Capital Markets: Observations & Insights
More Than Meets the Eye Valuation
• The stock market looks cheaper on free cash flow than earnings
‒ Companies’ increasing reliance on intangible assets that are expensed rather than capitalized has depressed earnings relative to free cash flow
S&P 500 Valuation Relative to Past 25-Year Average
Price-to-Free Cash Flow
Source: FactSet as of 12/31/2019. Note: Price-to-earnings is the current market price of a company divided by its last 12 months of earnings. Price-to-free cash flow is the current price of a company divided by its last 12 months of free cash flow.
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