3 Engines Driving Stock Price Growth

Long_Equity
08-09

There are three drives of share price appreciation:

● Multiple expansion - turning revenue growth into even higher FCF growth

● Buybacks - turning FCF growth into even higher FCF per share growth

● Multiple expansion - turning FCF per share growth into even higher share price growth

Here are the $S&P 500(.SPX)$ and S&P 400 companies that are leading the charge.

Take a look at $Cintas(CTAS)$

● Margin expansion turned 9% revenue growth into 26% FCF growth

● Buybacks turned 26% FCF growth into 27% FCFps growth

● Multiple contraction meant that the 27% FCFps growth only produced 22% share price growth, suggesting that this cash generating machine is now undervalued.

Other examples on the list are:

- $Arch Capital(ACGL)$

- $RLI Corp(RLI)$

- $Automatic Data Processing Inc(ADP)$

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

Comments

We need your insight to fill this gap
Leave a comment
28