High-Priced VS Low-Priced Stocks: Which Delivers Better Returns?
High-Priced VS Low-Priced Stocks: Which Delivers Better Returns?
While investing in the stock market, it's essential to keep an eye not just on
price but also on the value of the stocks. Generally, several investors go for
stocks that are priced lower in the stock market.
Remember, stocks that are cheaper tend to have more risk than high-priced
stocks. However, there are no exact definitions of low-priced stocks.
But several financial analysts state that stocks priced below Rs 20 are
considered low-priced stocks. On the other hand, stocks priced above Rs 500 are
considered high-priced stocks.
The relatively lower stocks attract potential investors because they have the
opportunity to buy more stocks in a limited amount.
This article will clearly give you the difference between low and high-priced
stocks and which stocks deliver higher returns to investors. So let's look at
them in detail.
- Risk
- Regulations
- Volatility
- Affordability
When it comes to risk, low-priced stocks possess high risk
compared to high-priced stocks. The primary reason for
low-priced stocks being highly risky is they are traded
infrequently.
They have been actively present in the stock market for a long
time but may be performing poorly. Hence they are available to
investors at a low price.
Due to this, it increases their risk factor. On the other hand,
high-priced stocks are less risky due to their reputation and
market capitalization. Hence they are considered safe for
investment.
SEBI (Security and Exchange Board of India) monitors the
activity of all stocks in the stock market. The high-priced
stocks face greater inspection because they are the center of
attraction in the market, whereas low-priced stocks do not
capture much attention from the investors. Most of the time,
they are not even registered on significant stock exchanges and
do not contain any file with SEBI.
Fewer rules and compliances create a lack of credible
information to make an investment decision. However, high-priced
stocks have their privileges and advantages, yet lower-priced
stocks grab several investors' attention, but how?
Often, investors think that with a larger amount of money, they
can buy more quantity of stocks with low-priced stocks, which
means they prefer quantity over quality.
Several investors believe that the lower value of a stock has a
better chance of doubling up and delivering higher returns.
Also, going by the trend, they have the capability to generate
huge returns despite having a lower price.
Some investors focus on the Price to Equity (P/E) ratio while
making the investment decision. The low-priced stocks come with
a lower P/E ratio which means the investor has to pay less money
to buy stocks of a particular company.
Due to this reason, low-priced stocks capture the attention of
investors, and high-priced stocks fail to do so.
Volatility means fluctuating the average price of the stock. The
low-priced stocks are cheaper, and hence they are considered
highly volatile. Naturally, they have higher to fall rapidly in
price because they rise and fall in a short span and
frequently.
Hence, investors looking for security and stable stocks don’t
prefer low-priced stocks. But, on the other hand, high-priced
stocks act differently than low-priced stocks.
Due to their market value, they are considered less volatile.
Hence investors invest in high-priced stocks because they are
known for their long-term capabilities of generating returns.
The low-priced stocks are generally affordable to all newbies
investors who just entered the stock market world.
The newbie investors prefer low-priced stocks to high-priced
ones because they are easy to buy and manage. On the other hand,
in the case of blue-chip stocks, there are certain restrictions
on the entry of new investors.
Many new investors do not have the opportunity to increase their
investment in high-priced stocks because of their portfolio or
any other major reason.
When it comes to returns, it is an essential thing that matters the most to every investor. The retail price of a stock is not always the best indicator.
In the case of low-priced stocks, their price may get doubled up and deliver returns to investors, but there are rare chances of going up.
On the other hand, high-priced stocks are valued at a price higher than Rs 500. Therefore, these stocks have the capability to give higher returns, and hence they are trusted by most investors.
High-priced stocks have proved and delivered high returns in both short and long-term periods. For higher-priced stocks, investors need to make a significant investment in the beginning.
Although high-priced stocks have chances of going down, they give very high returns most of the time.
In case the price goes down due to rights or bonus issues, they recover and give decent profits. So it would help you grow the investor’s money many times.
- Why do newbie investors prefer low-priced stocks over high-priced stocks?
- Why do low-priced stocks capture more attention than high-priced stocks?
- What is meant by volatility?
The newbie investors prefer low-priced stocks to high-priced ones because they are easy to buy and manage. On the other hand, in the case of blue-chip stocks, there are certain restrictions on the entry of new investors.
Several investors believe that the lower value of a stock has a better chance of doubling up and delivering higher returns.
The low-priced stocks come with a lower P/E ratio which means the investor has to pay less money to buy stocks of a particular company.
Due to this reason, low-priced stocks capture the attention of investors, and high-priced stocks fail to do so.
Volatility means fluctuating the average price of the stock. The low-priced stocks are cheaper, and hence they are considered highly volatile. Naturally, they have higher to fall rapidly in price because they rise and fall in a short span and frequently.
Final Thoughts
The stock market is highly volatile. Investors need to be prepared and cautious while investing their hard-earned money in the stock market.
It’s best to do thorough research carefully or consult with a financial advisor before making any investment in the market.
Or even better, you can also reach out to NirmalBang for any kind of help, advice, or suggestion related to the stock market or investment.