Explaining the Growth Capex Formula with an Easy Example
Updated: 04/06/23 When a company invests in a long-term asset for future cash flows, these are called capital expenditures, or capex. Capex can be divided into two buckets: growth capex and maintenance capex, as suggested by Warren Buffett. Capital Expenditures = Growth Capex + Maintenance Capex These definitions can help distinguish between companies with high […]
How to Tell If Negative Book Value is a Sign of High Risk or Not
A negative book value means that a company has more total liabilities than total assets. The numbers simply say the company owes more than it owns. But just because a company has negative book value, doesn’t mean it’s automatically a bad investment or even a company with a weak balance sheet. We’ll look at a […]
The Two Types of Undervalued Assets to Look For in a Balance Sheet
Because of GAAP accounting rules, assets can be undervalued or even not recorded at all on a company’s balance sheet. This can be a source of great undervalued stock opportunities, if you know what to look for. Of course the term “undervalued” can have many connotations and mean a lot of things to many different […]
“Knowing Your Numbers” Like the Sharks = Understanding Unit Economics
Unit economics – what a boring topic amiright? No – I am not right. And chances are, you also agree that unit economics aren’t boring since you are reading this article. Or maybe you have no idea what they are but you’re here to learn a little bit about them. Either way, you’re in the […]
“Safety 1st” PEG Ratio- An Intelligent Growth Estimate for a Margin of Safety
A big problem for value investors using ratios to evaluate stocks is incorporating growth into the evaluation. Without growth, a stock likely won’t revert to the mean and will probably stay at lower valuations forever (or until it dies). One brilliant way to incorporate growth into value ratios is with the PEG ratio, popularized by […]
What is ARPU and How Does it Affect My Investments?
ARPU is a term that a lot of companies use nowadays to try to breakdown some of their financial reporting ratios on a per user basis, for the simplicity of comparisons. ARPU stands for Average Revenue Per User, which companies can use to try and find the true Lifetime Value (LTV) of a customer. A […]
Graham Number: Classic Screener for Defensive Investors
Updated 4/21/2023 Screening for stocks using different metrics remains one of the best ways to search for companies to investigate. For defensive investors, one of the best screeners is the Graham Number. The Graham number equals a formula created from the writings of Graham in “The Intelligent Investor.” Using different methods to estimate the fair […]
How to Evaluate Lifetime Value (LTV) with SaaS Companies
One of the most important metrics for a Software as a Service (SaaS) company is their lifetime value (LTV). This is such an important metric because the concept of Software as a Service is great in theory, but you’re banking on those customers to continually come back and keep renewing their service. So, how do […]
Avoid Value Traps by Understanding Various Valuation Multiples by Industry!
One of the hardest things to do when investing is figure out the proper value for a company. Sure, “buy low, sell high” sounds easy enough, but with differing valuation multiples by industry, it’s not just a blanket process that you can apply to all companies that you look at. When I first started investing, […]
Absolute PE Model – Valuable Tool for Understanding Growth and Valuation
The price we pay for investing in any particular company matters and the continuation of determining the fair value for any company is an ongoing process. Another tool we can add to our toolbox is the absolute PE model created by Vitaliy Katsenelson. In the fantastic book, Active Value Investing, Vitaliy lays out his idea […]
