PE ratio and event-driven scoring – the apparel manufacturers case study
Apparel production, also known as garment production is a process where the fabric is being converted into garments. The term apparel production is basically used when garments are manufactured in a factory. Traditionally apparel manufacturing factories have been divided into two sectors as domestic and export.
In this case study, we compared companies in the US apparel manufacturers industry by their PE ratio vs the event-driven scoring based on extracted events for each company within the industry.
- Market: US
- Sector: Consumer Cyclical
- Industry: Apparel manufacturers
- Market cap > $5B
We generate a event-driven score for each company based on the past 90 days included all the events that each company had during this period.
(event-driven score is scaled between 0-1 where bellow 0.5 consider as bearish sentiment based on events during the filtered period, above 0.5 consider bullish) clicking here for our interactive dashboard trial
The dashboard and the table below presents the companies news sentiment score and PE ratio
We can see that companies that have an event-driven score above 0.5 tend to have a PE ratio above 15, which is the lower PE benchmark and vice-versa.
According to our research, the 90 days event-driven score predicts the PE ratio above or below the 15 benchmarks with 66% accuracy (based on 3,000 companies sample). The remained 34% of cases can be described as alpha capture as the event-driven score correlation to the companies performance is solid while the correlation to the PE ratio which considers the stronger indicator for stock returns is not initially correlated. This test was conducted on 90 days period, the next case study on this topic will cover 180 days period
To summarize: ongoing events tracking and scoring can be a very useful alpha source as it correlated to performance but not initially correlated to PE ratio