Busting the earnings myth

Summary: Earnings growth is vital but not enough to beat the market. Our deep dive into 25 years of data reveals why fundamentals alone can mislead. And how we identify the few businesses where growth, value and quality align. “In the long run, it’s earnings, not charisma, that counts”, Warren Buffett once said. For decades, investors have taken this to heart, assuming that strong earnings growth is the surest path to strong stock returns. We used a simple premise to test this belief: if a company’s earnings growth matches or exceeds the market return, its stock should logically beat the market, too. So, does this hold true? Only partially. We analysed the earnings and stock price performance of the top 500 companies by market cap over the last 25 years. We assessed the data for both short and long durations. The one-year test: A coin toss Over any given year, 48 per cent of companies on average delivered earnings growth that equalled or outpaced the market’s return. But only half of these stocks managed to beat the market. That’s right. Even if a company grew its earnings as fast as or faster than the market, it had only a 50:50 chance of beating the market in a year. The outcome, statistically speaking, is no better than a coin to

This article was originally published on August 01, 2025.