When a “Value” Company is Not a Value

O’Shaughnessy Asset Management

Chris Meredith

Research

7 Pages

OSAM examines why price to book ratios may increasingly misclassify value stocks as growth stocks, particularly after decades of rising share repurchases. The paper argues traditional valuation screens have weakened since 2000, with price to book spreads falling to 1.2% among the largest U.S. companies.

Key Takeaways

Price To Book Weakness: Price to book spreads reached just 1.2% within the largest third of U.S. stocks versus 6.0% for EBITDA to enterprise value.
Buyback Distortion Effect: Viacom repurchased nearly $20 billion of shares over 10 years, cutting common equity from $8 billion to $4 billion despite $1.5 billion annual retained earnings.
Share Activity Shift: Active repurchasers rose from 2.1% of large stocks in 1967 to 1969 to 41.7% in the 2010s, reducing price to book reliability.
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