What's considered to be above average margins?
What's an above average profit margin, operating margin and/or Return on Equity?
I've been reading more on value investing and they always talk about finding businesses with above average margins?
Answers
951 points
Grudun answered one year ago …
Generally most value investors look for at least 10% Return on Equity, perferably 15%.
Be careful about just looking at the numbers of a company. The numbers only tell you the backstory. They cannot guarantee anything about the future. One basic book on value investing that I enjoyed is Rule #1.
2769 points
Oldman answered one year ago …
Grudun's answer and his reference to Towns' book are very useful...for companies that have some history. Hoe would one evaluate a company in business for a relatively short time, less than 3 years, or so? The ROE may be replaced by earnings surprises to the upside, in 3/4 quarters of the prior years.
ROE and valuation have to be relevant to the industry of that particular company...you can't compare a company in geothermal energy vs one that uses petroleum and coal. You can't compare a bank that has no subprime loans or derivatives to one that is leveraged up the wazoo. You can't compare a miner to en explorer to a casting plant...and most of the BIR categories fail to distinguish these differences when they haul up a list of the "Financially Comparable" companies in a financial review by Thoma White, or Channel Trend, or Ativo or Ford or S&P..., which is why analysts may have diverging opinions as to buy, neutral (hold) or sell on a company.
Generally, in a diversified portfolio, value is lower risk than growth, and also lower return over decades...but with a lot less anxiety (heartburn index) or volatility.
There's always a good company that's been tarnished by being lumped with rotten apples in some sector...that's the one worth purchasing. In addition, ther may be turn-around plays, where a new management is reversing the prior idiocies.
265 points
MaverickInvestor answered one year ago …
What or where is the wazoo?
Read more from MaverickInvestor
699 points
7million7years answered one year ago …
The Grand Wazoo, or the Lesser Wazoo?
You need HISTORY to value a company ... which is why Warren Buffett doesn't buy new businesses or tech. If you find a boring old company in a boring old industry that you are pretty damn sure is going to be around for the next 100 years - and, you can buy it cheap - then you might get in.
The ONLY thing that counts in the long-term is cash ... how much does it produce? How much will it produce? How much do you have to invest to get it?
These other numbers: ROE, ROIC, Net Earnings are all proxies for the real thing ... the cash!
