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What is cheap in the stock market? Is it a loss-making company struggling for a turnaround for eternity but with a stock trading at $5 per share? Or is it a profitable company with significant growth potential and a robust business but trading at $20? Many beginners confuse price with value and buy 100 shares of $5 instead of five shares of $20. Remember, cheap stocks are not about buying a commodity like rice or milk where you go for quantity over quality for the same amount.
How to determine a cheap stock
The stock market meaning of cheap is buying a quality stock with good growth potential at a discount to its normal trading price. The identification of quality is visible from its ability to grow. Some companies are high-margin businesses where earnings growth can tell you the quality of stock. For instance, Nvidia is a high-quality stock with immense potential to grow earnings by selling the most…
