The First Cut: Declining Total Assets and Positive Earnings Surprises

by John Bajkowski

The First Cut: Declining Total Assets And Positive Earnings Surprises Splash image

Does it pay to focus on stocks with the greatest annual decline in total assets?

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While it may be counter-intuitive, a recent research paper suggests that as a group, stocks with the largest increases in total assets underperform stocks with the lowest growth (or greatest decline) in total assets. This suggests that investors tend to overpay for past growth, creating mispriced stocks, while corporate managers tend to overpay to continue company growth—especially when pursuing mergers and acquisitions.

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