Norway’s Sovereign Wealth Fund announced that it is looking to restructure compensations plans at certain companies in its portfolio. As the fund looks for a company it can target, we offer a candidate: Lions Gate Entertainment (LGF).
There are some genuinely good examples of shareholder activism out there. In the right context, activist investors hold management accountable and play a beneficial role in the market by ensuring that poor corporate governance and strategy don’t persist.
We’ve been sounding the alarm on non-GAAP earnings for several years now. Companies exploited the wide leeway granted by the SEC to present their business in a more favorable light.
investors always need to dig deeper than looking at a simple “buy” or “sell”. Sometimes, these ratings can be driven by factors that have nothing to do with markets or fundamentals. On other occasions, the argument might sound convincing but completely crumble when you examine some of the underlying assumptions.
In reality, EV/EBITDA can actually be significantly worse than P/E or P/B ratios because EBITDA ignores certain real costs of doing business like taxes, depreciation, and amortization. Put simply, EBITDA is even farther removed from the real cash flows of the business than EPS or net income.
Some of the best research in the world comes from Wall Street. It has long been a leader in providing investors with ideas and strategies for investing. At the same time, it is important not to paint all Wall Street research with the same brush. Not all of Wall Street is the same, and some of the research it produces poses certain risks.
I think we are seeing the start of that process in late 2015 and early 2016. The combination of a slowdown in China, falling energy prices, and the end of zero interest rate policy from the Fed have put markets and the global economy in an interesting state of transition.
Corporate America has the resources to deploy a large amount of capital and invest in new technologies and innovations that can drive growth. Instead, they just keep spending more and more money on buybacks.
It’s incredible that corporate executives and the market as a whole continue to depend on such flawed numbers when we already have a measure that is clearly linked with value creation: return on invested capital (ROIC).
Why do investors, executives, and the financial media focus on reported earnings and other metrics such as EBITDA that ignore the balance sheet? Why aren’t executives around the world adopting ROIC in order to boost returns?
This past weekend, Barron’s magazine featured our research for the first time in 2016 and 17th time since 2014. This time, Barron’s featured research from our recent Danger Zone report on Qlik Technologies (QLIK).
Investors looking for value need to take a holistic approach that measures a company’s ability to deliver economic earnings to investors and quantifies the expectations for future cash flows embedded in its current stock price.
With the significant drop in the market to start 2016, we can be sure that many investors are looking to shift their portfolios towards higher quality stocks. The challenge is how to define “high-quality” because it is not as straightforward as one might think.
While trading fads come and go, good fundamental research is required to fulfill your fiduciary duties to your clients and yourself. Without it, realize it or not, you take significant risk that the numbers you use to make a decision are not correct.
In our recent article on the flaws in return on equity, we showed how it has no correlation with several different measures of valuation. However, there is one valuation metric, price-to-book (“P/B”), that, at first, appears to correlate strongly with ROE. A more rigorous look reveals the relationship between the two variables is not as…
Recently, we ran through the various flaws in the price to earnings ratio and explained why investors need to be paying more attention to return on invested capital (ROIC). This week, we’re tackling another of the market’s favorite metrics, return on equity (ROE). Return on equity has a very simple formula: It’s tempting to think…
We have recently updated our treatment of Operating Lease Obligations to use a fixed rate as the discount rate for capitalizing the lease obligations and calculating the implied interest for all companies over all history.
Last month, Fortune released its list of the top 50 businesspeople of the year. The recognition these CEO’s are receiving shows that the market cares about ROIC, even if many investors aren’t explicitly talking about it.
What do these companies have in common? They are the only surviving S&P 500 stocks to rise 10% or more in 2008. In the midst of a collapsing market and the subsequent damage, these seven stocks made good money for investors.
We’ve pointed out the flaws in the price to earnings (PE) ratio many times before. Chief among these flaws is the fact that the accounting earnings used in the ratio are unreliable for many reasons:
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