It has long been established that stocks with low variability in prices tend to outperform stocks with high variability. I’ve explored this in a few…
For the past few years, investors have noticed what we call a “value inversion,” which appears to be getting progressively worse. Theoretically—and normally—stocks with low price-to-sales ratios (cheap stocks) outperform those with high price-to-sales ratios (expensive stocks). Such was the case over the majority of the current century, and indeed, as James O’Shaughnessy has shown in What Works on Wall Street, for most of the twentieth century too.
In this piece, I want to drill down deep into a ratio that I find useful in assessing potential investments: the ratio of net operating assets (NOA) to total assets (the lower, the better). It’s my favorite balance sheet ratio.
Every business has a strategy, a plan for beating its competitors. It’s a good idea for an investor to assess that strategy before investing in the company. But doing so is complicated.