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This report analyzes the persistent valuation gap between U.S. and international equity markets, exploring why U.S.-listed companies trade at a premium and what this means for investors going forward.

Valuation Disparity:

• U.S. stocks consistently trade at higher valuations than international stocks, sparking debate over whether this is justified.

U.S. Exceptionalism vs. Mean Reversion:

• Some argue U.S. stocks deserve a premium due to stronger earnings growth.

• Others suggest the valuation gap is excessive, predicting mean reversion over time.

Factors Influencing Valuations:

• A regression analysis of the top 1,000 global stocks examines how:

  • Size, quality, profitability, investment style, and sector exposure impact valuations.

  • Listing location (U.S. vs. international) and U.S. revenue exposure affect pricing.

Key Findings:

• Higher-quality companies command higher valuations.

• U.S.-listed stocks trade at a premium relative to their foreign-listed counterparts.

• Stocks with higher U.S. revenue exposure tend to have lower valuations.

• Half of the valuation gap is due solely to U.S. exchange listing rather than fundamentals.

Investment Strategy Implications

• Given that valuation gaps are largely driven by listing location, international stocks may offer better value despite lagging performance over the past decade.

• International stocks generally have smaller market caps and lower U.S. revenue exposure, factors that may contribute to their relative undervaluation.

Conclusion

This report highlights listing location as a key driver of U.S. valuation premiums, rather than purely fundamental factors.
As the valuation gap narrows over time, investors should consider increasing exposure to international markets to capitalize on potential upside.

[Compliance Note]

• All posts by Sellsmart are for informational purposes only. Final investment decisions should be made with careful judgment and at the investor’s own risk.

• The content of this post may be inaccurate, and any profits or losses resulting from trades are solely the responsibility of the investor.

• Core16 may hold positions in the stocks mentioned in this post and may buy or sell them at any time.