US and Japan Dominate Sales per Share
Earnings per share (EPS) analysis reveals a decade-long trend in US and Japan leading in sales, while Europe and emerging markets face structural challenges.
Insight of the Week
Earnings per share (EPS) is often the preferred way of assessing company performance. The simplified equation for EPS is revenues minus costs. Revenues are rather straightforward and measure the incoming sales of product. However, costs are an area where company management can choreograph effects on overall earnings. For instance, a company may have similar year-over-year sales, yet earnings may improve if they went through cost-cutting measures. While this may look good for their bottom line, the fact remains they haven’t grown their business.
In the chart above, we isolate the sales per share of regional equity indices since the beginning of 2010. What becomes clear is the dominance of the US along with an impressive showing from Japan, both of which are at highs. On the flip side, both Europe and Emerging Markets remain below their highs set back in the early 2010s, which highlights their structural inability for sustained outperformance.
Higher revenues ultimately give management more bandwidth and flexibility to decide where to invest. We have received questions from clients regarding where in the markets is there the most amount of excitement. Looking at the chart above and realizing it is not a new story, it is tough to say the US’s secular dominance is slowing down. Yes, the US is expensive, but you can expect to pay a premium for higher earnings. The question remains the path of earnings going forward and if investors are willing to pay the price. In our recently released mid-year global market outlook, we remain cautious on risk assets overall and favor quality stocks, many of which are based in the US.