Compounders often look expensive, but history demonstrates they are often actually undervalued
The future growth of every company is uncertain.
That’s why it’s important to consider:
- historic growth
- return on capital and capital allocation
- margins and pricing power
- competitive advantages
- potential for more products and entering new markets
Compounders often look expensive, but history demonstrates they are often actually undervalued.
This table shows the relationship between growth and multiples
In short, a PE ratio of 50 requires a 20% earnings growth over 5 years to turn that forward multiple from 50 -> 20.https://twitter.com/long_equity/status/1616366298513932288
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