.png)
Imagine two scenarios.
Company A
Company A has strong management team who are focused on increasing returns on invested capital. Current cash flows are €3 billion per year, and top-line growth of 4% and EPS growth of 14% suggests even stronger cash flows down the road. Meanwhile, the industry is stable and growing secularly, and Company A holds the number one position in all three of its key geographies; and yet the sell-side analysts are bearish, anchored to a stale accounting-short thesis.
Company B
Company B also has strong management team who are focused on increasing returns on invested capital. Current cash flows are €3 billion per year, and top-line growth of 4% and EPS growth of 14% suggests even stronger cash flows down the road. Meanwhile, the industry is stable and growing secularly, and Company B holds the number one position in all three of its key geographies; and yet the sell-side analysts are bearish, anchored to a stale accounting-short thesis.
Company A is trading on a 2019 P/E of 21x, while Company B is trading on a 2019 P/E of 13x.
Which one are you going to buy, Company A or Company B?
Everything else being equal, we’d all like to buy the same thing at a lower price. At least on that much, value and growth investors should agree.
FOOTNOTES
DISCLAIMER
The views and opinions expressed in this post are those of the post’s author and do not necessarily reflect the views of Albert Bridge Capital, or its affiliates. This post has been provided solely for information purposes and does not constitute an offer or solicitation of an offer or any advice or recommendation to purchase any securities or other financial instruments and may not be construed as such. The author makes no representations as to the accuracy or completeness of any information in this post or found by following any link in this post.
YOU MIGHT ALSO LIKE
Hedge Fund Investing, Turnover, and Taxes
For taxable investors, the impact of taxes on long term post-tax returns really, really matters. But how much exactly do they matter? What sort of outperformance does one of your managers need to generate to offset the penalty of not buying and holding forever?
Read MoreStock Market History, Illuminated, 2022 Style
I’ve been keeping a graphic of the long-term performance of the US stock market for many years now, and I’ve been sharing this information in the histogram below. I think it does a reasonable job of revealing how long-term returns are manufactured and the tilts over time. I’ve color-chunked the data by decade to highlight decades of historical weakness as well as periods of strength. I’ve also added additional tables and charts which I think are interesting, and in some cases, stunning.
Read More
