Q&A with QMA: X-Factor


December 2019

Stock prices have continued to pull further and further away from fundamentals. Speculative growth firms, in particular, are priced at extreme levels, as investors have become overly optimistic about their future growth potential.

In the latest Q&A with QMA, we test for the presence of an x-factor, and determine whether or not the current pricing for growth stocks is supportable.

Our analysis shows that the median “expensive” stocks would need to grow their earnings at 25% for a full decade in order to justify their current valuations. This dislocation between prices and fundamentals increases the return potential for value investors.




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