In this article, we will explore the main stock market investment strategies, including two popular philosophies: Growth and Value. In addition, we will review key tools such as balance sheet analysis, discounted cash flows and multiples, ending with a practical case that illustrates how to apply these concepts.
Stock Investment Strategies: Growth vs. Value
One of the fundamental decisions when investing is choosing a stock market investment strategy that aligns with your goals and risk profile. Below we describe Growth and Value investment philosophies, two widely used approaches.
Growth Strategy: Investment in Growth
La Growth strategy focuses on identifying companies with high revenue and earnings growth potential. These companies typically have higher valuations and reinvest their profits into expansion, rather than paying out dividends.
For example, Amazon is a clear example of Growth investing. For years, it prioritized growth through the reinvestment of its profits, achieving an exponential increase in its market value. This strategy has Peter Lynch as its main reference.
Value Strategy: Value Investment
La Value strategy, also known as Value Investing, is based on finding companies that are undervalued by the market. Value investors look for stocks that are trading below their intrinsic value, with the expectation that the market will eventually adjust their price.
Benjamin Graham, author of The intelligent investor, and Warren Buffett, his most distinguished disciple, are the main exponents of this philosophy. Buffett, in particular, has demonstrated how this strategy can generate exceptional returns over the long term.
How to Evaluate Stock Market Investment Strategies
To implement the stock market investment strategies, it is necessary to have tools that allow companies to be evaluated effectively. Below we present three fundamental methods:
Balance Sheet Analysis
Balance sheet analysis involves assessing a company's financial condition through its balance sheet. Examining assets, liabilities, and shareholders' equity helps determine a company's financial stability.
For example, INDITEX stands out for its solid financial position, with a positive net cash flow that allows it to continue growing sustainably.
Discounted Cash Flow (DCF)
The discounted cash flow (DCF) method allows the intrinsic value of a company to be calculated by projecting its future cash flows and discounting them to present value. It is a key tool for evaluating long-term investments.
Suppose a company is projected to generate $1 million in annual cash flows over the next 10 years. Using an appropriate discount rate, its intrinsic value can be calculated and compared to its current share price.
Analysis by Multiples
Multiples analysis compares financial ratios such as price/earnings (PER), price/book value (P/B) and price/sales (P/S) with similar companies in the industry. This method helps to identify whether a company is overvalued or undervalued.
For example, if a company has a P/E of 10 and its competitors are at 15, this may indicate an investment opportunity.
Case Study: Application of Stock Market Investment Strategies with CLERHP
To understand how to apply the stock market investment strategies, we will analyze the case of CLERHP, a company with attractive characteristics for both Growth and Value strategies.
Larimar City is one of CLERHP's projects, building an innovative city in an idyllic location. If you want to know why invest, take a look at all the key points of the city.
Financial Strength
CLERHP stands out for its NFD/EBITDA multiple of 1,07, which indicates low debt relative to its operating earnings. This makes it a solid option for investors seeking financial stability.
Hidden Assets
The company owns land valued at €200 million, although its current value is just €65 million. This hidden asset offers huge potential for appreciation as the market adjusts its valuation.
Growth Potential
The projected forward P/E for 2026 is less than 1, reflecting a significant growth potential not yet recognized by the market. This makes CLERHP an interesting investment for both Growth and Value investors.
Stock Market Investment Strategies for Success
Choose and apply the stock market investment strategies is essential to succeed in the financial world. Whether you prefer Growth or Value investing, tools such as balance sheet analysis, discounted cash flows and multiples can help you make more informed decisions.
The CLERHP case demonstrates how these strategies can be combined to identify profitable investment opportunities. Always remember to follow a clear philosophy and stay focused on your goals to maximize your results.
By Alvaro Mecca Rubio,
Deputy Director
CLERHP ESTRUCTURAS SA