Value stocks in the U.S. have lagged growth since early 2007, a brutal and rare 12-year stretch of underperformance.
Value stocks as measured by P/B ratio trailed growth by a crushing 5.5 percentage points a year from April 2007 through May. Other measures of value fared better but also fell behind. Using P/E ratio and P/CF ratio,value lagged growth by 2.1 percentage points and 2.6 percentage points a year, respectively, over the same period.
There are already some popular theories why Value Investing is lagging.
One is that value investing has become too popular. Once the value premium was discovered, the theory goes, investors piled into value stocks and squeezed the premium away.
A second theory is that growth companies are more dominant than they used to be. Their vast technological edge and near-monopolistic powers, it is said, will allow them to outpace value companies for the foreseeable future.
A third theory — and the most generous to value — is that the measure of value is broken, not necessarily the strategy itself.
P/B ratio is widely used by researchers and indexes to identify value stocks, but some complain that book value no longer captures the full value of intellectual capital and other intangible assets of fast-growing companies such as Amazon, Google and Facebook, making them appear more expensive than they truly are.
Source: Don’t Count Out Value Investing Despite Growth’s Spurt