Posts Tagged ‘Economic margin’

 This wealth creation chart illustrates why Wal-Mart (WMT) stock has largely underperformed the S&P500 index in the past 5 years - until recently. Despite the economic boom we had from 2002 to 2006, WMT failed to take advantage of the good economy, and its economic margin (EM) has steadily declined (red

Analysts tend to miss the forest for the trees.  In retail they are obsessed with the business model drivers like sales per square foot, same store sales or gross margin.  Certainly, these metrics are important for understanding the dynamics of a retail business - but to what end?  The bottom line is whether a business model and management team create value per share - that's the single minded objective function for any for profit business.  It's

Wall Street has it wrong when looking at the "Quality of Management". Most investors and analysts believe that "capability" - the degree to which managers have the ability to do what they set their minds to - is the dominant driver of quality.  We think that even when they are right about the capability of the people, capable managers with perverse explicit and implicit incentives may apply their considerable skills to undermine value creation - even without intending to.  For us how well the

Money managers ignored economic profitability and bought stocks that dropped the most in the credit crisis, leaving opportunities for value investors in 2010.  Smart managers are buying this year’s laggards, betting companies with the highest EVA  will be rewarded as the Federal Reserve prepares to raise interest rates and the government removes stimulus.

The ValueExpectations blog was quick to show, not just state, how unlikely DELL's purchase price of Perot Systems (PER) will prove to be value-adding.  Beginning with PER’s historic profit margins, what can Dell expect from the unit going forward? Looking at the EBITDA Margins in the chart below from 2000 through 2008, PER delivered EBITDA margins ranging from a low of 2.8% to a high of 11.8%. For our analysis, we will use what seems to be