The Effectiveness of the Value Investment Theory During the COVID-19 Pandemic: Using the Heavy Asset Industry as an Example

Abstract

Value Investing Strategy is one of the most favourable investment methods. However, under the complexity and fluctuation brought by the influence of COVID-19, the effectiveness of value investing strategy remains in question. The paper uses heavy asset industry as a target industry and strive to understand the performance of value investing in such industry under the effects of the pandemic. Specifically, four companies are selected in our study to analysis their performance using value investing ratios, including two representative companies(H&E Equipment Services, Inc., United Rentals, Inc., Sonic Automotive, Inc., and O’Reilly Automotive, Inc.)of the heavy asset industry and their competitors, which are considered as value stocks (before COVID-19). The evaluation standard ratios are grouped into four aspects, representing the company’s prices, profit abilities, growth, and stabilities. The study first compares the subjects’ performances in the same periods in 2019 (before COVID-19) and 2020 (after the initiation of COVID-19). In order to eliminate the noise of the influence of normal business cycles, the performance of subjects in the same periods from 2018 to 2019 are supplied as an addition to the previous data. According to the results, the subjects’ performances deviate from the ideal value investing criteria as well as their expected future performance predicted based on their normal performance in the 2018~2019 period (without COVID-19’s influence). Therefore, value investing strategy incurs questionable efficiency under the context of COVID-19, i.e., the relevance of value investing application ought to be reconsidered under such an abnormal economic environment.