That is amazing! Thanks for that
One measure I found, which is used by most hedge funds is, earnings yield, actually bill miller and michael moubossin uses that at their fund. It is like lets say a company has EV/EBITDA of 40x (EBITDA is EBITDA less maint. capex) and is growing at 15% which is quite sustainable lets say.
Now what they do is, by EV we are yielding 2.5%, and we are getting growth component of 15%. Total return would be 17.5% which is good post mid-teens, I got this concept.
But for instance, now lets assume that EV/EBITDA is 100, yielding just 1% + 15% growth, it is still 16% right, quite okay-ish. Now according to that yielding theory perspective, won’t it be delusional? I mean, 100 times EV to EBITDA, that is unsustainable at all, and expecting 16% on top of that.
What we see that, almost all investors uses this yielding theory as a compliment too.
What I want to ask is, did I get that theory wrong? Won’t it be like paying anything for growth? I feel so, I am fooling myself. At 100 times levels. Can you please help a bit here? I am getting this yield perspective wrong here, in what way? Please fix it if possible.
Example given by Bill Miller
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