Why FCF Yield Alone Misleads on Valuation

Long_Equity
12-21

Here's why FCF yield alone doesn't tell you the value of a company.

First example: The "expensive" company (2% yield) has a faster growth rate and consequently a higher forward yield than the "cheap" company (10% yield).

Second example: Two companies have the same FCF yield. Which is cheaper? The one with the highest growth rate.

PS: I forecast the future FCF yield and compare that to the current share price. That way I factor in both growth and the current share price.

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