- Valuation risk a drawback of quality
- When is a pullback an opportunity?
The hallmark of good management is investing the firm’s money in projects that deliver a return on invested capital (ROIC) that’s in excess of what could be made risk-free by saving. Quality businesses improve this statistic over time and deliver consistently growing profit margins.
Reliable earnings and expected profits growth is why investors will stump up for a share price that is a higher multiple of earnings per share, but there is a point at which this becomes too expensive. This is the conundrum for quality shares investors and it is evident in the valuations of some of the leading names on our quality shares screen.
