ARB is almost a 5-bagger off the lows. Moving forward, to generate a “market-like” rate of return (a 7% CAGR over the next decade), you would need to value those terminal earnings at about 37x, for the embedded expectations to be (in our view) plausible.
NWL, a great company, but one that needs to keep earnings growing at the same pace as these “early” years, to generate a “market-like” 7% CAGR. It is extremely difficult to keep up such compounding, for another decade, even in absence of a competitive response.
The point here about “market-like” rate of return is about relative performance. You (presumably) want to beat the benchmark, and hence it matters. The odds of disappointment are high.
We (in our QGARP approach) are happy to own and hold growth stocks, but that last letter set (RP) compels us to consider that there might be a second tier of Quality Growth that we can own, still feel comfortable, and yet raise our chances of generating either a higher “true” earnings trajectory, relative to market, or a higher “true” earnings multiple.
Important Information: This document has been prepared by Aequitas Investment Partners ABN 92 644 165 266 (“Aequitas”, “our”, “we”), a Corporate Authorised Representative (no. 1284389) of C2 Financial Services, (Australian Financial Services Licensee no. 502171), and is for distribution within Australia to wholesale clients and financial advisers only.
This document is based on information available at the time of publishing, information which we believe is correct and any opinions, conclusions or forecasts are reasonably held or made as at the time of its compilation, but no warranty is made as to its accuracy, reliability or completeness. To the extent permitted by law, neither Aequitas nor any of its affiliates accept liability to any person for loss or damage arising from the use of the information herein.
Please note that past performance is not a reliable indicator of future performance.
General Advice Warning: This document has been prepared without taking into account your objectives, financial situation or needs, and therefore you should consider its appropriateness, having regard to your objectives, financial situation and needs. Before making any decision about whether to acquire a financial product, you should obtain and read the relevant Product Disclosure Statement (PDS) or Investor Directed Portfolio Service Guide (IDPS Guide) and consider talking to a financial adviser.
Taxation warning: Any taxation considerations are general and based on present taxation laws and may be subject to change. Aequitas is not a registered tax (financial) adviser under the Tax Agent Services Act 2009 and investors should seek tax advice from a registered tax agent or a registered tax (financial) adviser if they intend to rely on this information to satisfy the liabilities or obligations or claim entitlements that arise, or could arise, under a taxation law.