Fasten Your Value Belt: Growth Could Take You for a Wild Ride!

21 Pages Posted: 4 Sep 2020

See all articles by Roy Henriksson

Roy Henriksson

Quantitative Management Associates (QMA) LLC

Georgios Sakoulis

Quantitative Management Associates (QMA) LLC

Kenneth Hsu

Quantitative Management Associates (QMA) LLC

Timothy J. Wheeler

QMA

Lorne D Johnson

QMA

Date Written: June 24, 2020

Abstract

We relate valuation multiples to fundamentals through a new framework. Starting with a standard Gordon dividend discount model and applying a Dupont decomposition, we investigate how changes in fundamentals affect pricing in the cross section of global equities. We find that changes in fundamentals affect value and growth companies in a different way; growth companies are more sensitive to net profit margins and growth expectations. Finally, we quantify the effect fundamentals might have in the style rotation from growth to value across different industry groups, given the challenges value investors have been faced with in the most recent past.

Keywords: Asset Pricing, Value Investing, Global Equity Markets, Fundamental Analysis, Valuation, Style Rotation

JEL Classification: G11, G12, G15

Suggested Citation

Henriksson, Roy and Sakoulis, Georgios and Hsu, Kenneth and Wheeler, Timothy and Johnson, Lorne D, Fasten Your Value Belt: Growth Could Take You for a Wild Ride! (June 24, 2020). Available at SSRN: https://ssrn.com/abstract=3640816 or http://dx.doi.org/10.2139/ssrn.3640816

Roy Henriksson

Quantitative Management Associates (QMA) LLC ( email )

100 Mulberry Street
Gateway Center 2
Newark, NJ 07102
United States

Georgios Sakoulis (Contact Author)

Quantitative Management Associates (QMA) LLC ( email )

100 Mulberry Street
Gateway Center 2
Newark, NJ 07102
United States

Kenneth Hsu

Quantitative Management Associates (QMA) LLC ( email )

100 Mulberry Street
Gateway Center 2
Newark, NJ 07102
United States

Timothy Wheeler

QMA ( email )

100 Mulberry Street
Gateway Center 2
Newark, NJ 07102
United States

Lorne D Johnson

QMA ( email )

100 Mulberry Street
Gateway Center 2
Newark, NJ 07102
United States

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