In August last year I published Multiples and Total Return for 33 Mega Cap Stocks. The results of my analysis then, which tracked the returns of stocks from November 2019 to August 2020, showed that only PEG ratio correlated with returns in the expected direction. For the charts below, I used the same multiple and entry point data, but extended to a much longer exit point. I assumed the stocks would be sold at the April 23, 2021 closing price. The results were not fundamentally different. Again, PEG ratio was the only multiple with a negative slope for its linear regression. I'm still hesitant to jump to the conclusion that multiples are not useful. Three of the four best performing stocks were in the information technology sector. All four of the financials sector and all four of the consumer staples sector stocks were in the bottom 18 performing stocks. This may suggest that, for the time frame analyzed, sector rotation drove performance more so than multiples. In a future analysis, I may compare performance and multiple correlation within a sector.
Some notes on the data:
The new analysis compares only 32 stocks rather than the original 33 because China Mobile Ltd was delisted.
I should clarify that where I've used the term 'total return' I meant the simple stock appreciation plus dividends; I did not make any calculations for reinvestment of dividends. For the time period and stocks selected I don't think dividend reinvestment would make a meaningful difference to the outcome.
The data here for Apple (AAPL) is split adjusted.
