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Strategies & Market Trends : Value Investing
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To: Paul Senior who wrote (47147)3/23/2012 9:33:55 AM
From: Jurgis Bekepuris  Read Replies (1) of 78663
 
what am I willing to pay for the profit margins I'm looking to expect, based on the company's historical profit margin performance. Google, which I've mentioned occasionally over several years has profit margins of 25% or more. What am I willing to pay for a company like that if they can continue this performance? How do I handicap that versus something like ALU which shows profit margins of 7% (per Yahoo) now, but a string of losses;

Since I mostly buy high-ROE companies, I have a feeling that adding some points for high margins just double counts the company's success. In other words, their high ROE is due to the high margins, so I can't give them extra for the margins. This is not true for WMT/TSCDY/etc. who achieve the high ROE with low margins, but that just reflects their business.

Something like ALU, I just don't buy at all.

So overall, I don't spend much time on margins. I am just careful with companies that have OK'ish ROE with low margins where the business is not obviously a low margin business or where I think that the company does not have enough moat like WMT to sustain even the low margins. Obviously, low margins with a lot of debt is a recipe for disaster even when debt is used to spruce up ROE.
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