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Thematic Growth Valuation Analysis

Mar 23, 2020

View all Pedro Palandrani's ArticlesPedro PalandraniPedro Palandrani

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:

  • YTD greatest 1-year forward growth estimates expansion: HERO, LIT, BUG
  • YTD greatest PSG ratio contraction: BUG, DRIV, LIT
  • YTD greatest EVSG ratio contraction: BUG, POTX, SNSR
  • YTD greatest PS ratio contraction: POTX, PAVE, GNOM
  • YTD greatest EVS ratio contraction: POTX, GNOM, BUG

Thematic Valuation

Thematic Valuations

Thematic Valuation

ETF INFORMATION:

To see individual ETF information, including important performance and holdings, across the Global X Thematic Growth Suite, click the below links:

Category: Articles

Topics: Consumer Economy, Disruptive Technology, Infrastructure, Technology

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This information is not intended to be individual or personalized investment or tax advice and should not be used for trading purposes. Please consult a financial advisor or tax professional for more information regarding your investment and/or tax situation.

Investing involves risk, including the possible loss of principal. International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume. Narrowly focused investments may be subject to higher volatility.  The investable universe of companies in which these funds may invest may be limited.

Carefully consider the Funds’ investment objectives, risk factors, charges, and expenses before investing. This and additional information can be found in the Funds’ summary or full prospectus, which may be obtained by calling 1.888.493.8631, or by visiting globalxetfs.com. Please read the prospectus carefully before investing.

Global X Management Company LLC serves as an advisor to the Global X Funds. The Funds are distributed by SEI Investments Distribution Co., which is not affiliated with Global X Management Company LLC.

Shares of ETFs are bought and sold at market price (not NAV) and are not individually redeemed from the Fund. Brokerage commissions will reduce returns.

The performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than their original cost and current performance may be lower or higher than the performance quoted.