Return on Equity at 10-Year High Fails to Drive Valuations

U.S. companies, earning more from investments in plants and labor than any time in the last decade, have yet to reap the benefits in their stock valuations.

Return on equity at International Business Machines Corp. has risen to 68 percent this year from 24 percent in 2005 after the Armonk, New York-based company sold its personal-computer business and reorganized staff. Net income per employee rose to $34,758 in 2010, the highest since at least 1987, according to data compiled by Bloomberg. The stock, up 108 percent since the end of 2005 through last week, trades 16 percent below its average price-earnings ratio during the past decade.