{"id":190210,"date":"2023-05-30T11:20:00","date_gmt":"2023-05-30T15:20:00","guid":{"rendered":"https:\/\/ibkrcampus.com\/?p=190210"},"modified":"2023-05-30T11:24:48","modified_gmt":"2023-05-30T15:24:48","slug":"charting-my-interruption-cmi-value-is-outperforming-but-not-really","status":"publish","type":"post","link":"https:\/\/www.interactivebrokers.com\/campus\/traders-insight\/securities\/stocks\/charting-my-interruption-cmi-value-is-outperforming-but-not-really\/","title":{"rendered":"Charting My Interruption (CMI): \u201cValue Is Outperforming, But Not Really.\u201d"},"content":{"rendered":"\n<p><strong>It is widely agreed that value stocks have been outperforming growth stocks since the bear market started in January 2022.&nbsp;<\/strong>The reasons cited for this trend in favor of value are many and varied, not the least of which of course is the spike in interest rates. Ratchet up the discount rate, and valuations come down, especially when the starting point for valuations is at or near record levels.<\/p>\n\n\n\n<p><strong>Still, I want to repeat a rather controversial notion, one which usually generates a lot of push back.<\/strong>&nbsp;It is my belief that \u201cvalue\u201d never actually works as a strategy. In other words, stocks don\u2019t just all of a sudden start to go up just because they are \u201ccheap\u201d.<\/p>\n\n\n\n<p><strong>No, it is my belief that cheap stocks start to go up because their fundamentals start to get better.<\/strong>&nbsp;Without that fundamental catalyst to unlock the \u201cperceived\u201d value, cheap stocks just stay cheap. These are what we affectionately refer to as \u201cvalue traps\u201d.<\/p>\n\n\n\n<p><strong>Furthermore, growth stocks don\u2019t stop going up just because they are expensive.&nbsp;<\/strong>They stop going up because the second derivative of growth slows down, especially relative to the high expectations that are baked into the lofty valuation. Therefore, I believe that as long as expectations are met or exceeded, growth stocks can continue to work, regardless of valuations.<\/p>\n\n\n\n<p><strong>Unfortunately, when growth stocks eventually do breakdown, value-minded investors tend to view that pullback as an opportunity to finally buy those prized growth stocks at a reasonably discounted price.<\/strong>&nbsp;Of course, lacking the necessary growth catalyst (either relative to expectations, alternatives, or both), those former high flyers continue to underperform, often while still delivering rapid growth. One might call these \u201cgrowth traps\u201d.<\/p>\n\n\n\n<p><strong>To demonstrate my point, Figure 2 is a scatter plot of recent trailing 1 year revenue growth (x-axis) and trailing 1 year price change (y-axis).&nbsp;<\/strong>What appears to be the case is that stocks with the best revenue growth over the past year have recorded the best 1 year price changes, and vice versa. This is revealed by the red, upward sloping best fit line. For purposes of this analysis, I started with the top 1000 market cap companies, then eliminated stocks below $20 and low\/no revenue growth companies to address the \u201clow base\u201d effect in both cases. This of course, removed most smaller biotech companies.<\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img decoding=\"async\" width=\"785\" height=\"565\" data-src=\"\/campus\/wp-content\/uploads\/sites\/2\/2023\/05\/Revenue-Growth3.webp\" alt=\"To demonstrate my point, Figure 2 is a scatter plot of recent trailing 1 year revenue growth (x-axis) and trailing 1 year price change (y-axis).\u00a0\" class=\"wp-image-190212 lazyload\" data-srcset=\"https:\/\/ibkrcampus.com\/campus\/wp-content\/uploads\/sites\/2\/2023\/05\/Revenue-Growth3.webp 785w, https:\/\/ibkrcampus.com\/campus\/wp-content\/uploads\/sites\/2\/2023\/05\/Revenue-Growth3-700x504.webp 700w, https:\/\/ibkrcampus.com\/campus\/wp-content\/uploads\/sites\/2\/2023\/05\/Revenue-Growth3-300x216.webp 300w, https:\/\/ibkrcampus.com\/campus\/wp-content\/uploads\/sites\/2\/2023\/05\/Revenue-Growth3-768x553.webp 768w\" data-sizes=\"(max-width: 785px) 100vw, 785px\" src=\"data:image\/svg+xml;base64,PHN2ZyB3aWR0aD0iMSIgaGVpZ2h0PSIxIiB4bWxucz0iaHR0cDovL3d3dy53My5vcmcvMjAwMC9zdmciPjwvc3ZnPg==\" style=\"--smush-placeholder-width: 785px; aspect-ratio: 785\/565;\" \/><\/figure>\n\n\n\n<p><strong>This is not at all to say that the best performing companies weren\u2019t \u201ccheap\u201d at the start of the bear market.&nbsp;<\/strong>Honestly, I have no idea. I don\u2019t personally know how to properly define \u201cvalue\u201d, per se. Therefore, to stay out of trouble, I don\u2019t even try.<\/p>\n\n\n\n<p><strong>However, I would venture to say that whatever stocks have outperformed over the past year, they were likely \u201ccheaper\u201d a year ago than they are today.<\/strong>&nbsp;From that perspective, I guess \u201cvalue has been working\u201d, but I would argue, thanks to strong and\/or improving topline revenue growth, not because they were \u201ccheaper\u201d a year ago.<\/p>\n\n\n\n<p>&#8212;<\/p>\n\n\n\n<p>Originally Posted May 5, 2023 &#8211; <a href=\"https:\/\/motrcmr.com\/chart\/charting-my-interruption-cmi-value-is-outperforming-but-not-really\/\">Charting My Interruption (CMI): \u201cValue is outperforming, but not really.\u201d<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p> It is my belief that \u201cvalue\u201d never actually works as a strategy. In other words, stocks don\u2019t just all of a sudden start to go up just because they are \u201ccheap\u201d.<\/p>\n","protected":false},"author":897,"featured_media":190212,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[6,8,9,22,26,3],"tags":[3598,44,787],"contributors-categories":[15282],"class_list":{"0":"post-190210","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-north-america","8":"category-region","9":"category-securities","10":"category-stocks","11":"category-text-articles","12":"category-traders-insight","13":"tag-market-outlook","14":"tag-stocks","15":"tag-value","16":"contributors-categories-motr-capital-management-and-research"},"pp_statuses_selecting_workflow":false,"pp_workflow_action":"current","pp_status_selection":"publish","acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v26.9 (Yoast SEO v27.4) - https:\/\/yoast.com\/product\/yoast-seo-premium-wordpress\/ -->\n<title>Charting My Interruption (CMI): \u201cValue Is Outperforming, But Not Really.\u201d<\/title>\n<meta name=\"description\" content=\"It is my belief that \u201cvalue\u201d never actually works as a strategy. In other words, stocks don\u2019t just all of a sudden start to go up just because...\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.interactivebrokers.com\/campus\/wp-json\/wp\/v2\/posts\/190210\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Charting My Interruption (CMI): \u201cValue Is Outperforming, But Not Really.\u201d | IBKR Campus US\" \/>\n<meta property=\"og:description\" content=\"It is my belief that \u201cvalue\u201d never actually works as a strategy. In other words, stocks don\u2019t just all of a sudden start to go up just because they are \u201ccheap\u201d.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.interactivebrokers.com\/campus\/traders-insight\/securities\/stocks\/charting-my-interruption-cmi-value-is-outperforming-but-not-really\/\" \/>\n<meta property=\"og:site_name\" content=\"IBKR Campus US\" \/>\n<meta property=\"article:published_time\" content=\"2023-05-30T15:20:00+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2023-05-30T15:24:48+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.interactivebrokers.com\/campus\/wp-content\/uploads\/sites\/2\/2023\/05\/Revenue-Growth3.webp\" \/>\n\t<meta property=\"og:image:width\" content=\"785\" \/>\n\t<meta property=\"og:image:height\" content=\"565\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/webp\" \/>\n<meta name=\"author\" content=\"David Lundgren, CMT\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"David Lundgren, CMT\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"3 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\n\t    \"@context\": \"https:\\\/\\\/schema.org\",\n\t    \"@graph\": [\n\t        {\n\t            \"@type\": \"NewsArticle\",\n\t            \"@id\": \"https:\\\/\\\/www.interactivebrokers.com\\\/campus\\\/traders-insight\\\/securities\\\/stocks\\\/charting-my-interruption-cmi-value-is-outperforming-but-not-really\\\/#article\",\n\t            \"isPartOf\": {\n\t                \"@id\": \"https:\\\/\\\/www.interactivebrokers.com\\\/campus\\\/traders-insight\\\/securities\\\/stocks\\\/charting-my-interruption-cmi-value-is-outperforming-but-not-really\\\/\"\n\t            },\n\t            \"author\": {\n\t                \"name\": \"David Lundgren, CMT\",\n\t        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In other words, stocks don\u2019t just all of a sudden start to go up just because...","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/www.interactivebrokers.com\/campus\/wp-json\/wp\/v2\/posts\/190210\/","og_locale":"en_US","og_type":"article","og_title":"Charting My Interruption (CMI): \u201cValue Is Outperforming, But Not Really.\u201d | IBKR Campus US","og_description":"It is my belief that \u201cvalue\u201d never actually works as a strategy. 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