Do you prefer a company with high profitability, high revenue, high income, high dividends, high market share, high cash flow, etc. Aren’t all these highs depicting a good picture about any given company’s state of business? We can find an answer to this in the concept of value investing i.e. wide moat and under pricing. These are the two key ingredients for value investing. Here, the concept of wide moat and under pricing is in the context of its business environment or competition. It is a relative term. Similarly, when we think about any given company’s financial metric, we need to look at it in relative terms. High profitability or high income, or high EPS growth rate as a standalone does not provide a true picture.
We can get a true picture by looking for consistency. Two simple statistical measures of average and standard deviation can help us measure consistency. A standard deviation that is narrow and lower than average is a good observation. The table below shows some examples of randomly selected financial metric for few companies. continue reading rest of the article….