The value that some analysts put on revenue vs. what they put on profit is out of whack. If you can grow real cash earnings, that's 80% of what you ought to do, and the revenue component is 20%.
Sentiment: NEGATIVE
Sometimes it takes longer to create value, but if the companies generate more earnings, the stocks will ultimately reflect that.
Investors have been too willing to buy stocks with strong reported earnings, even if they do not understand how the earnings are produced.
Financial analysts make a lot more than accountants.
One hundred percent of our earnings are reinvested in the company, and a great deal of that goes to research.
Stock prices relative to company assets are no better at signaling the likelihood of future earnings growth than they were the day the Titanic sank, and risk management is a good deal worse.
What we do is we test what works on Wall Street. And sometimes it is earnings momentum, and sometimes it's earnings surprises. Sometimes it's price-to-sales cash flow, and then we put together our stock selection models.
Companies with significant revenue (more than $100 million) have, by definition, significant traction. They have proven out their thesis and can scale up or down as investment capital becomes available.
Approaches to determining stock values vary, but fundamentally, each company judging itself undervalued is saying that its future stream of earnings justifies a higher price than the stock market is willing to accord it.
Some of the analysts were saying, Now you're a cash cow, there's no growth at all, pay it all out in dividends, give me it all, you can't invest wisely.
We've grown from 18% of the profits of the top 25 companies in our industry to 23% of the profits of the top 25 companies in our industry over the last five years. Profits are up over 70%, where the industry profit is up about 35%. Pretty good.