Thematic Growth Valuation Analysis

Previously, we discussed How To Value Disruptive Themes, in which we provided what we believe to be the preferable approach to analyzing the valuations of disruptive themes. In that piece, we introduced Price-to-Sales-to-Growth (PSG) and Enterprise-Value-to-Sales-to-Growth (EVSG) metrics. Simply put, when dividing price-to-sales by growth (PSG), one can get a better sense of not just how much they are paying for each unit of sales, but how much they are paying for future sales growth. All else equal, a firm with the same price-to-sales ratio, but higher growth expectations, would have a lower PSG than a firm with lower growth expectations, making it more attractive from a growth-adjusted valuation standpoint. A modified version of this approach is to use enterprise value (EV), rather than price (P) in the ratio, which takes into account a company’s debt, punishing those with high leverage.

Over the last weeks, market volatility has spiked. Themes that have usually traded at valuations higher than broader market indices have significantly contracted. Yet, in some cases, expected growth rates have remained stable and, in a few other, even increased. While sales estimates may not fully reflect yet the impact from COVID-19, we could assume the same is the case for broader market indices.

The below table offers a unique perspective on the year-to-date (YTD) fluctuation of valuation multiples for our suite of Thematic Growth ETFs.

Key Highlights: