Not exact matches
During that earlier period, American business earned an
average of 11 percent or so on equity capital employed and stocks,
in aggregate, sold at
valuations far above that equity capital (book value),
averaging over 150 cents on the dollar.
But it won't happen for a while for one reason: On
average the folks who pocketed those nearly double - digit gains
in past decades were buying at far lower prices than the big
valuations prevailing today.
In the past, similarly high
valuations have been associated with below -
average returns over the longer term.
Investors should also take note that poor years — those
in the bottom quartile of returns — tended to be worse when starting
valuations were more elevated over the long - term
average.
When the iFranchise Group compared the
valuation of the S&P 500 vs. the franchisors tracked
in Franchise Times magazine
in 2012, the
average price / earnings ratio of franchise companies was 26.5, while the
average P / E ratio of the S&P 500 was 16.7.
Tecco tagged 11 pitches
in this category, six of which were successful (55 percent), with an
average valuation of nearly $ 5.38 million.
Equity markets have appreciated sharply
in recent years, and
valuations, based on price - to - earnings ratios,
in developed markets were not cheap relative to their historical
averages as of late 2017.
The suburban office sector ended last year with an
average vacancy rate of 9.3 percent, compared to 12.3 percent for the central business district (CBD), reports
Valuation International, Ltd., (VIL) of Atlanta
in its publication Viewpoint 1998.
The graph shows that
average valuations are generally better globally than they are
in the US on a pure price - to - peak earnings basis.
In the 33 years since the 1982 low,
valuations have quadrupled, and the S&P 500 has enjoyed an
average price increase of 9.5 % annually, even though nonfinancial gross value added has increased by only 5 % annually.
The 2002 - 2003 lows never actually reached even
average valuations, much less historical medians, but we did observe enough value based on normalized fundamentals and improved market action to remove most of our hedges
in early 2003.
Discipline refers to the rigorous quantitative and qualitative methodologies used
in the identification and selection of companies that have: better than
average relative
valuations; a track record of dividend growth and a sustainable payout level; and balance sheet strength.
Figure 1 shows that the difference between return on invested capital (ROIC) and weighted
average cost of capital (WACC), also known as the economic earnings margin, explains 67 % of the changes
in valuations between stocks
in the S&P 500 [1].
While according to Thomson Reuters there have been on
average 1,582 technology companies founded annually during the period between 2003 through 2013 (17,412 cumulatively over the period), an
average of only 54 venture - backed companies went public during this period (596
in total)-- and the median
valuation for all such IPOs was $ 354 mm.
But stock performance has actually outpaced gains
in earnings, and as a result, US equity
valuations appear stretched as we begin 2018 — for example, the S&P 500's price - earnings ratio is well above longer - term historical
averages.
The
averages above do hide a significant amount of variation
in returns, and the direction of equity
valuations at any given point
in time also matters.
Despite this attractive increase
in exit
valuations over the last three decades, once again, the implications for today's venture industry are clear: M&A is the most likely exit market for successful companies and the
average valuation is about $ 110 million.
We gradually scale our investment exposure
in proportion to the
average return / risk profile that stocks have provided under similar conditions (primarily defined by
valuation and market action).
In contrast, most major markets outside the United States are trading at valuations at or below their historical average, as illustrated in the Chart of the Week belo
In contrast, most major markets outside the United States are trading at
valuations at or below their historical
average, as illustrated
in the Chart of the Week belo
in the Chart of the Week below:
The favorable market performance associated with many historical economic expansions is fully accounted for by 1) favorable post-recession
valuations, with the S&P 500
averaging less than 9 times prior peak earnings at the recession low, expanding to just over 11 times peak earnings
in the first year of the bull market, and 2) favorable trend uniformity, which typically emerges almost immediately
in the form of a powerful breadth thrust off of a bear market low, and is confirmed within a few weeks by much broader trend uniformity.
US large - cap stocks returned more than 9 percent
in the first half of 2017, the most since 2013, and although prices are close to all - time highs, analysts are of the opinion that
valuations are not very expensive for a majority of these stocks, as stronger earnings upped the price - to - earnings ratio, which has generally remained above
average for quite a few years.
Valuations in 1949 and 1982 were like paying $ 13.70 for the future $ 100 cash flow, as valuations were consistent with subsequent annual S&P 500 total returns averaging 18 % over the following 12 - ye
Valuations in 1949 and 1982 were like paying $ 13.70 for the future $ 100 cash flow, as
valuations were consistent with subsequent annual S&P 500 total returns averaging 18 % over the following 12 - ye
valuations were consistent with subsequent annual S&P 500 total returns
averaging 18 % over the following 12 - year period.
For each decile, we've subtracted the 1986 - 2016
average price / revenue ratio for that decile, dividing the result by the standard deviation of
valuations in that decile (again from 1986 - 2016).
The company's cash flow is a better metric to use for profit and
valuation, and investors are paying much less for cash flow now (even though it's very likely to rise considerably
in the near term) than they've been paying, on
average, for the last three years.
As usual, I don't place too much emphasis on this sort of forecast, but to the extent that I make any comments at all about the outlook for 2006, the bottom line is this: 1) we can't rule out modest potential for stock appreciation, which would require the maintenance or expansion of already high price / peak earnings multiples; 2) we also should recognize an uncomfortably large potential for market losses, particularly given that the current bull market has now outlived the median and
average bull, yet at higher
valuations than most bulls have achieved, a flat yield curve with rising interest rate pressures, an extended period of internal divergence as measured by breadth and other market action, and complacency at best and excessive bullishness at worst, as measured by various sentiment indicators; 3) there is a moderate but still not compelling risk of an oncoming recession, which would become more of a factor if we observe a substantial widening of credit spreads and weakness
in the ISM Purchasing Managers Index
in the months ahead, and; 4) there remains substantial potential for U.S. dollar weakness coupled with «unexpectedly» persistent inflation pressures, particularly if we do observe economic weakness.
Even technical analysis supports the extent of the washout
in valuations: Just 25 % of the Nikkei 225 Index constituents are above their 50 - day moving
averages, which is typically a level that precedes mean reversion and retracement trades.
One can relate this directly to a 10 - year prospective return by recalling that historical tendency for market cycles to establish normal prospective returns — if even briefly as
in 2009 — at their troughs (and it's typical for troughs to reach below
average valuations and much higher prospective returns than the 10 % historical norm).
In the past, above -
average stock market
valuations were followed by below -
average long - term returns.
This instance may be different
in the near term, but a century of evidence argues that the completion of the market cycle will wipe out the majority of the gains observed
in the advancing portion to - date (even without
valuations similar to the present, the
average, run - of - the - mill bear market decline has erased more than half of the market gains from the preceding bull market advance).
From low
valuations,
average stock market returns have been strong
in both periods where the yield curve was upward sloping and where it was inverted.
«The Shanghai Composite
in aggregate is now trading back well below
average global equity
valuations at the headline index level,» says Jonathan Garner, Morgan Stanley's Chief Asia and Emerging Market Equity Strategist.
In effect, this combination has pushed the price / earnings
valuation on forward earnings down to 13.6 which is significantly below its long - term
average of 16.
Grainger's 10 - year
average P / E ratio has been 19.0 (see the dark blue box
in the right panel), meaning that the market has tended to value it about 27 % higher than the historic
valuation of all the companies at 15.0.
It wasnt for the best
valuation and I plan to
average down when possible but I wanted this company
in my portfolio.
JPMorgan points out that US equities are 2 standard deviations rich to their
average valuation and are
in fact the most expensive
in the developed world...
Additionally, sky - high
valuations, which
in the U.K. now stand at around six times
average earnings and are closer to double that ratio
in the capital, have contributed to the malaise.
In my view, the necessary objective is to accept market risk when the likely return / risk profile is attractive, based on observable measures of
valuation and market action, and to avoid, hedge, or diversify away those risks that don't carry attractive return / risk profiles on
average.
And even if we knew what
average valuations will be
in the future, our estimate would still contain substantial uncertainty, because
valuation is highly cyclical.
European equities are not that cheap anymore by a number of
valuation metrics; they are trading at an
average of about 17 times earnings, which is not a wide undervaluation.1
In my view, the main reason to invest in European equities is the potential for, or the expectation of, a rise in corporate earnings that would be driven by the improving economic environmen
In my view, the main reason to invest
in European equities is the potential for, or the expectation of, a rise in corporate earnings that would be driven by the improving economic environmen
in European equities is the potential for, or the expectation of, a rise
in corporate earnings that would be driven by the improving economic environmen
in corporate earnings that would be driven by the improving economic environment.
So the question naturally becomes, should «fair» or
average equity
valuations in a 1 1/2 -2 % GDP growth world be the same as what has considered fair
valuation for equities
in a 3 1/2 -4 % GDP growth world of the last 60 years?
Table 1 shows the excess returns for a number of
valuation metrics within the U.S. Large Stocks universe, stocks trading
in the U.S. with a market capitalization greater than
average from 1964 to 2015.
I think the
valuation is just
average, but I think if this develops into a larger issue then customer attrition comes into play, which is a problem for a bank like Wells that relies on its huge business that it does
in the retail bank (57 % of its income comes from the retail bank, of which a large percentage is high margin revenue that comes from cross-selling, the very practice that it will now almost certainly begin to slow).
Looking back through history, whenever value stocks have gotten this cheap, subsequent long - term returns have generally been strong.3 From current depressed
valuation levels, value stocks have
in the past, on
average, doubled over the next five years.4 Not that we necessarily expect returns of this magnitude this time around, but based on the data and our six decades of experience investing through various market cycles, we believe the current risk / reward proposition is heavily skewed
in favor of long - term value investors.
The quality fund will target companies exhibiting above -
average quality profiles, and the value fund will invest
in companies with attractive
valuations.
Figure 1, which shows the trends
in average return on invested capital (ROIC) and cumulative after - tax operating profit (NOPAT) for the sector over the past few years, clearly shows that profits are flat to down and not driving stock
valuations higher.
The rout that erased $ 2.9 trillion from U.S. equities has pushed
valuations in the Standard & Poor's 500 Index 25 percent below the
average level from the last nine recessions, even as profit estimates fall.
As you can see from the chart, on
average the impact of changes
in the stock's underlying fundamentals (e.x. book value or earnings changes) makes up more than 100 % of the change
in valuation spread!
The measures of
valuation and market action that define each «Market Climate» are factors that can be tested
in decades of historical data, are objective, observable, and have strongly affected the
average profile of return and risk
in the markets over time.
Over the past twelve months, we have added 14 names to the portfolio, all of which,
in our view, can be described as well - managed, high - quality businesses selling at
average or below -
average valuation levels.
However, just because its current
valuations are above the historical
averages will not cause a correction
in the markets.