Earnings Growth vs. Multiple Expansion Over the Last Decade

Are all stocks except U.S. growth cheap? In his brief February 2025 paper entitled “Decomposing Equity Returns: Earnings Growth vs. Multiple Expansion”, David Blitz decomposes equity returns of different global equity markets and styles (size, low-volatility, value) into dividend yield, earnings growth and multiple expansion. The decomposition consists of:

• Subtracting price return from total return to derive the contribution from dividends.
• Calculating the part of price return due to earnings growth.
• Attributing the part of price return not due to earnings growth to multiple expansion/contraction based on change in price-to-earnings ratio (P/E).

The breakdown exposes different reasons for underperformance of markets and styles relative to the U.S. equity market. Using the specified data for 2015 through 2024, he finds that: (more…)