In the long term, stock prices always follow the evolution of the intrinsic value. That’s why earnings growth is so important for investors. I’ll teach you everything you need to know in today’s article.
CQ, greetings from London. Thank you SO much for all of your work and generosity in sharing this excellent knowledge. It is an outstanding resource and the first port I go to when I see something new. Would love one day to have a Compounding Quality get together in person. Flying over to attend the Berkshire AGM in Omaha in May 2024, given that Warren will be 93 and Charlie will be 100. Might not have too many more chances to see them both in action.
Dear friend CQ,
Thank you once again for delivering yet another superb gem of an article. Your consistent ability to provide insightful analysis and deliver it with eloquence positions this latest piece as a prime candidate for inclusion in economics curricula, be it at the school or university level.
The incorporation of a quote from Mr. Terry Smith, a figure I deeply admire, truly stood out to me. As you are aware, my admiration for Maestro Terry Smith runs deep, and I am proud to be an investor in his fund. Moreover, I want to acknowledge your skill in seamlessly integrating valuable commentary alongside your articles. This often-overlooked aspect serves as a valuable extension of the already illuminating content you provide.
Without fail, every Tuesday and Thursday, I find myself filled with gratitude for the way you elucidate the intricacies of the investing craft. Your commitment to education reverberates clearly through your work, benefiting readers like me who are constantly striving to enhance our understanding of the field. Once again, your work proves to be an invaluable resource.
I wish you a week filled with productivity and positivity.
As we all know, information like this should be taught in school, I’m talking grade school. But it never will be.
Go over this with your kids!!!
As always great job QC!!
Another excellent article! Thank you for continuing to turbo-boost and compound my investing knowledge.
This is really great information that investors should look at for
"so we state that the stock will trade at 20x earnings in 10 years from now"
But how to predict it? I mean, that PE will be 20x, not 10x, for example?
Superb. I am booking a table at Gorat's Steak House, Buffett's favourite. Spoiler alert, there just might be a famous Fundsmith person joining and a gent who used to run that Seilern fund.
Big fan of yours. A few questions, as by chance I was working on the same topic today:
1) shouldn't shareholder yield include also reduction / increase in net debt? (E.g. how they do in private equity).
2) does it make sense to form an expectation of where ronic will be in 10 years based on moat and where growth will be in 10 years based on TAM and then compute implied reinvestment ratio and derive justified PE multiple in 10x based on that?
3) can we compute our earnings growth expectation as ronic x reinvestment ratio, coherently with the numbers above?
Many thx and keep on the good work
So for the Stable Inc. and Growth Inc. example: The valuation (P/E) only matters if you buy a stock or if the P/E goes ridiculously up like it's at Nvidia right now.
"Expected return = Earnings growth + shareholder yield +/- multiple expansion (contraction)"
Earnings growth - is it future EPS expected growth?