Alan, I haven't read James O'Shaunessey's book yet (th new edition is due to be released shortly), but the problem is this: PSR may be correlated with factors that are important. In addition, O'Shaunessey's point of view is making profits in the market, not valuation. It is my belief that probably the best parameter with which to judge a stock is the present value of the expected free cash flows which would take into account growth.
Using PSR, as you pointed out, eliminates growth stocks altogether, because the market places a premium on growth, and the greater the expected growth, the greater the premium.
So far as I am concerned, there is no decent valuation model that works for growth companies.
Regards,
Paul |
