Shorting growth? - Equity risk premia + inflation + refinancing risk
Just a quick quote from my favourite shorting book (The art of short selling) and a couple of reflexions:
“The bigger point on cash appetite in a growth company is a concept called sustainable growth rate. It is an easy thing to remember and a killer ratio to track.
“The bigger point on cash appetite in a growth company is a concept called sustainable growth rate. It is an easy thing to remember and a killer ratio to track.
Sustainable growth rate says that a company can grow at the rate of return on equity times the retention rate without going to the capital markets.”
Remember this equation forever:
If growth rate > ROE*Retention Rate = the company will need cash in the future because the company is burning cash as growth is not sustainable.
What would happens to cash burning companies in a year or in a world with a greater premia? Is the situation reflected in current prices? $SPDR S&P 500 ETF (SPY.US)$ $Invesco QQQ Trust (QQQ.US)$ $ProShares UltraPro Short QQQ ETF (SQQQ.US)$ $ProShares UltraShort Bloomberg Crude Oil ETF (SCO.US)$ $GameStop (GME.US)$
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Cynic Livermore : can’t read, I assume a buy![undefined [undefined]](https://static.moomoo.com/nnq/emoji/static/image/default/default-black.png?imageMogr2/thumbnail/36x36)