2. Disclaimer
Trendline does not recommend, buy, or sell investments. The
information in this presentation and on Trendline’s website is intended
to be used and must be used for informational purposes only. The
analysis in this presentation relates to performance of publicly traded
stocks for 2017 and is not predictive of any future results.
2 GetTrendline.com | @GetTrendline | See Disclaimer on Page 2April 17 GetTrendline.com | @GetTrendline
3. Summary
• Stocks that traded at a discount on December 31, 2016 have
increased the most this year, and stocks that traded at a discount
of at least 16% on December 31, 2016 have performed even better
• Stocks with revenue growth estimates of at least 5% (the 50th
growth percentile) as of December 31, 2016 have performed
similar to discounted stocks
• A portfolio of discounted growth stocks has beaten the S&P 500 by
45% (2.1 percentage points)
• Adding Quality Factors to the portfolio increased the return to 2.5x
the S&P 500
3 GetTrendline.com | @GetTrendline | See Disclaimer on Page 2April 17
4. About the Data
• Data is year-to-date and month-to date as of April 21, 2017
• Data is limited to S&P 500 components, which represent about 80% of the total
market capitalization of all US stocks
• S&P 500 return is unweighted and excludes dividends
• Total returns, including dividends, do not have a significant impact on any
comparisons
• Valuations, consensus earnings estimates, prices, growth rates, and analyst
ratings are as of December 31, 2016
• All data calculated on the Trendline platform using fundamental and estimate
data from Zacks Investment Research
• Valuations based on the Trendline “vs. Trendline” methodology (see Appendix)
4 GetTrendline.com | @GetTrendline | See Disclaimer on Page 2April 17
5. Stock prices for companies with lower relative valuations have increased 5.6%,
56% more than companies with higher relative valuations
5
Average Stock Price Change by Relative Valuation
Lower Valuations Higher Valuations
5.6%
4.7%
3.6%
0.0%
-0.7%
-0.5%
-2%
0%
2%
4%
6%
<50th Percentile S&P 500 >50th Percentile
EquityReturn
2017 April
GetTrendline.com | @GetTrendline | See Disclaimer on Page 2April 17
6. Stock prices for companies with higher growth rates have increased 5.5% in
2017, 57% more than companies with lower relative growth
6
Revenue Growth <5%
3.5%
4.7%
5.5%
-0.5% -0.7%
-0.4%
-2%
0%
2%
4%
6%
<50th Percentile S&P 500 >50th Percentile
EquityReturn
2017 April
Average Stock Price Change by Relative Growth Rates*
*Revenue growth rate for the current fiscal year + 1 (2018 for most companies)
Revenue Growth >5%
GetTrendline.com | @GetTrendline | See Disclaimer on Page 2April 17
7. Stock prices for companies with lower valuations and higher growth rates have
increased 6.8%, 45% more than the S&P 500
7
Lower Valuations Higher Growth
4.7%
5.6% 5.5%
6.8%
-0.7%
0.0%
-0.4%
0.8%
-2%
0%
2%
4%
6%
8%
S&P 500 <50th Value >50th Growth Value + Growth
EquityReturn
2017 April
Lower Valuations &
Higher Growth
Average Stock Price Change by Relative Valuation & Growth*
*Revenue growth rate for the current fiscal year + 1 (2018 for most companies)
GetTrendline.com | @GetTrendline | See Disclaimer on Page 2April 17
8. Stock prices for companies in the 15th valuation percentile have increased the most.
These companies traded at a discount of at least 16% on December 31, 2016
8
Lower Valuations Higher Valuations
9.3%
7.9%
5.1%
3.8%
3.3%
4.2%
3.7%
2.4%
-0.8%
0.6%
-0.3%
0.0%
-0.4%
0.2%
-0.7%
-2.2%
-4%
-2%
0%
2%
4%
6%
8%
10%
<5 5-15 15-30 30-50 50-70 70-85 85-95 95+
EquityReturn
2017 April
Average Stock Price Change by Valuation Percentile
GetTrendline.com | @GetTrendline | See Disclaimer on Page 2April 17
9. Quality Factors can improve returns
Filter out companies meeting any of these criteria:
– Lowest growth
– Highest dividend yields
– Smallest companies (by market capitalization)
– Riskiest earnings estimates
– Low consensus analyst ratings (<50th percentile)
9
Quality Factors
GetTrendline.com | @GetTrendline | See Disclaimer on Page 2April 17
10. Applying Quality Factors improved returns significantly for all portfolios
10
Average Stock Price Change with Quality Factors
4.7%
8.4%
10.5%
6.3%
7.6%
9.1%
11.5%
-0.7%
0.3% 0.4% 0.3%
0.0%
0.5% 0.5%
-2%
0%
2%
4%
6%
8%
10%
12%
14%
S&P 500 S&P 500 +
Quality
< 50th Value
+ Quality
> 50th Value
+ Quality
< 50th
Growth +
Quality
> 50th
Growth +
Quality
Value +
Growth +
Quality*
EquityReturn
2017 April
GetTrendline.com | @GetTrendline | See Disclaimer on Page 2April 17
11. Quality Factors: Companies with the lowest growth rates had negative returns
11
Average Stock Price Change by Revenue Growth Estimate Percentile * (year-to-date)
Consensus revenue growth rate estimate for the current fiscal year + 1 at December 31, 2016. 95th percentile returns are
negatively impacted by the Energy sector.
Highest Growth Lowest Growth
1.2%
7.2%
4.9% 4.8%
4.0%
5.0%
0.5%
-1.8%
-4%
-2%
0%
2%
4%
6%
8%
95+ 85-95 70-85 50-70 30-50 15-30 5-15 <5
EquityReturn
GetTrendline.com | @GetTrendline | See Disclaimer on Page 2April 17
12. Quality Factors: Highest yielding stocks had negative returns
12
Average Stock Price Change by Dividend Yield Percentile* (year-to-date)
*Dividend yield annualized at December 31, 2016
Highest Yield Lowest Yield
-5.8%
-0.1%
3.1%
5.7%
6.3%
5.6%
8.3%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
95+ 85-95 70-85 50-70 30-50 15-30 <15
EquityReturn
GetTrendline.com | @GetTrendline | See Disclaimer on Page 2April 17
13. Quality Factors: Smallest companies had the lowest returns
13
Average Stock Price Change by Market Capitalization Percentile* (year-to-date)
*Market capitalization at December 31, 2016
Largest Market Cap Smallest Market Cap
4.0%
4.9%
3.4%
4.0%
5.6%
4.9%
1.7%
1.6%
0%
2%
4%
6%
95+ 85-95 70-85 50-70 30-50 15-30 5-15 <5
EquityReturn
GetTrendline.com | @GetTrendline | See Disclaimer on Page 2April 17
14. Quality Factors: Stocks with High EPS uncertainty had the lowest returns
14
Average Stock Price Change by Standard Deviation of EPS Estimates Percentile* (year-to-date)
*Consensus earnings estimate at December 31, 2016
Higher Std Deviation Lower Std Deviation
-7.4%
2.6%
5.8%
2.4%
5.2%
6.0% 6.3% 6.5%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
95+ 85-95 70-85 50-70 30-50 15-30 5-15 <5
EquityReturn
GetTrendline.com | @GetTrendline | See Disclaimer on Page 2April 17
15. Quality Factors: Companies with the highest analyst rating performed best
15
Average Stock Price Change by Consensus Analyst Rating Percentile* year-to-date
*Consensus earnings estimate at December 31, 2016
Highest Avg. Rating Lowest Avg. Rating
6.6%
6.9%
6.2%
3.6%
4.6%
3.0%
0.7%
0.4%
0%
2%
4%
6%
8%
95+ 85-95 70-85 50-70 30-50 15-30 5-15 <5
EquityReturn
GetTrendline.com | @GetTrendline | See Disclaimer on Page 2April 17
17. Methodology
• Run 10-20 regressions each day for each Segment (e.g.,
Internet Services)
• Choose the best regression model for each segment
(e.g. Software valuations are best explained by forward
EBITDA multiples and revenue growth rates)
• Generate a “vs. Trendline” value for each company
based on the distance between the actual multiple and
the multiple predicted by the best regression analysis
• Rank all vs. Trendline values for all companies
17 GetTrendline.com | @GetTrendline | See Disclaimer on Page 2April 17
18. Example: Getting the “vs. Trendline” value for Wal-Mart
18
• Run regression analyses for the Retailing
segment using all available consensus
analyst estimates
• The sample regression analyses shows how
forward P/E multiples vary based on
revenue growth estimates
• Wal-Mart’s “vs. Trendline” value is 10.74% -
because its forward P/E multiple is 10.74%
higher than the trendline predicted by the
regression
• Companies with values below the trendline
have a negative “vs. Trendline” value
• Trendline generates a new “vs. Trendline”
value each day based on the latest analyst,
fundamental, and pricing data
• Sample chart link
Regression Analysis for Retailing
@GetTrendline
GetTrendline.com | @GetTrendline | See Disclaimer on Page 2April 17
19. Because Trendline’s approach evaluates valuations in the context of growth
rates, “expensive” companies often trade at a discount…
19
Adobe appears to trade at a premium valuation if you only look at average multiples for Software and the
S&P 500. The Trendline values show that Adobe trades at a discount when considering its growth rate. Link
@GetTrendline
GetTrendline.com | @GetTrendline | See Disclaimer on Page 2April 17
20. …and often shows that “cheap” companies are appropriately valued or
expensive.
20
IBM appears to trade at a discount if you look at any P/E comparison, but companies like IBM trade primarily
on EBITDA multiples. IBM looks expensive on an EBITDA basis. Link
@GetTrendline
GetTrendline.com | @GetTrendline | See Disclaimer on Page 2April 17