title: "Growth vs Value Stocks: Which Strategy Actually Wins?" slug: growth-vs-value-stocks-which-is-better date: 2026-02-16 category: Investment Strategy excerpt: "Growth vs value stocks: which investment strategy actually wins over the long term? We analyze decades of market data, compare returns, and reveal why the best approach combines both strategies with a focus on economic moats." keywords: ["growth vs value stocks", "growth investing vs value investing", "best investment strategy", "value stocks vs growth stocks", "stock market strategy", "growth and value investing"] author: Moatifi
Growth vs Value Stocks: Which Strategy Actually Wins?
The debate between growth and value investing is one of the oldest arguments on Wall Street. Growth investors swear by companies with rapidly expanding revenues and the potential to dominate massive markets. Value investors counter that buying cheap, overlooked businesses consistently delivers superior risk-adjusted returns over time.
Both camps have legendary champions. Warren Buffett and Benjamin Graham made fortunes buying undervalued businesses. Peter Lynch and Philip Fisher built their reputations finding growth companies before the market caught on. So which approach actually wins?
The answer, backed by decades of data, is more nuanced than either side admits. And for individual investors in 2026, the most profitable approach may be one that transcends this artificial divide entirely.
Defining Growth and Value Stocks
Before comparing strategies, let us establish clear definitions.
Growth stocks are companies expected to grow revenues and earnings significantly faster than the overall market. They typically trade at high price-to-earnings (P/E) ratios and price-to-book (P/B) ratios because investors are willing to pay a premium for future growth. Many growth companies reinvest all profits back into the business rather than paying dividends.
Common characteristics: - Revenue growth above 15% annually - High P/E and P/B ratios - Low or no dividend yield - Strong earnings momentum - Often found in technology, healthcare, and consumer discretionary sectors
Value stocks are companies trading below their estimated intrinsic value based on fundamental metrics. They typically have low P/E ratios, high dividend yields, and stable (though slower) earnings growth. The market has often overlooked or temporarily punished these businesses.
Common characteristics: - P/E ratios below market average - Higher dividend yields - Stable but slower earnings growth - Often found in financials, utilities, industrials, and consumer staples - Price-to-book ratios below 1.5
The Historical Scoreboard
Academic research spanning nearly a century provides a rich dataset for this comparison.
The Value Premium (1926 to 2006)
The seminal research by Fama and French demonstrated that value stocks outperformed growth stocks by approximately 4.5% annually from 1926 through the early 2000s. This "value premium" became one of the most well-documented anomalies in finance.
During this 80-year period, value stocks delivered: - Higher average annual returns - Better risk-adjusted returns (Sharpe ratio) - Outperformance in most rolling 10-year periods - Stronger recovery after market downturns
The Growth Dominance Era (2007 to 2024)
Then something changed. From roughly 2007 through 2024, growth stocks dramatically outperformed value. The Russell 1000 Growth Index crushed the Russell 1000 Value Index by wide margins, driven by the meteoric rise of technology giants.
Several factors explained this shift: - Low interest rates: Near-zero rates made future cash flows more valuable, benefiting growth stocks whose value depends on distant earnings. - Platform economics: Companies like Apple, Google, Amazon, and Meta built winner-take-all platforms with network effects that justified premium valuations. - Intangible assets: Traditional value metrics (P/B ratio) became less useful as the economy shifted from physical assets to intellectual property, brands, and software. - AI and cloud computing: Technology companies captured disproportionate economic value, and most of these companies were classified as growth stocks.
The Pendulum Swings (2022 and Beyond)
The growth dominance narrative cracked in 2022 when rising interest rates punished high-multiple stocks. Many growth darlings fell 50-80% from their peaks, while value stocks held up far better. This correction reminded investors that valuations matter, even for excellent businesses.
Since then, the picture has been mixed. Some growth stocks (particularly those with genuine AI advantages) have recovered and reached new highs, while others have languished. Value stocks have delivered steadier, less volatile returns.
Why the Growth vs Value Debate Misses the Point
Here is what most investors get wrong about this debate: the categories themselves are flawed.
The Classification Problem
Index providers classify stocks as "growth" or "value" based on simple metrics like P/E ratio, P/B ratio, and earnings growth. But these classifications often produce absurd results:
- A high-quality company temporarily trading at a low multiple (due to a short-term problem) gets classified as "value" even though its business is growing rapidly.
- A mediocre company with one good earnings quarter gets classified as "growth" even though its competitive position is deteriorating.
- Some of the greatest investments in history were growth companies bought at value prices.
Warren Buffett himself has said: "Growth and value investing are joined at the hip. Growth is a component of value." When he bought Apple in 2016, it was classified as a value stock. It turned out to be the greatest growth investment of his career.
Quality Matters More Than Style
Research by Robert Novy-Marx and others has shown that the factor most correlated with long-term outperformance is not cheapness or growth. It is quality, measured by profitability, earnings stability, and balance sheet strength.
Companies with high returns on invested capital (ROIC), consistent earnings, and manageable debt tend to outperform regardless of whether they are classified as growth or value. This makes intuitive sense: a high-quality business generates strong returns for shareholders over time, and the stock price eventually follows.
This insight aligns directly with the concept of economic moats. Companies with durable competitive advantages tend to be the highest-quality businesses in the market. They sustain high ROIC, grow consistently, and weather downturns better than their competitors.
A Better Framework: Moat-Based Investing
Instead of asking "growth or value?" consider asking "does this company have a durable competitive advantage, and is the stock price reasonable?"
This framework combines the best elements of both strategies:
From Value Investing, Take:
- Margin of safety: Never pay more than a business is worth. Even the best company is a bad investment at the wrong price.
- Fundamental analysis: Dig into financial statements, understand the business model, and calculate intrinsic value.
- Patience: Be willing to hold for years while the market recognizes the value you have identified.
From Growth Investing, Take:
- Focus on competitive advantage: Invest in companies that are winning, not just companies that are cheap.
- Revenue growth matters: Growing businesses compound wealth faster than stagnant ones, even at higher starting valuations.
- Think forward: The best investments are companies whose future earnings will far exceed current levels.
The Moat Filter
A moat-based approach filters for companies that have:
- Sustainable competitive advantages (switching costs, network effects, cost advantages, intangible assets, or efficient scale)
- Strong financial metrics (high ROIC, healthy margins, manageable debt)
- Reasonable valuations relative to their quality and growth prospects
This is exactly the type of analysis that Moatifi is designed to facilitate. By scoring companies on moat strength and financial quality, you can identify businesses that transcend the growth-value divide.
Practical Strategy: How to Combine Growth and Value
Here is a practical approach for building a portfolio that captures the best of both worlds:
Step 1: Screen for Quality First
Start by filtering for companies with high ROIC (above 15%), consistent earnings growth, and strong balance sheets. This eliminates the low-quality stocks that drag down both growth and value indices.
Step 2: Assess the Moat
For each company that passes the quality screen, evaluate its competitive advantages. Does it have pricing power? Are switching costs high? Do network effects strengthen its position over time? Companies with wide moats deserve higher valuations because their advantages compound.
Step 3: Evaluate Valuation Relative to Quality
A high-quality company with a wide moat trading at 25x earnings may be a better investment than a low-quality company with no moat trading at 10x earnings. Context matters. Compare valuation to the company's sustainable growth rate and moat durability.
Step 4: Diversify Across the Spectrum
Include a mix of: - Compounders: Wide-moat companies growing earnings at 10-20% annually (e.g., Visa, Microsoft). These are the growth-value hybrids that defy simple classification. - Stalwarts: Steady, dividend-paying businesses with strong moats (e.g., Procter & Gamble, Johnson & Johnson). These provide stability and income. - Turnarounds: High-quality companies temporarily out of favor, trading at depressed valuations. These offer the classic value opportunity.
You can explore companies across all these categories on Moatifi's stock screener, which scores businesses on both moat quality and valuation attractiveness.
What the Data Actually Shows
When you control for quality, the growth-versus-value distinction largely disappears. Here is what the evidence tells us:
- Cheap, high-quality stocks deliver the best long-term returns
- Cheap, low-quality stocks (classic "value traps") underperform
- Expensive, high-quality stocks still deliver good returns over long periods, though with higher volatility
- Expensive, low-quality stocks (classic "growth traps") deliver the worst returns
The lesson is clear: quality is the primary driver of returns. Valuation determines your entry point and margin of safety. Growth determines the speed of compounding. All three matter, but quality comes first.
Common Mistakes in the Growth vs Value Debate
Anchoring to Style Boxes: Do not limit yourself to one category. The best investors are flexible, buying growth when it is cheap and value when it is growing.
Ignoring Moats: A cheap stock without a competitive advantage is not a bargain. It is cheap for a reason, and that reason usually persists.
Chasing Recent Performance: Investors tend to pile into whichever style has outperformed recently. This is a recipe for buying high and selling low. Mean reversion is real.
Confusing Price with Value: Growth investors sometimes pay any price for a good story. Value investors sometimes buy anything that looks cheap. Both approaches fail without disciplined analysis of what a business is actually worth.
The Verdict
Growth vs value is the wrong question. The right question is: "Am I buying a high-quality business with durable competitive advantages at a reasonable price?"
When you frame investing this way, the growth-value debate becomes irrelevant. You are simply looking for great businesses at fair prices, which is what every successful investor throughout history has done, regardless of what label they gave their strategy.
Use tools like Moatifi to screen for moat quality, financial strength, and valuation. Let the data guide you to the best opportunities, whether the market calls them growth, value, or something else entirely. The label does not matter. The returns do.