What influences share prices?

Long_Equity
01-27

What influences share prices? Here’s how I see it.

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Four of the most important ratios in investing:

1. FCF / Invested capital

2. FCF / Historic FCF

3. FCF / Revenue

4. FCF / Market capitalisation

If you had to add one, what would it be?

Here's a mental model for thinking about a company's growth:

• Is the growth rate high?

• Is the growth predictable?

High + Predictable = Investable

Anything else = Perhaps best to avoid

Where do you invest?

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High growth companies normally have high multiples.

I created this table to show the relationship between growth and multiples👇

In short, a PE ratio of 50 requires a 20% earnings growth over 5 years to turn that multiple from 50 -> 20.

FYI, I use FCF yield - not P/E.

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Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

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