| | | While in the end free cash flows discounted towards the present is all that matters, those free cash flows can be highly distorted by growth, investment, working capital changes as well as by financial transactions (sell- leaseback etc), so to make these adjustment is very difficult and not precise either. Thats why earnings (GAAP or non- GAAP) cannot be ignored typically. There are business where FCF in a strict sense are meaningless (banks, insurance). that’s why you should never look at one metric in isolation as neither earnings more FCF will tell the true picture.
I believe the only way to evaluate a business is too look at all those metrics together and if they make sense too you and do adjustments as needed and then come to a conclusion.
A current example where FCF does not tell the story are the Malone co like WBD where FCF seems to be great, but share prices are in the doghouse. You got to ask yourself why that is and if you are Mr market gets it wrong. Thats just one example.
On revenue growth - almost every great performing stock has good revenue growth/ share. Without revenue growth, it’s almost impossible to have great earnings growth over long periods of time and that’s why revenue growth per share is one of the best predictors for stock performance, not just for tech cos, but generally all stocks. |
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