•  
  •  
 

Document Type

Article

Abstract

This research reports the absolute returns and alpha generated by hypothetical portfolios arranged by six commonly used valuation multiples from 1987 to 2017. I find the best returns are offered by the Sales/TEV multiple while the FCF/TEV multiple generates the most Fama-French Three-Factor alpha. My results contradict two prior claims by Fama and French: 1. any valuation multiple is as good as another and 2. book value-to-market value is the preferred measure for identifying undervalued companies. I also examine the performance of each valuation multiple for small, mid, and large-cap companies and find that smaller stocks offer greater investment returns than larger stocks.

Publication Date

Spring 2019

Journal Title

Major Themes in Economics

Volume

21

Issue

1

First Page

15

Last Page

28

Copyright

©2019 by Major Themes in Economics

Creative Commons License

Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.

Language

en

File Format

application/pdf

Included in

Economics Commons

Share

COinS
 
 

To view the content in your browser, please download Adobe Reader or, alternately,
you may Download the file to your hard drive.

NOTE: The latest versions of Adobe Reader do not support viewing PDF files within Firefox on Mac OS and if you are using a modern (Intel) Mac, there is no official plugin for viewing PDF files within the browser window.