Earnings Expectations Are Falling
While Prices Continue To Rise
On the surface the euphoria continues. Behind the scenes, analysts are lowering Q1 forecasts for earnings growth.
The full year expectations for earnings growth in 2017 have also been reduced from 11.5% at the beginning of the year to 10.2% currently (data according to FactSet).
This has brought the Price to Earnings (P/E) ratio to the highest level in 14 years at 17.6 times.
Which is well above the 14.4 times, 10 year average.
At current levels, to get back to the 10 year average (and we know that in time most things revert back to the mean), either earnings growth would have to grow at about a 20% better than currently expected rate or prices would have to fall by about 20% (or a combination of both).
As we mentioned in our client webinar yesterday (http://highrockcapital.ca/current-edition-of-the-weekly-webinar.html):
We are not interested in putting our clients into that kind of risk.
We would prefer to find assets with better value (via deep research) to invest in (and our track record shows that we have been able to provide a better return per unit of risk as a result).
That is our discipline.
And...the usual disclaimer... historical returns are no guarantee of future returns, but you know that at High Rock, we work darn hard to always provide the best possible risk-adjusted returns.
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