Small cap price-to-earnings (P/E) ratios, despite hitting the highest levels since early 2022 in December, remain historically cheap, analysts at Bank of America have highlighted.
Small cap stocks are trading 3% below their long-term average P/E compared with 27% above for large caps and 13% above for mid-caps, according to analysts.
"For long-term investors, valuations today imply a particularly attractive backdrop for the Russell 2000: 10% annualized returns over the next decade versus 3% for the Russell 1000," the analysts wrote in an update to clients.
They added that the Russell 2000 Value index trades at a historical discount to the Growth index on four of the six metrics tracked.
And as far as small cap sectors are concerned, based on their quantitative sector ranks (on relative valuation, estimate revisions, technicals and Bank of America analyst upgrades-downgrades), the analysts noted that Financials continue to rank first, while Energy dropped to second, and Utilities now rank last.