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Not All PEs Are Created Equal
Value investing is out of favor. That may be a gross understatement. Growth has outperformed value in 8 of the past 10 years—2011 was a dead heat, and value bested growth in 2016 only to trail by a relative 14% over the next 2 years. According to some measures, growth stocks trade at a nearly 50% premium to their value counterparts. That should be cause for some optimism from the value crowd as such extreme disparities tend to sow the seeds of their own undoing. That said, we saw growth premiums stretch as high as 100% during the dot-com era.
We must admit we don’t spend much time worrying about this. We focus on the economics, not the machinations of the market per se or which way the winds of popularity blow. Economics endure and ultimately prevail.
So in this market of massive growth premiums, what is for sale in the value bin?