Growth Traps Snap Shut: More portfolio pain to come?

GMO

Ben Inker

Research

5 Pages

GMO explains what growth traps are and why they have been especially painful for investors recently. Ben Inker defines growth traps as growth stocks that both disappoint on recent revenues and see forward revenue forecasts cut. He shows how lofty expectations and high starting valuations make these stocks vulnerable when fundamentals slip, and argues that conditions still support elevated growth trap risk.

Date published: May 2022

Key Takeaways

Growth trap definition: Describes growth traps as companies that miss recent revenue expectations and have weaker forward revenue forecasts.
Why pain is larger: Explains that high expectations and rich valuations mean disappointments often trigger sharp multiple compression.
Cycle and expectations: Notes that strong prior growth and still elevated forecasts suggest growth traps may remain a significant portfolio hazard.
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