There is one thing that has always nagged me during the 2nd longest bull market run in U.S. history. Corporations have roughly the same revenue per share today as they did halfway through 2007. And yet, sales growth per stock share has only recovered to the pre-crisis levels of 2007, whereas the S&P 500’s price has vaulted 40% up and above the pre-crisis levels of 2007.

While it is true that bottom-line corporate profits have increased handsomely, most recognize that this is a direct function of balance sheet manipulation. When a company purchases back its own shares, it reduces the shares in existence, causing earnings per share to increase. Yet the corporation has not actually increased its profitability; it did not earn any more money, though it did fool the world into thinking it generated more earnings.

Top-line revenue, or sales, is the lifeblood of a viable business going forward. Who is expressing concern about the market’s P/S of 1.8 in 2015 versus a P/S ratio of 1.5 at the onset of the credit collapse?

Consider the following data. Over the last 60 years, the median P/S ratio has been approximately 1.0. With the exceptions of “New Economy” euphoria in the late 1990s – with the exception of the bull market peaks of 1998 and 2000 – the current P/S of 1.8 is the highest price-per-sales ratio in 60 years of data keeping. Is it genuinely reasonable to acquire stocks at a 17% premium above the credit crisis top of 2007 or to acquire shares at a 44% premium above the 60-year average price-to-sales ratio? Just because interest rates are so low?

Don’t get me wrong. My client portfolios have a significant allocation to U.S. stocks, from Vanguard Mid-Cap Value (VOE) to iShares S&P 100 (OEF) to iShares USA Minimum Volatility (USMV) to SPDR Select Health Care (XLV). I am reluctantly bullish, and will remain so until positions break below and stay below long-term moving averages. For instance, a substantive breach of a key trendline for OEF – closing below and staying below a 200-day – has not occurred in over three years.

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