Great companies which fail to create shareholder value

[Cod Liver Oil]

Tencent, Coupang, Disney, Nintendo,  LVMH, ABNB and UMG are a sample set of "great" companies that have created negative shareholder returns over the last 5 years or longer. Are these truly great companies that have merely stumbled or is there something systemically wrong with their ability to create value for share owners?  Even Amazon and MSFT have done no better than the risk free rate.  I understand some of the challenges these businesses face but the connection between business quality and value creation can seem tenuous at times even for investors with long time horizons. How much patience is required? Will these companies ever create any shareholder wealth?

 

Edited 6 hours ago by Cod Liver Oil

[DooDiligence]

Dominos pizza delivers, unless you're a shareholder.

 

How long does it take for bagholders to become market visionaries?

Even owning Berkshire makes me feel like a baggie at times.

[Dalal.Holdings]

A lot of these are great and will be fine over the long haul. It was mainly a matter of overpaying on valuation. That has been my gripe with FICO.

 

DIS P/E reached the 40s and higher 5 years ago. People were acting like it was the best thing in the world, Marvel movies would continue to rake in billions forever, and Iger was the messiah...

 

Nintendo too was at very high P/E and E/EBIT 10 years ago. Even a year ago its trailing P/E was in the 50s... (I think it's cheap now)...I mean, compare with other Japanese companies and Nintendo valuation was in the nosebleeds...

 

LVMH--same thing. A few years ago it was "European luxury can do no wrong". 

 

That's what happens when you pay a fat multiple for things. And it's always interesting to see value investors on forums like this talk about investing in companies with nosebleed valuations like that...another lesson on avoiding groupthink and herding

 

There are industries where there are structural/secular problems: CPG (KHC, CPB, etc), and alcohol (TAP, Brown Forman, etc) seem to ring a bell. In those cases, there are real problems in their respective industries and the future may not look like the past.

 

Edited 5 hours ago by Dalal.Holdings

[Sinbius]

29 minutes ago, Dalal.Holdings said:

A lot of these are great and will be fine over the long haul. It was mainly a matter of overpaying on valuation. That has been my gripe with FICO.

 

DIS P/E reached the 40s and higher 5 years ago. People were acting like it was the best thing in the world and Iger was the messiah...

 

Nintendo too was at very high P/E and E/EBIT 10 years ago. Even a year ago its trailing P/E was in the 50s... (I think it's cheap now)...I mean, compare with other Japanese companies and Nintendo valuation was in the nosebleeds...

 

LVMH--same thing. A few years ago it was "European luxury can do no wrong". 

 

That's what happens when you pay a fat multiple for things. And it's always interesting to see value investors on forums like this talk about investing in companies with nosebleed valuations like that...another lesson on avoiding groupthink and herding

 

There are industries where there are structural/secular problems: CPG (KHC, CPB, etc), and alcohol (TAP, Brown Forman, etc) seem to ring a bell. In those cases, there are real problems in their respective industries and the future may not look like the past.

 

 

Yep...the question should be why investors create negative or underperforming shareholder returns even when buying  great companies with at least decent management...

How much patience to listen to people that buy stocks at 50x and blame the company? Will these "investors" ever learn?

Edited 5 hours ago by Sinbius

[DooDiligence]

2 hours ago, Dalal.Holdings said:

A lot of these are great and will be fine over the long haul. It was mainly a matter of overpaying on valuation. That has been my gripe with FICO.

 

That's what happens when you pay a fat multiple for things. And it's always interesting to see value investors on forums like this talk about investing in companies with nosebleed valuations like that...another lesson on avoiding groupthink and herding.

 

Accurate.

 

There's still hope that I'll look like a genius in another decade.

[Marco Van Basten]

You can add Mco and spgi to the list.  I own both and expect them to do well on a going forward basis.  And yes, you can make a ton of money paying a fifty p/e, you just have to be right on earnings growth 

[Dalal.Holdings]

30 minutes ago, Marco Van Basten said:

You can add Mco and spgi to the list.  I own both and expect them to do well on a going forward basis.  And yes, you can make a ton of money paying a fifty p/e, you just have to be right on earnings growth 

 

It's one thing to pay 50x earnings for growth in some nascent business that has yet to expand into TAM and lots of white space ahead of it...but DIS? LVMH? NTDOY? MCO? SPGI? These are very large and mature businesses--good luck underwriting high growth for them.

[SharperDingaan]

If you insist on buying the popular names, at the same time as everybody else is, you are almost assured of an extended period of disappointment. For it to work out, the company has to more than beat the inflated expectations of the time, and deliver earlier than expected .... maybe it will, but more likely it will not. Time goes by, there's under-performance relative to the expectations (inflated), the blush comes off the rose, this thing is a dog! ... sell; the buy when there is blood in the streets .

 

Nothing to do with the company, which may well be very solid ... purely a supply/demand group think miss-pricing thing, and exploitable. 

 

SD 

[Ver]

Amazon returned 35%~ annually for 2 decades ish and was down by a third from 2004 to the end of 2008. Teledyne did 28% for almost 3 decades and went to 4 p/e at one point in the 70's. Nvidia went nowhere from 2007 to 2015 and was even down by half to two thirds in 2013; that's after holding for 6 years. But who would be unhappy with the end result there with 40% annually since the dot com bursting lows? These things happen, it's part of the game. Of course any fund manager with a massive position in them probably would have lost most of their clients before the value was realized.

 

It's not always valuation either. Nvidia was both very popular among investors and went up to 100-200 times earnings in 2023, an exceedingly cheap price. Tencent and to a lesser degree LVMH aside, most of these just are not that great of business models or have rotten cultures. 

 

 

[Gregmal]

Yea I think the subject @Cod Liver Oil raised has been completely redirected into something its not. It's not about high PEs finally having a few years of cooling off. It's about management teams staring in the face of proper capital allocation and shitting the bed. If the business is fine and everyone executing and the stock isnt going up...no big deal. If things are inconsistent and allocation sucks and management wants to "be conservative" or thinks shareholder returns are secondary to "stakeholders" like Disney, or even more embarrassingly, that shareholders are speaking about early access to games and Pokemon cards like Nintendo...theyre nimrods. The Coupang guys cant seem to get out of their own way. Tencent is a Chinese ADR, ABNB the issue is Chesky wants to burn cash on fantasy projects rather than just return it....the only one thats "too big" is LVMH. UMG is run by foreign schmucks. 

[Paarslaars]

Regarding Nintendo: while I do agree that early access is a stupid thing to consider for shareholders, I don't think they are fucking up worse than they were doing a year ago when the stock had returned >100% in less than two years. If memory prices crash tomorrow, Nintendo will go back up and we will all claim they are doing fine returning value to shareholders.

 

This whole 'AI boom' has been draining money from value stocks.

Remember the QQQ was up 79% in '99 while BRK was down 24%.

[thepupil]

10 minutes ago, Gregmal said:

Tencent

 

Over the last 10 years, Tencent has increased its revenue, EBITDA, cash flow, free cash flow, and net income per share by 4 to 5 times, while building an investment portfolio that went from ~$20B to $120 billion, spinning off stakes in Meituan, JD.com, Tencent Music, paying out a small dividend and not really issuing shares....Tencent's made 33%/yr since inception (600,000%) and 11%/yr over last 10 years (SPX made 15%)...Seems pretty good to me in the context of a dominant business that's currenlty trading for like 12x earnings. I certainly don't see evidence they're "failing to create value for shareholders").

 

Had we stopped the clock 9 months ago, Tencent would have had a trailing 10 year return of 19% per year. Did they get dumb and shareholder unfriendly and too chinese over the last 9 months?

 

[Gregmal]

2 minutes ago, thepupil said:

 

Over the last 10 years, Tencent has increased its revenue, EBITDA, cash flow, free cash flow, and net income per share by 4 to 5 times, while building an investment portfolio that went from ~$20B to $120 billion, spinning off stakes in Meituan, JD.com, Tencent Music, paying out a small dividend and not really issuing shares....Tencent's made 33%/yr since inception (600,000%) and 11%/yr over last 10 years (SPX made 15%)...Seems pretty good to me in the context of a dominant business that's currenlty trading for like 12x earnings. I certainly don't see evidence they're "failing to create value for shareholders").

 

Had we stopped the clock 9 months ago, Tencent would have had a trailing 10 year return of 19% per year. Did they get dumb and shareholder unfriendly and too chinese over the last 9 months?

 

Yea it's a Chinese ADR, thats the only knock on it. Not mismanaged IMO

[Gregmal]

5 minutes ago, Paarslaars said:

Regarding Nintendo: while I do agree that early access is a stupid thing to consider for shareholders, I don't think they are fucking up worse than they were doing a year ago when the stock had returned >100% in less than two years. If memory prices crash tomorrow, Nintendo will go back up and we will all claim they are doing fine returning value to shareholders.

 

This whole 'AI boom' has been draining money from value stocks.

Remember the QQQ was up 79% in '99 while BRK was down 24%.

Nintendo was only "expensive" if you were using a TTM earnings off of trough Switch 1/peak Switch 2 launch costs. Nobody reasonably would evaluate the business on that. The issue is you launch the most popular system ever....with no games.....and then when your stock halves....go woe-is-me and refuse to repurchase stock because of some dumb cultural stuff? As was mentioned in the thread...the exact problem with them is that "nothings changed" from 12 months ago. 

[thepupil]

Tie me to the mast!