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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Michael Burry who wrote (6897)	4/22/1999 3:28:00 PM
From: Freedom Fighter	Read Replies (1) \| Respond to of 78497

Mike, >>Wow. I guess what I want to see is how they'll grow, since they're well above any kind of liquidation value or other absolute bargain ratios.<< I have used the ROE strategy very successfully. The key in my mind is that you have to make sure it's not due to excess leverage and you must also believe that the company can sustain it. Otherwise you could be paying for above average levels of profitability. A big NO NO. Higher ROE companies generate greater levels of free cash flow than average companies. So the value is there as long as you continue to grow EPS at the same level as say the market as a whole (or greater). At 14-15 times earnings you are paying the long term average market multiple for a very above average company (ROE wise). The key, as you say, is the value of this franchise and its ability to grow. The strategy is new applications of the basic product and maintaining very high quality. (diapers seem to be growing) The brand itself is recognized by everyone. It's been successful over the last few years as growing sales, growing EPS, and recent capital spending levels indicate. Comments from management indicate they believe there's plenty more to come. I hope they're right. For more background: www.velcro.com WC