Earnings Growth and Currency Management in Technology Firms

This report presents an analysis of stock price performance among small-capitalization technology companies, particularly those experiencing earnings growth that outpaces revenue growth. The document outlines the significance of active currency management for these firms, emphasizing balance-sheet hedging programs aimed at protecting current earnings and cash flow strategies designed to safeguard future earnings. It details the current market conditions, highlighting that investors are increasingly valuing earnings over sales growth, a shift that has been reinforced by venture funds. The report includes statistical insights, noting that the price-to-earnings ratio of the Dow Jones US Small-Capitalization Technology index has risen significantly, indicating a willingness among investors to pay a premium for projected earnings. Furthermore, it discusses the role of foreign exchange hedging in enhancing financial results, particularly for companies that prioritize earnings growth. The document concludes with observations on the effectiveness of different hedging strategies employed by public and private companies.