Capital Markets: Observations & Insights
Smaller Capitalization Stocks Poised to Outperform Fundamentals
• Stronger fundamentals : Estimated small cap EPS growth for ‘18 & ‘19 is double that of large cap
• More levered domestic economy : Small caps are more U.S.-oriented, have less exposure to international trade, and have higher operating leverage • Rising interest rates : Small caps have historically outperformed large caps in rising rate environments
• Attractive valuation : Small cap sales multiple discount implies opportunity
Earnings Per Share
Enterprise Value/Sales Russell 2000 / Russell 1000
0%
R2000 R1000
180
Historically Large Discount
-10%
Small Caps Growing Faster
160
-20%
140
-30%
Average
120
EPS Indexed to 100
-40%
100
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2017
2018
2019
Source: FactSet as of March 2018. EPS for 2018-2019 are consensus estimates and actual earnings per share might be materially different than shown.
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