schweser notes4 P19 the two main justification for a value strategy are: 1.although a firm’s earnings are depressed now,the earnings will rise in the future as they revert to the mean; 2… i don’t understand this. i think value investor should focus on the numerator in P/E.
The price a value investor is willing to pay for a stock is a function of earnings. So a value investor will be looking at both. The depressed earnings result in a low stock price which you expect to appreciate when earnings come back to their normalized levels.
so growth invesors are also looking at both. However,they prefer earnings more. am i right?
Yep, a growth investor may be willing to pay a higher price (higher P/E) in exchange for more certain or higher expected EPS growth.