APAR INDUSTRIES | Consistently Performing Businesses Series #1
Price vs Fundamentals over the last 20 Quarters
Price follows Fundamentals over the long term. After all, there is an underlying business beneath every stock.
In this series of consistently performing businesses, we will look at the key fundamental statistics of a business and how they have changed over the last 20 Quarters.
When we say key Fundamentals, we will be focusing on the following parameters:
Revenue TTM: It stands for "Revenue Trailing Twelve Months." It's a metric used to analyze a company's performance by calculating the total revenue generated over the preceding twelve months. We use it to remove any seasonalities associated with the business.
Operating Profit TTM: Again it is the sum of operating profit generated over the preceding 12 months.
Operating Profit Margin (OPM)% = Operating Profit/Revenue expressed as %
ROIC%: ROIC stands for "Return on Invested Capital”. ROIC indicates how well a company is utilizing its invested capital to generate profits.
ROIC = Net Operating Profit After Tax (NOPAT) / Invested Capital
We capture the trend of these parameters over time to see how well the company has done.
We will start this series with APAR Industries. The most recent performance is on the top. How do we interpret the chart?
We want the Revenue TTM and Operating Profit TTM to increase over time. Also, we want the Operating Margin and ROIC to remain stable or increase over time. This is indicative of a good past performance.
Let us look at some excellent quotes on what drives stock prices in the long term.
"In the short term, the market is a voting machine, but in the long term, it is a weighing machine." - Benjamin Graham
This means that while short-term stock prices can be influenced by popularity and sentiment, long-term success is tied to the fundamental value of a company, often reflected in its earnings. Not just Mr. Graham, many other greats have added on to this point.
"Over the long term, it's hard for a stock to earn a much better return than the business which underlies it earns." - Charlie Munger
"The best companies tend to increase their earnings over time, and the stock prices eventually follow." - William J. O'Neil
"I think you have to learn that there's a company behind every stock and that there's only one real reason why stocks go up. Companies go from doing poorly to doing well or small companies grow to large companies."- Peter Lynch
You got the point, right?! But there is one more thing you need to keep in mind.
"The investor of today does not profit from yesterday's growth." - Warren Buffett
There are 2 parts to Fundamental Analysis. How the company has executed in the Past (Quantitative Analysis) and how well it is placed for the Future (Qualitative Analysis). When we look at the data points as presented in the chart above, we mostly see the past and recent performances. It is like a rear-view mirror. It is not indicative of future performance.
"In the business world, the rearview mirror is always clearer than the windshield."- Warren Buffett
One needs to keep track of the company’s performance periodically and keep updating this chart.
We will be adding the list of consistently performing businesses periodically in Finvezto Compass. Please subscribe to our newsletter to get it right into your inbox. Please be assured that we do not spam.
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