Shopping For Alpha:

Cross-Section of Returns Explained by Industry KPIs

Can analyst forecasts of industry-specific metrics generate alpha in a cross-section of returns in the restaurant and retail industries?

Every industry has its preferred measures of operating performance. Analysts provide detailed information about these KPIs to investors who may use them to evaluate industry peers in more differentiated ways that general accounting metrics such as revenue, earnings, and EBITDA multiples do not neatly capture.

In seeking an answer to this question Visible Alpha’s data science team demonstrates that two popular metrics for retailers and restaurants, comparable sales and operating margin growth, generate significant long/short spreads in U.S. consumer retail portfolios.

These results provide direct evidence of value in systematically incorporating analyst expectations of industry-specific metrics into quantitative factor models. In addition, we find that margin expansions can have a higher impact on stock returns than comparable sales growth, providing valuable insight for fundamental investors.

TO READ THE FULL ANALYSIS

Download this White Paper

Key Findings:

Two popular metrics for retailers and restaurants, comparable sales and operating margin growth, generate significant long/short spreads in U.S. consumer retail portfolios.
A long/short strategy taking positions only in what analysts believe to have better- or worse-than-median comparable sales and operating margin growth together has yielded 1.45% monthly alpha since 2017 for retail stocks.
At the stock level, margin expansions are more impactful on stock returns. On average, 100 basis points higher margin improvement gets 0.7% higher stock return in the next 12 months. In contrast, a firm with 100 basis points higher comparable sales growth gets an estimated 0.34% higher stock return in the next 12 months.
Although comparable sales expectations came in line with pre-Covid-19 norms by no later than Fall 2022, the operating margin expectations took longer to converge.

To read the full analysis, download the white paper by completing the form.

*The full codebase for this analysis is available via Visible Alpha Insights. Clients can access the codebase here. For all others, please contact our sales team.

Unlock the Power of Forecast Data

Visible Alpha Insights captures the forecasts, assumptions and logic from full working sell-side models and integrates them into comparable views across analysts, companies and peer groups. This deep consensus data provides a quick understanding of the sell-side view on a company or industry at a level of granularity, timeliness and interactivity that has never before been possible.

View Our Stats

200+

Contributing Brokers

17,000+

Companies in Broker Coverage

7,000+

Companies in Consensus

1M+

Total Consensus Line Items

Shopping For Alpha:

Download this White Paper

Unlock the Power of Forecast Data

200+

17,000+

7,000+

1M+

Call Us

Company

Products

Client Access