Same As It Ever Was

June 2018
Think Pieces

Harry W. Segalas
Managing Partner & CIO

After a strong year last year, 2018 has not yet been kind to our Concentrated Quality Growth portfolio.  Despite the pullback we are experiencing, the focus remains squarely on finding quality businesses, growing the earnings stream each year, and deploying a strict valuation discipline.

We see the building blocks of quality, growth, and value well in place.  One important aspect of quality businesses that we look for is strong free cash flow (FCF) and one metric we use is the free cash flow conversion rate (FCF/EPS) for our companies.  That is, what is left from a free cash flow perspective after capital spending and working capital requirements.  As you can see in the chart below, free cash flow has pretty much run at 90% to 100% on the dollar of net income and stands at a healthy 95% today.  This leaves ample sums after reinvestment, to return capital back to shareholders, or make strategic, close-in acquisitions to enhance growth.

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Note:  Please refer to Disclosures and our Firm Brochure (ADV Part 2A) for more information about our Firm, strategy, fees, and risks.