As of January 1, 2025, growth stocks have a trailing price-to-earnings (P/E) ratio of 38.82 and a forward P/E of 28.06. In contrast, value stocks have a trailing P/E of 19.62 and a forward P/E of 16.78. These multiples are based on the Russell 1000 Growth and Russell 1000 Value indices.
At the beginning of 2025, the valuation spread between growth and value stocks is at its widest since the peak of the dot-com bubble in the early 2000s. While growth companies have experienced strong earnings, value stocks have seen little earnings growth in recent years. Analysts continue to have modest expectations for value stocks, whereas they predict robust earnings growth for growth stocks.
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| Index | Ratio | 12/31/2024 | 6/30/2024 | 12/31/2023 | 6/30/2023 | 12/31/2022 | 12/31/2021 |
|---|---|---|---|---|---|---|---|
| Russell 1000 Growth | P/E (TTM) | 38.82 | 36.32 | 34.46 | 31.28 | 24.13 | 35.86 |
| EPS (TTM) * | 121.46 | 117.83 | 103.28 | 103.3 | 104.32 | 100.00 | |
| Forward P/E | 28.06 | 28.42 | 26.39 | 25.95 | 21.46 | 30.63 | |
| EPS (Forward) * | 168.03 | 150.59 | 134.87 | 124.53 | 117.27 | 117.07 | |
| CAPE Ratio | 51.62 | 48.75 | 42.40 | 39.98 | 32.60 | 53.08 | |
| Russell 1000 Value | P/E (TTM) | 19.62 | 17.63 | 16.36 | 16.01 | 14.71 | 17.95 |
| EPS (TTM) * | 100.81 | 105.65 | 107.97 | 105.38 | 110.37 | 100.00 | |
| Forward P/E | 16.78 | 15.56 | 15.26 | 15.11 | 14.40 | 16.13 | |
| EPS (Forward) * | 117.84 | 119.73 | 115.78 | 111.66 | 112.74 | 111.28 | |
| CAPE Ratio | 20.40 | 19.55 | 19.09 | 18.74 | 18.64 | 23.03 |
* The table presents both trailing and forecasted Earnings Per Share (EPS), with values indexed to a base of 100 as of January 1, 2022. EPS (TTM) reflects the aggregate earnings of the Russell 1000 Growth/Value index stocks for the past 12 months and is calculated using the net income of the companies. EPS (Forward) is the forecasted (analyst consensus) earnings per share for the next 12 months and is calculated using the estimated operating profit of the companies.
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Earnings Growth of Value & Growth Companies
During the past years, growth stocks have outpaced value stocks in terms of earnings expansion, reinforcing their premium valuation. Meanwhile, value stocks have struggled to grow earnings, contributing to their relatively lower P/E multiples. This earnings divergence has widened the valuation gap between the two segments to levels not seen since the dot-com bubble.
Since the global financial crisis of 2008, growth stocks have demonstrated consistent and robust earnings growth, significantly outpacing value stocks. Even during the COVID-19 pandemic, the decline in earnings for growth stocks was relatively modest and short-lived, allowing them to recover quickly. In particular, the final quarter of 2023 and the entirety of 2024 were exceptionally strong for U.S. growth stocks, with earnings surging at an accelerated pace. This rapid and sustained earnings expansion can be seen as a key justification for the elevated valuation multiples that growth stocks command today.
In contrast, value stocks have exhibited much slower and less consistent earnings growth over time. While earnings for value-oriented companies steadily increased in the years following the financial crisis, this upward trajectory began to stagnate in 2021. Since then, earnings growth has been weak to non-existent. This prolonged stagnation has led to a widening valuation gap between growth and value stocks, as investors have been less willing to pay high multiples for companies with minimal earnings expansion. The subdued growth outlook for value stocks further reinforces their lower price-to-earnings ratios compared to their high-growth counterparts.
Growth vs. Value: Performance Trends
Since the financial crisis of 2007–2008, growth stocks have consistently outperformed value stocks, with the past several years being particularly favorable for growth equities. This outperformance has been largely driven by a small group of dominant technology companies, often referred to as the Magnificent Seven stocks (Apple, Microsoft, Nvidia, Amazon, Meta, Alphabet, Tesla), which have delivered exceptional earnings growth and market gains.
Historically, market leadership alternates between growth and value stocks over multi-year cycles, during which one strategy consistently outperforms the other. While some investors have long speculated that the current cycle favoring growth stocks is nearing its end, value-focused investors have been repeatedly disappointed as growth stocks continue to dominate. Some believed that 2024 could mark the beginning of a resurgence for value investing, but so far, growth stocks have maintained their lead. Whether value stocks will regain favor remains an open question.
Defining Growth and Value Stocks
Dividing companies into growth and value categories is not always straightforward, but general definitions help provide a framework:
• Growth Stocks: These companies have demonstrated rapid earnings growth in recent years and are expected to continue expanding at an accelerated pace. Investors are willing to pay higher valuation multiples (such as higher price-to-earnings ratios) for these stocks because of their strong future growth potential. Growth stocks tend to exhibit higher volatility, which is often embraced by investors who seek high returns and are comfortable with short-term price swings.
• Value Stocks: These are companies that, for one reason or another, have fallen out of favor with investors and are trading at lower valuations relative to the market. Their earnings growth outlook may appear weak in the short term, which keeps their stock prices depressed. The investment thesis behind value stocks is that they are undervalued—once these companies overcome their current challenges and realize their earnings potential, investors will recognize their intrinsic value, leading to a period of outperformance.
However, the distinction between growth and value is not always clear-cut. Some companies might appear to be growth stocks based on certain valuation metrics, while other methods might classify them as value stocks. This ambiguity has led some prominent investors to question the usefulness of the entire classification system, arguing that stock investing should be based on broader factors beyond simple categorization.
Tracking Growth and Value Performance
One of the most widely followed ways to measure the performance of growth and value stocks is through the Russell 1000 Growth and Russell 1000 Value indices, which are maintained by FTSE Russell. These indices use a multi-variable methodology that incorporates both backward- and forward-looking financial metrics to classify companies as either growth or value stocks.
Both indices are derived from the Russell 1000 Index, which represents approximately 1,000 of the largest publicly traded U.S. companies and covers over 90% of the total U.S. equity market capitalization. Because of their broad coverage and well-defined classification system, these indices serve as key benchmarks for investors tracking the performance of growth and value investing strategies.