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The Effect Of Gross Profitability On Share Price Appreciation, Philip Barr

Honors Theses

The purpose of this study is to analyze the relationship between gross profitability and share price appreciation. Dimensional Fund Advisors, an investment firm managing $338 billion, builds portfolios based on a number of different metrics and added gross profitability as a factor in early 2013. Profitable firms may be systematically undervalued and, therefore, gross profitability should predict future share price appreciation. Gross profitability is a firm’s gross profit multiplied by its asset turnover. A high gross profitability may signal a firm’s pricing power or quality in comparison with other businesses. Investors may neglect profitable firms and overpay for “lottery stocks” …