Think about it
how can we expect anything to be sustainable over the long term, when we live in a dynamic and competitive world?
Very few companies grow earnings sustainably, even winners like Microsoft experienced years of negative growth (2013 – 2016)
So isn’t it obvious, that when companies talk of all this “long-term sustainable growth” it’s often marketing nonsense?
“Peloton Announces Leadership Transitions to Position Peloton for Sustainable Growth, Profitability, and Long-Term Success”, they said on Feb 2022 at $37
An endless stream of losses has seen the share fall nearly 90% to $4.41
with the only “sustainable growth” being shares in issue from exercised options
“We plan to build upon and leverage …. while investing for long-term sustainable growth.”
wrote Estee Lauder in their December 2021 quarterly report
Except earnings estimates have completely collapsed since then and the share price has fallen 70%
Providing no margin of safety to those who paid $300 = 150x 2024 expected earnings
they didn’t think they were paying 150x earnings but unfortunately, the forecasts weren’t “sustainable” falling from $9.60 in 2021 to $2.47 today
“We are proud of the ways …. while driving long-term, sustainable growth for our stockholders.” Wrote the Paypal CEO in April 2021 AGM Docs
But operating income fell 10% in 2022 and the share price has crashed 80%
And guess who said this on 1 August 2023
“I am excited to partner with them (30k employees) to deliver a strong fiscal ’24 while enabling delivery of long-term sustainable growth for decades to come.”
“Strong”, “decades”, “sustainable”, and “growth” – if you thought they knew how to market products, you’re right
Diageo – Quality Growth favourite
They said this on Friday
“We now expect organic operating profit growth for the first half of fiscal 24 to DECLINE compared to the first half of fiscal 23, primarily due to Latin America / Caribbean’s DECLINING net sales, increased trade investment, LOWER operating leverage and ADVERSE mix resulting from DOWNTRADING.”
The share price fell 12%, the largest % fall since1990
Down 22% year to date
But still on 17x forecasts
which may fall further
What’s the lesson?
The world is changing and the unexpected is happening everywhere
That’s why we won’t over-pay for the future
Because as Diageo showed us, not even CEOs know what it holds over the short term, forget “decades”
Cullen Roche, wrote, “Being a skeptic is a powerful risk management tool. It’s not always easy to sit idly while the market rips higher or exuberance runs wild on Wall Street, but being skeptical of the market will almost always ensure that you avoid the devastating pitfalls that hinder so many investor’s portfolios.”
We agree and that’s why we take talk of “long-term sustainable growth” with a big pinch of salt
Talk is cheap and paying up for it can be very expensive
Does “long-term, sustainable growth” exist?
D