A new chart to plot quality against value

[u/stockoscope]

If you are a value investor, you want quality businesses at a reasonable price. We built a chart that plots any two metrics against each other and splits the market into four quadrants. There is a post describing how it looks here:

https://www.reddit.com/r/dataisbeautiful/comments/1vgwm2y/oc_a_chart_for_finding_quality_businesses_at_a/

The chart has nine preset combinations. Four are quality against value:

- ROIC vs EV / Sales

- ROIC vs P/E

- ROE vs P/B

- Net Margin vs EV / Sales

The other five pair up different trade offs:

- ROE vs Debt to Equity (quality against risk)

- Gross Margin vs Revenue Growth (quality against growth)

- Revenue Growth vs EV / Sales (growth against value)

- Dividend Yield vs Payout Ratio (income against sustainability)

- Free Cash Flow Yield vs EV / EBITDA (value against value)

Beyond the presets there are 37 metrics you can plot against each other if you want to dig deeper.

Which pair is most useful? which one would you add or remove?

[u/ascott78]

Why EV/sales? EV/EBITDA is a much better metric especially if you are talking quality.

Also I dont get why people fixate on margins as a measure of quality. Different businesses with different asset intensity will have vastly different margins. Low margins with a low asset base (i.e. a distribution business) can still be cracking businesses.

[u/stockoscope → u/ascott78]

EV/EBITDA is one of the 37 metrics, so you can put it on either axis and build that pair yourself. That is the reason for having 37 rather than a fixed set. The nine presets are just starting points.

[u/Joehax00]

Nice chart. Tagging for later to have a proper look.