Cash flow per share is the only decisive long-term
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@thewolfofallstreetz However, cash flow can fluctuate significantly. Profit is a much more stable metric
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@SemiGrowth That's why I prefer to look at them over longer periods of time. As in the Chipotle example.
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@RealMichaelScott Nevertheless, I don't necessarily see cash flow as a growth metric. Growth stocks usually invest a lot of capital in growth, which is not so easy to see in cash flow. With such stocks, you should probably look more at gross profit if they are not yet profitable
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•@SemiGrowth at early stage in any case. However, I would not say a priori that FCF is not relevant for growth companies. The Rule of 40 explicitly looks at the FCF margin in relation to sales growth in order to assess the quality of growth.
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•@RealMichaelScott actually no. The rule of x is very ambiguous. The most common variant is growth + EBITDA margin. But there is also FCF margin, net margin or EBIT margin. We've seen it all before.
However, the best-known definition of the Rule of 40 is, as already mentioned, with the EBITDA margin
https://www.loy-cf.de/rule-of-40-softwareunternehmen/
However, the best-known definition of the Rule of 40 is, as already mentioned, with the EBITDA margin
https://www.loy-cf.de/rule-of-40-softwareunternehmen/
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•@SemiGrowth then that is your personal experience. My personal impression and contact with the Rule of 40 or Rule of X has mostly been in connection with the FCF margin.
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@RealMichaelScott I think cash flow is more important for blue chip stocks. They can of course also achieve double-digit growth, but for me they are no longer classic "growth" stocks.
For me, growth is rather at least 15% top-line growth in the next and last 2-3 years.
$V $MSFT are not growth stocks for me.
$CMG is just at the tipping point
When I think growth, I tend to mean $APP $PLTR $SOFI etc
For me, growth is rather at least 15% top-line growth in the next and last 2-3 years.
$V $MSFT are not growth stocks for me.
$CMG is just at the tipping point
When I think growth, I tend to mean $APP $PLTR $SOFI etc
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•@SemiGrowth If your operating cash flow is negative, then even a high gross profit is useless. That's why I would look at the cash flow even for growth stocks. As long as the cash flow is pointing in the right direction, I think it is of secondary importance whether the company is already making a profit. That's why you also see supposedly high P/E ratios for growth stocks. However, this is a fallacy, as the company can already generate a lot of cash flow.
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•@RealMichaelScott in the software sector? Or in which stocks? I've honestly hardly ever seen that.
$SQ for example, shows the Rule of 40 as a target and defines it with the adj EBIT margin
$SQ for example, shows the Rule of 40 as a target and defines it with the adj EBIT margin
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•@thewolfofallstreetz If the company is not making a profit, of course I don't look at profit growth...
A high gross profit is extremely important. It defines the pricing power of the company and all "growth costs" are not included. Companies usually increase their gross profit very slowly (i.e. the margin), which is why it is a relatively future-proof metric
A high gross profit is extremely important. It defines the pricing power of the company and all "growth costs" are not included. Companies usually increase their gross profit very slowly (i.e. the margin), which is why it is a relatively future-proof metric
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