So far in 2022, growth stocks have broadly sold-off and the Russell 1000 Growth Index has declined by 6.9%. However, not all growth stocks are the same, and it may be inaccurate to say that “growth stocks” in general are getting hit with this market downturn. Within the Russell 1,000 Growth index, names with the most aggressive valuations and higher multiples have performed far worse than those will lower multiples. Certain groups of the Russell 1000 Growth Index members have outperformed the S&P 500 on a year-to-date basis. The 20% of members with the lowest price to earnings ratios have averaged a YTD decline of just 1.7% while the S&P 500 has lost 3.3% of its value. The 10% of stocks with the lowest price to book ratio have outperformed the market as well, declining just 1.8% this year. As you can see from the charts below, the higher the multiple, the worse the 2022 performance. The 20% of members with the highest P/B ratios have averaged a loss that is over three times that of the S&P 500 (10.5%). The 20% of stocks with the highest PE ratios in the index have averaged a reduction of 12.6%, almost four times the loss of the S&P 500.
A similar trend is seen when comparing YTD performance against price to sales deciles. The 10% of members with the highest P/S ratios have averaged a 15.9% turn down in 2022, while the 40% of names with lower P/S ratios have averaged a decline of 3.5%.
For investors looking for growth, there are two ways to look at this. The first line of thought is to believe that the most aggressive equities (think RIVN, PLUG, DOCU, CVNA, and UBER) have sold off at unreasonable rates, and there are presently buying opportunities. The other available option is to think that the outperformance from growth at a reasonable price stocks (i.e. OLN, RKT, OPEN, VRM, and GS) will continue moving forward as, among other factors, the fed hikes interest rates. Stay on top of market trends like growth versus value by becoming a Bespoke subscriber today. Click here to view Bespoke’s premium membership options.
Of the 25 stocks with the lowest P/E ratios in the Russell 1000 Growth Index, the average YTD performance is -1.5% (median: -1.4%), which is far better than the broader market. The average stock on this list is off of its 52 week high by 20.6% (median: 18.0%) and returned 33.3% from price appreciation alone in 2021 (median: 33.7%). 48% of these names are positive so far in 2022, which is impressive given that the Russell 1,000 Growth index has already fallen by 6.9% this year.