What Actually Drives Returns Beyond Valuations to Quality & Compounding

Long_Equity
03-31 07:09

Many investors pay attention to the wrong variables.

Here’s a list of what doesn’t matter, what matters somewhat, and what actually drives returns:

Doesn’t really matter:

•Market cap

•Country company is listed

•Share price

•Dividend yield

Matters somewhat:

•Sector

•FCF yield

•Revenue growth

•Insider ownership / owner operator

Matters the most:

•Return on capital

•Margin expansion

•Pricing power

•Reinvestment runway

What would you add?

For examples：

1. $Qualys(QLYS)$

Qualys is just one of a number of companies now seeing an all time high FCF yield.

The market is pricing in less future growth and a lot of uncertainty. But are they mistaken?

2. $Adobe(ADBE)$

Adobe's free cash flow yield is significantly above it's long-term average.

The market is clearly pricing in business deteroriation - the question for investors is whether that's justified?

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Comment（2）

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  • Rainy777
    ·03-31 09:08
    What matters most is understanding how profitable their business model is in the future economic environment. Both stocks have good cashflow for last year but are likely to be less profitable in the future with increased competition from AI agents.
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  • LEESIMON
    ·00:10
    🩷Good
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