Very interesting growth/fundamental profile for Mag 7 (sales and EPS) versus the rest of the market.
I am curious w/ one question...why do you use ROE and cost of equity to generate EVA? I've always used ROIC and WACC. Do you find focusing on equity financing to be a superior measure? Thanks!
Thanks for your question. We focus on profitability as of the company value drivers so ROE would be the “purest” measure and the cost of making that profit would be “the cost of equity”; hence a proxy for EVA would be ROE minus cost of equity (we have a way to reverse engineer the implied cost of equity for publicly traded securities and ETFs 😉). Your method also works but we are focusing on profitability.
So bullish!
Interesting to know about the breakouts! I am hoping my recent writeup purely from fundamental point of view will complement your piece (please scroll down to the Mag 7!) https://marianneo.substack.com/p/weekly-good-reads-5-1-1-1ec
Very interesting growth/fundamental profile for Mag 7 (sales and EPS) versus the rest of the market.
I am curious w/ one question...why do you use ROE and cost of equity to generate EVA? I've always used ROIC and WACC. Do you find focusing on equity financing to be a superior measure? Thanks!
Thanks for your question. We focus on profitability as of the company value drivers so ROE would be the “purest” measure and the cost of making that profit would be “the cost of equity”; hence a proxy for EVA would be ROE minus cost of equity (we have a way to reverse engineer the implied cost of equity for publicly traded securities and ETFs 😉). Your method also works but we are focusing on profitability.