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Matthias Knab, Opalesque:

AllianceBernstein writes on Harvest Exchange:

Investors are wary about US stock multiples. But elevated valuations of high-growth stocks may be deceiving. Growth overachievers that can deliver persistent fundamental strength often make a mockery of their short-term valuations in hindsight.

Valuations are important for equity investors. However, simple price/earnings metrics don't tell you whether a company is cheap or expensive. For that, we believe you need to study a company's competitive positioning and business returns, and how its growth is funded. It takes a lot of fundamental work-and a long-term horizon.

Exceptionally high growth is rare-and often fleeting. So, the companies that do a great job of converting the promise of growth into the reality of growth should be worth a higher price tag than the average stock in the market.

EARNINGS MISS THE MARK

We think that fundamental returns-or a company's underlying profitability-are much more illuminating than earnings for identifying long-term growth companies. Our yardsticks are return on invested capital (ROIC) and return on assets (ROA), which tell us whether a company is investing intelligently to grow profits. Stocks of firms that generate an ROIC above a certain threshold, the so-called cost of capital, tend to outperform over the long ......................

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