Tag: price to earnings

Posted on

Price/Sales is Better Than Price/Earnings…for forecasting future returns

Executive Summary

  1. If we’re going to use valuation metrics to make important financial planning and investment decisions why wouldn’t we use the most reliable metrics at our disposal?
  2. The Price/Sales ratio has a much higher correlation to actual subsequent returns than Price/Earnings.
  3. Price/Sales, and other reliable metrics, indicate the U.S. stock market is more expensive than it’s ever been in history.

Continue reading “Price/Sales is Better Than Price/Earnings…for forecasting future returns”

Posted on

Cyclicality of Profit Margins and Why Most Common Valuation Metrics Are Unreliable

Often in the past I’ve discussed current market valuations and implications for market returns over the next decade. In those statements I’m careful to refer only to the most reliable valuation metrics with reliability defined as having the greatest correlation to actual subsequent returns throughout history.

This distinction must be made because it’s the least reliable valuation metrics that often get tossed around by retail investors, the financial media and even professional advisors. Continue reading “Cyclicality of Profit Margins and Why Most Common Valuation Metrics Are Unreliable”