The reversion to the mean phenomenon implies that properties of group members converge to the average value of the group as a whole. Its application is in instances that economic forces result in a drive to an equilibrium. The price- to- book- ratio is a viable discriminator between the value stocks and company growth. It also is a good tool for acquiring cheap stocks. Using the price-to-book ratio alone, however, produced fewer results than using the six financial characteristics. That is because the 1982-1992 period was more favorable to growth than to value. Also, despite the fact that the P/B ratio fell between the two periods for the good companies, a quicker growth in the equity was an indicator that the performance of price was impaired (Ross, Westerfield, & Jordan, 2006). One variable approach, as such, is not the best. In spite of the fact that good companies do not make good investments, there is a reward for them in the market for their reasonable multiple sales.
Clayman, M. (1994). Excellence Revisited. Financial Analysts Journal, 50(3), 61-65.
Ross, S., Westerfield, R., & Jordan, B. (2006). Fundamentals of Corporate Finance (7th ed.).
Boston, Mass.: McGraw-Hill/Irwin.