Application Software Risk & Returns 2009-2019

As an emerging industry Application Software firm have grown in number, size, and importance over the past decade. This study examines risk and returns from a representative U.S. sample. Overall results show (1) portfolios formed on strong minus weak revenue growth (SMW) could have added a positive gross risk-adjusted return to a theoretically diversified equity portfolio, but there could also be lower risk strategies that achieve a similar result (2) the asset pricing story shows a clear delineation between firms with strong and weak revenue growth, but elevated valuations do not suggest efficient pricing (3) sensitivity to revenue growth renders other factors less useful in the short run (4) revenue growth can be used as a signal within a systematic approach that adjusts to variations in outcomes, re-balancing as necessary.