Bubbles, by definition, exaggerate the span of multiples paid for cashflow streams in equity markets, as in squeezing up the favoured they tend to emaciate the orphans. In early to mid-2000, Computershare was the most favoured poster child for technology stocks listed in Australia. In current terms, its share price had climbed from 30 cents to $9.00 per share over the prior three years, when the last full year reported earnings before interest and tax (“EBIT”) figure was $32m. Fifteen years later, its share price is barely 10% above where it got to in early 2000, whilst its EBIT has grown more than 15 fold to well above $500m. A shareholder purchasing a share in Computershare in early to mid-2000 has seen capital appreciation for the investment of less than 1% per annum whilst EBIT has grown at more than 20% per annum. The derating of the cashflow stream has negated almost all of the cashflow growth enjoyed by an equity owner through that time. We explore this example further in “Price vs value: a dangerous game” (VIEW LINK)



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