The Value Convergence

The valuation difference between the market’s cheapest stocks and its most expensive has always fascinated me. Here are the EBITDA yields (EBITDA/EV, higher=cheaper) at different break points since the early 1960s.

At the market extremes (99th and 1st percentiles), things have converged a great deal. The cheapest percentile (25 or so stocks) are much more expensive (lower yields) than they were in 2009. The most expensive percentile is less expensive (although still has a negative EBITDA, just less so relative to its enterprise value). 

No matter which breakpoints you choose, spreads have come in and sit near all-time lows. Are narrower spreads a sign of market complacency? Spreads have peaked at times of peak uncertainty (2009, aftermath of tech-wreck, early 80’s).