What I look for in a business & what I don't

TL;DR

Telstra's revenue growth and earnings per share have been declining, making it unattractive despite high dividends. Focus on return on equity, revenue growth, and earnings per share growth to assess business quality.

Transcript

g'day and welcome to this week's video my name is robert gowdy from consortium private wealth and just thought i'd go through some of the things i've been uh thinking about in terms of quality of business um and just some of the key factors of what i'm looking for and what i'm not looking for i've done variations of this in the past but i've what i... Read More

Key Insights

• ❓ Telstra's revenue growth and earnings per share growth have been declining over the years, indicating potential concerns about the company's performance.
• ✋ High dividends may be attractive, but they do not compensate for a declining share price and poor revenue growth.
• 👨‍💼 Assessing return on equity, revenue growth, earnings per share growth, and industry scalability are essential in evaluating business quality.
• 😷 Dividends alone should not be the sole basis for investment decisions, as they can be a "yield trap" that masks underlying issues in a company's performance.
• 💪 Other companies like Magellan Financial Group and CSL have demonstrated strong revenue growth, earnings per share growth, and return on equity.
• 🤩 Considering the industry and analyzing the balance sheet are key determinants of a business's strength and potential.
• 👨‍💼 Quality businesses prioritize sustainable growth and efficient management of assets to generate shareholder value.

Questions & Answers

Q: Why has Telstra's revenue growth been negative for most of the past eight years?

Telstra has faced challenges in generating revenue growth due to increased competition, technological advancements, and changing consumer preferences. This has affected their overall performance.

Q: How does Telstra's earnings per share growth compare to its revenue growth?

Telstra's earnings per share growth has also been declining, indicating that their profitability is decreasing despite some positive revenue growth. This suggests inefficiencies or cost pressures within the business.

Q: Why is return on equity an important factor in evaluating business quality?

Return on equity indicates how efficiently a company is utilizing its shareholders' investments to generate profits. A higher return on equity suggests better management of assets and a stronger ability to generate returns for shareholders.

Q: What are the potential risks of focusing solely on dividends when evaluating a business?

Relying solely on dividends may lead to overlooking critical factors such as revenue growth, profitability, and overall business sustainability. Dividends can be artificially inflated and may not reflect the true health and prospects of a company.

Summary & Key Takeaways

• Telstra's revenue growth has been negative in five out of eight financial years, with marginal positive growth in the remaining three years.

• Earnings per share growth for Telstra has also declined in seven out of eight years.

• High dividends may seem attractive, but they lose value when the share price is decreasing, as seen with Telstra.