Another Forecast from the Greatest Predictor
Valuations for larger cap growth stocks may give pause to some investors, but history suggests that current price-to-earnings (P/E) ratios indicate the asset class remains attractive.
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  • Nearly 80% of 10-year returns for the Russell 1000 Growth Index can be explained by the initial P/E of the index. In our experience, no other variable is as strong a predictor of equity returns.

  • Growth stock valuations are higher than the broader market for good reason. Growth equities typically have higher returns on capital, faster growth, and lower debt (see page 20 of Spring 2017 Capital Markets).

  • The P/E of the Russell 1000 Growth Index of 19.7 (as of 4/30/17) implies a potential future annualized 10-year return of approximately 7%-8% based on the data shown above.

  • Please click here for more information about P/E data and the broader market.​​

R-squared, also known as the "coefficient of determination," denotes how much of the movement one variable is attributable to another.

Russell 1000 Growth Index: An index of common stocks designed to track performance of large-capitalization companies with greater than average growth orientation.  Index performance does not reflect deduction for fees, expenses, or taxes.   Investors cannot invest directly in any index. 

The price-earnings ratio (P/E ratio) is the ratio for valuing a company that measures its current share price relative to its per-share earnings.

The views expressed are the views of Fred Alger Management, Inc. as of May 2017. These views are subject to change at any time and they do not guarantee the future performance of the markets, any security or any funds managed by Fred Alger Management, Inc. These views are not meant to provide investment advice and should not be considered a recommendation to purchase or sell securities. 

Fred Alger & Company, Incorporated 360 Park Avenue South, New York, NY 10010 / www.alger.com

800.305.8547 (Retail) / 212.806.8869 (Institutional) ​​