Equity Relative Value Investing

Equity Relative Value Investing is a style of investing that involves a combination of classic value investing along with conservative growth investing called Growth at a Reasonable Price or GARP.

The central tenant in a Relative Value strategy is the comparison of an equity security with its' peer group in order to determine its' fundamental attractiveness. Fundamental ratio and statement analyses are reviewed and undertaken in order to make this peer comparison. For example, in a classic value strategy, a low P/E ratio would be coveted, however in a Relative Value strategy, a low P/E is not necessarily needed. What is desired is a low Price to Earnings to Growth ratio or PEG. The PEG is a critical ratio in Relative Value investing and the lower the PEG the more fundamentally attractive is the security. Most relative value investors seek a PEG of 1 or less. For example, if a company had a PEG of 1 - it could be a P/E ratio of 10 and a projected earnings growth rate of 10%. 10/10 would equal a 1 PEG.

Relative Value investing has increased in popularity in the past several years. The reason being that the US GDP has experienced a very tepid recovery since the financial crisis of 2008, with the average annual GDP being 2.2% from 2008 to 2018 today. In a lower than average economic environment, classic value areas such as telecommunication and utilities tend not to perform as well as higher growth areas of the market such as technology and healthcare. Reason being the higher earnings growth in a low economic growth environment, the more those earnings are coveted.

US GDP

References

This article "Equity Relative Value Investing" is from Wikipedia. The list of its authors can be seen in its historical and/or the page Edithistory:Equity Relative Value Investing. Articles copied from Draft Namespace on Wikipedia could be seen on the Draft Namespace of Wikipedia and not main one.

---