Over the last five years, earnings growth has lagged market returns, leading to a significant divergence. Looking back over the last 25 years, however, we see that earnings growth and market returns are fairly similar despite such short-term divergences.
An informed buyer will look at the unique qualities of the company's market, as well as the size of the company's market, its sector, stage of development, growth potential, customer base and competitor landscape.
The market value of a stock is not determined by a company's economic prospects; it is simply the price that an investor is currently willing to pay for the stock in the market. It is subject to the supply of shares and the demand for those shares.
Although events such as the U.S. presidential election are catalysts for a change in the market, markets are forward looking. Much like campaign promises, time will either confirm current market valuations or show them to be too high or too low.
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