Abstract
Previous research finds that EPS growth has low predictability and reasons that much of the observed variation in valuation multiples is due to mispricing (e.g., Lakonishok, Shleifer, and Vishny 1994; Chan, Karceski, and Lakonishok 2003; Israel, Laursen, and Richardson 2021). We revisit these findings and document robust evidence of predictability in EPS growth. We find that common ‘value investing’ strategies select stocks with predictably lower EPS growth and that this helps to explain their recent performance.
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