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Analyzing Valuation Measures: A Performance Horse-Race Over the Past 40 YearsWesley R. GrayDrexel University - LeBow College of Business; Empiritrage, LLC Jack VogelDrexel University March 29, 2012 Journalof Portfolio Management, Forthcoming Abstract: We compare the investment performance of portfolios sorted on different valuation measures. EBITDA/TEV has historically been the best performing metric and outperforms many investor favorites such as price-to-earnings, free-cash-flow to total enterprise value, and book-to-market. We also explore the investment potential of long-term valuation ratios, which replace one-year earnings with an average of long-term earnings. In contrast to prior empirical work, we find that long-term ratios add little investment value over standard one-year valuation metrics.
Keywords: enterprise multiple, price to earnings, price to book, free cash flow, gross profits, valuation metrics JEL Classification: G10, G14 Accepted Paper SeriesDate posted: December 13, 2011 ; Last revised: October 1, 2012Suggested CitationContact Information
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