Founder Evidente. Top rated quantitative analyst, Evidente

Sam Ferraro

Founder Evidente. Top rated quantitative analyst

Evidente

Evidente is an independent financial education firm that delivers innovative financial advice to wholesale investors, including active long only funds, hedge funds, pension funds, and sovereign wealth funds, in Australia and globally.  Drawing on academic research in asset pricing, behavioural finance and portfolio construction, Evidente provides wholesale investors with commercial solutions to stock selection and asset allocation decisions across equities and other asset classes.

Equity Bottom-Up

Domino's Pizza Enterprises / Equity Bottom-Up

<ul><li>In a recent update to investors, founder and CEO of Platinum Asset Management, Mr Kerr Nielson, cited that global conditions had been challenging for value funds for a while.  In this first instalment, Evidente examines the patterns of value and growth strategies in Australia.</li><li>The current level of valuation dispersion between value and growth stocks is without precedent.  Lending support to Mr Nielsen's view, I compute that the median book multiple of growth stocks has lifted by one-third in less than two years to 6.2x, higher than in December 2000, while value stocks are trading in line with book value.  Worryingly, there has not been a commensurate widening in dispersion of expected profitability or growth; analysts have only marginally upgraded their ROE and EPSg forecasts for growth stocks.  Drawing on valuation theory suggests that this divergence has the attributes of a crowded trade, which is associated with lower expected returns from growth stocks; the big short.</li><li>I identify a list of six shorting candidates within the growth universe; growth stocks which have experienced the largest multiple expansion in the past two years, with either an outright contraction or only modest upgrade to consensus forecasts for profitability.  The final short list also have substantially higher profitability adjusted book multiples than their growth peers: DMP, TNE, ALL, TPG, CTD and MYX.</li></ul>

In a recent update to investors, founder and CEO of Platinum Asset Management, Mr Kerr Nielson, cited that global conditions had been challenging for value funds for a while.  In this first instalment, Evidente examines the patterns of value and growth strategies in Australia.The current level of valuation dispersion between value and growth stocks is without precedent.  Lending support to Mr Nielsen's view, I compute that the median book multiple of growth stocks has lifted by one-third in less than two years to 6.2x, higher than in December 2000, while value stocks are trading in line with book value.  Worryingly, there has not been a commensurate widening in dispersion of expected profitability or growth; analysts have only marginally upgraded their ROE and EPSg forecasts for growth stocks.  Drawing on valuation theory suggests that this divergence has the attributes of a crowded trade, which is associated with lower expected returns from growth stocks; the big short.I identify a list of six shorting candidates within the growth universe; growth stocks which have experienced the largest multiple expansion in the past two years, with either an outright contraction or only modest upgrade to consensus forecasts for profitability.  The final short list also have substantially higher profitability adjusted book multiples than their growth peers: DMP, TNE, ALL, TPG, CTD and MYX.

Domino's Pizza Enterprises

The Big Short: Australian Growth Stocks