The idea that valuation metrics revert to some long-term average is one of the more common arguments advanced by those asserting that stock prices are expensive and due to fall.
But the tendency for valuations to mean revert is a myth, argue Goldman Sachs analysts.
“There is no evidence of mean reversion in equity valuations; valuations do not have to revert to any long-term mean over any specific horizon,” the analysts wrote earlier this month.
