Abstract
The main objective of this paper is to compare the performance of value stocks and growth stocks in the U.S. market using the enterprise value (EV) of each firm. Four portfolios are formed, and the consistency of the performance of each portfolio is examined under different market conditions. Changes in performance are also be tested using returns on equity (ROE) as a proxy of future earnings. Finally, the impact of firm size on performance is investigated. Using the stocks of 4,952 firms for the period 15 years from January 2, 1999 to December 31, 2014, it has been shown that the value stocks outperform the growth stocks. These results are not changed with different holding periods. The requirement of ROE above 5 percent has the impact on the performance of growth stocks. In terms of firm size, it appears small firms are more profitable than large firms.
JEL classification numbers: G11, G14
Keywords: Value Investing Strategy, Value Stock, Growth Stock, Enterprise Value
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