larger initial investment.
Although high-priced equities are prone to price declines, they typically provide very large profits. If the price falls due to rights or bonus issues, they recover and provide decent profits. It would let you multiply your money several times over.
Low-cost stocks have the advantage of being less expensive than high-cost equities, but they are more volatile. Low-priced stocks that trade for less than Rs. 5 per share are usually referred to as “penny stocks,” and they are issued by companies whose share prices can fluctuate at breakneck speed. Blue chips are high-priced equities issued by prominent firms such as IBM.
While low-priced stocks have a reputation for being high-risk, while high-priced companies are regarded as safe, low-priced stocks can be quite profitable at times.
The stock market will set several bars for you to cross, but in the end, it will all end up at what your financial goals on these investments are. When you make moves in the stock market based on the final financial goals that you have, it makes things easier to understand and estimate for yourself. The same stands in the place of choosing the stocks that can give you the best returns over time.