Everyone wants to own the best companies in the world.
But how can you find them?
Today I’ll show you how to screen for Quality Stocks:
But how can you find them?
Today I’ll show you how to screen for Quality Stocks:
1️⃣ How to find great companies
- Revenue growth > 5%
- Profit growth > 7%
- FCF / earnings > 80%
- ROIC > 15%
- Net debt / FCFF < 5
- Debt/equity < 80%
- Revenue growth > 5%
- Profit growth > 7%
- FCF / earnings > 80%
- ROIC > 15%
- Net debt / FCFF < 5
- Debt/equity < 80%
When you screen for these criteria, you find companies like Mastercard, Visa, Alphabet, Monster Beverage, Microsoft, and Apple.
These are companies you wanted to own over the past decade, right?
Now let’s find out why these criteria are so important.
These are companies you wanted to own over the past decade, right?
Now let’s find out why these criteria are so important.
▪️Revenue growth > 5%
Organic growth is the most preferred source of growth.
In the long term, revenue growth is the main driver for stock market returns.
Organic growth is the most preferred source of growth.
In the long term, revenue growth is the main driver for stock market returns.
Why?
Because without top-line growth, a company can never grow its free cash flow per share at an attractive rate in the long term.
Because without top-line growth, a company can never grow its free cash flow per share at an attractive rate in the long term.
▪️Earnings growth > 7%
In the end, you want most sales to be translated into earnings.
Why?
Because in the long term stock prices always follow the underlying performance of the company.
In the end, you want most sales to be translated into earnings.
Why?
Because in the long term stock prices always follow the underlying performance of the company.
You can calculate your return as an investor as follows:
Return = Earnings per share growth + Shareholder yield (Dividend yield + Buyback yield) +/- Multiple Expansion (Contraction)
Return = Earnings per share growth + Shareholder yield (Dividend yield + Buyback yield) +/- Multiple Expansion (Contraction)
If you don’t overpay for a company that can grow its earnings per share at attractive rates, you’ll do very well.
“It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” - Warren Buffett
“It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” - Warren Buffett
▪️FCF/Earnings > 80%
Earnings are an opinion, free cash flow is a fact.
Companies that translate most earnings into free cash flow perform significantly better than companies which don’t.
Earnings are an opinion, free cash flow is a fact.
Companies that translate most earnings into free cash flow perform significantly better than companies which don’t.
▪️ROIC > 15%
For quality investors, Return On Invested Capital (ROIC) is one of the most important financial metrics.
It shows you how efficiently management is allocating capital.
For quality investors, Return On Invested Capital (ROIC) is one of the most important financial metrics.
It shows you how efficiently management is allocating capital.
▪️Net debt / FCFF < 5
You want to invest in companies which are in good financial shape.
A healthy balance sheet gives a company flexibility and protects them against unforeseen circumstances.
You want to invest in companies which are in good financial shape.
A healthy balance sheet gives a company flexibility and protects them against unforeseen circumstances.
▪️Debt / Equity < 80%
Too much debt and leverage is never good.
If you’re smart you don’t need it and if you’re dumb you shouldn’t use it.
Too much debt and leverage is never good.
If you’re smart you don’t need it and if you’re dumb you shouldn’t use it.
Can I screen for these criteria myself?
Yes you can.
Personally I use Finchat.
Yes you can.
Personally I use Finchat.
Finchat (@finchat_io) is a free tool which allows you to screen for these criteria.
The only thing you can’t screen for in Stratosphere is Net Debt / FCFF.
As an alternative, you can use Net debt / EBITDA. Seek for companies with a Net Debt / EBITDA < 3.
The only thing you can’t screen for in Stratosphere is Net Debt / FCFF.
As an alternative, you can use Net debt / EBITDA. Seek for companies with a Net Debt / EBITDA < 3.
@finchat_io 3️⃣ Investment inspiration
You don’t want to do the work yourself?
No worries. I got your back.
Here’s a list with companies which match the quality criteria mentioned in this article:
You don’t want to do the work yourself?
No worries. I got your back.
Here’s a list with companies which match the quality criteria mentioned in this article:
@finchat_io That's it for today.
2024 is just around the corner.
You want to secure your financial future?
Here are my 10 favorite stocks for 2024 👇
compounding-quality.ck.page
2024 is just around the corner.
You want to secure your financial future?
Here are my 10 favorite stocks for 2024 👇
compounding-quality.ck.page
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