Expensive stocks
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.
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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.
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