i agree with you wayne. I have been considering this company called amcol. aco. It has all the trappings of a "great value" stock. beaten down, low p/e you name it. I looked a little deeper and discovered that while earnings have generally been rising pretty smartly for at least four or five years, the shares haven't kept pace and in fact may be DOWN over that period. I started to really get at what the profitability of this firm was and discovered that it is a LOW return business (less than half the roe of the s & p), low roa, low roic. What one discovers is that, sure earnings have grown, but they have only grown because management is using ever larger chunks of shareholder money to MAKE them grow. In short, aco doesn't earn its cost of capital. Thus, while earnings have BEEN on the rise, shareholders are about where they were five years ago.
Robert Sandborn of Oakmark, a great "fundamental" investor, was interviewed a few months ago and said he pays zero attention to P/E, P/B, P/Dividends, P/sales—any of the usual tools in the Grahmites bag. Hmmmm. Wonder if he's on to something there. He only considers "good" businesses and holds an average of five years. |
