PONTE VEDRA BEACH, Fla., May 11, 2022 /PRNewswire/ — Strategic advisory firm Fortuna Advisors today released its 2022 Value Leadership Reportrevealing top value creators among the Russell 1000 and analyzing how they produced superior returns.
According to the data:
- The members of the Russell 1000 created over $19 trillion in market cap over the five-year period ending February 2022with the top quartile accounting for nearly $14 trillionor 72%, of the gains.
- Top-quartile companies delivered median annual TSR of 30.1%, implying nearly a quadrupling of share price over the period.
- “Serial Leaders,” such as Tesla, NVIDIA, Adobe, Amazon, and Lowe’s, were repeat top performers in consecutive five-year periods, while “Recovery Stars,” such as Target, Chipotle, and Deere & Co., saw their fortunes reverse, rising from bottom- to top-quartile over consecutive five-year periods.
- The Retailing sector was an unexpected outperformer, driven by rapid adoption of digital platforms to capture market share during the COVID-19 pandemic.
- Analysis shows how traditional performance measures are not always reliable indicators of shareholder returns.
Overall, top-quartile companies created nearly $14 trillion in market capitalization versus $700 billion lost within bottom-quartile companies. The gap illustrates the immense value created by market performers and highlights the importance of continuous reallocation of capital and human resources to favorable business units.
As part of the study, Fortuna Advisors also examined a comprehensive list of performance measures used in public company compensation plans, finding that an adjusted cash-based measure of economic profit, known as Residual Cash Earnings (RCE), shows the strongest relationship to TSR performance.
“For the benefit of managements and boards charged with selecting performance measures to drive their top-quartile performance, we examined how the measures most commonly used to assess and incentivize performance actually translate to shareholder returns,” said Fortuna Advisors CEO Greg Milano. “RCE, a simple measure that balances growth and return, shows a stronger relationship to TSR than traditional performance measures.”
The report also includes company and industry analysis, with a deeper dive into Retailing, which returned the second highest median annual TSR (19.8%) of the industries in the study. Retail created a whopping $1.8 trillion in market cap over the period, in part by rapidly adopting and rolling out digital platforms to capture increasing market share.
“Retail’s dominance demonstrates that even the most discounted businesses and industries can defy expectations,” said Milano.
Fortuna Advisors (fortuna-advisors.com) is a strategic advisory firm that helps clients transform their value creation through bold improvements to managerial insights, decisions, and behaviors.
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SOURCE Fortuna Advisors LLC