Earnings-Based Security Analysis No Longer Relevant?

Conventional earnings-based security analysis has lost much of its usefulness according to Feng Gu and Baruch Lev, who have published their findings on the topic in a recent issue of the Financial Analysts Journal. Feng Gu, professor of accounting at the School of Management, State University of New York, and Baruch Lev, professor of accounting and finance at the Stern School of Business, New York University, believe that over the past few decades, the usefulness of predicting corporate earnings, or consensus hits and misses—an activity at the core of most investment methodologies—has been shrinking fast. In this context, the usefulness of this tool is measured…