This study examines the relationship between valuation multiples and investment performance in the U.S. stock market. Specifically, it tests whether portfolios constructed with high-multiple stocks consistently outperform portfolios with low-multiple stocks. The analysis spans the Technology, Consumer Staples, and Healthcare sectors from 2018 to 2022. A sector-based portfolio construction framework was employed using quarterly portfolio-return data. Quantitative financial modelling, including regression analysis and descriptive statistics, was applied to assess the correlation between portfolio returns and valuation multiples (P/E and EV/EBITDA), while interpreting results within the broader context of market volatility and the COVID-19 period. The results show no statistically significant relationship between valuation multiples and portfolio performance. Low-multiple portfolios demonstrated marginally higher average returns over the period, offering weak support for value-based investment strategies. Results further suggest limited standalone predictive power in high-multiple valuations. Drawing on the Efficient Market Hypothesis, Value Investing, Growth Investing, and the Fama-French Three-Factor Model, this paper empirically tests the impact of valuation multiples within a sector-based portfolio framework. Accordingly, the study adds to the asset pricing literature by offering a structured null-result framework, demonstrating that valuation multiples, when applied in isolation, may not provide sufficiently reliable standalone signals for portfolio performance. The COVID-19 period is interpreted as an economically meaningful contextual regime characterized by elevated volatility, liquidity intervention, and sectoral divergence, rather than as a formally estimated event-study framework.
Aftabi et al. (Tue,) studied this question.