Re:Stock Market Returns Are Anything but Average
by kgwgk on Friday April 30, 2021 @01:32PM
(#26996568)
> margins - last time I looked they were around 60%. That means prices * sales only has to increase by 5x to bump earnings up 3x.
I am not sure about the logic (are you assuming marging expansion?) but probably you are trying to say something else than revenue has to increse "only" five-fold for earnings to triple.
> Food prices have been inflating at 10-15% recently;
Sure.
Re:Stock Market Returns Are Anything but Average
by ISL on Friday April 30, 2021 @01:58PM
(#26996952)
I'm not sure I follow all the arithmetic here (I'm pretty sure that, at fixed margin, revenue would only need to increase by 3x to increase earnings by 3x), but I did follow up to see what Berkshire had paid for Coca-Cola.
This thoughtful Quora post claims that Buffett made his first purchase of KO at a P/E of 29.
https://www.quora.com/What-was-the-P-E-Buffett-paid-for-Coca...
KO has excellent margins - last time I looked they were around 60%. That means prices * sales only has to increase by 5x to bump earnings up 3x. Food prices have been inflating at 10-15% recently; 15% inflation over 11 years will get you there, and that doesn't include any growth in sales at all. These aren't unreasonable assumptions, given the macro environment: another 1970s inflationary episode would do it. (Indeed, Warren Buffett made a lot of his money investing in Coca-Cola and See's Candies during the 1970s.)