ROIC Thesis Buckets & Meta (META)

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Here is how I think about prospective ROIC in terms of an investment thesis:

ROIC thesis buckets showing market expectations.

The goal is to have a differentiated view from the market on capital productivity in the future (because this will dictate future cash flows, which determine PV or intrinsic value today), and I think of the possibilities as falling into these three buckets above.  I’ll elaborate on this in a future post and hopefully run through many examples of this thinking as applied to real companies.  But as this applies to META, I would think that the bull/bear debate around the stock resides around the 1st bucket above – ROIC Fade vs. No Fade.  My reasoning:

No one can deny that META META 474.36 -5.56 -1.16% throws off tons of free cash both before and after very sizable investments via the P&L. Even post the selloff of the stock this year the sellside is still modeling lots of income growth.  But there is lots of worry on top of general risk-off stuff right now, and each bear argument touches concerns regarding prospective ROIC in some way:

This post is not about valuing META or its attributes as an investment, so I won’t go any further on the company.  But suffice it say, ROIC is a big part of the story and I think the buckets above are a useful framework for applying capital productivity thinking to any business. 

Please email me with questions/comments/errors related to this post!