Manuel Vargas Ferro @MOVF96: "What’s harder: spotting a bad company…..."

Colombia

What’s harder: spotting a bad company… or accepting that a good company can stop being a good investment for shareholders? 📊 STABLE REVENUES AND RISING STOCK-BASED COMPENSATION These earnings say more about the investor than about the company. The market tends to reward comfort: stable revenues, EPS “meeting expectations,” and a business that doesn’t generate surprises. But there’s a signal that shows up frequently in mature companies—and many investors ignore it: stock-based compensation growing faster than the business itself. It doesn’t make noise. It doesn’t break headlines. But it does affect the patient shareholder. 1️⃣ The metric the market celebrates 📈 Stable revenue / EPS The business keeps running. No negative surprises, and the narrative is one of continuity. For many investors, that’s enough to conclude that “everything is fine.” 2️⃣ The metric that gets ignored (earnings quality) 🧾 High, recurring stock-based compensation It doesn’t hit EBITDA. It gets diluted away in adjusted EPS. But it has a very real cost: more shares outstanding to sustain operations and compensate management. This isn’t about a one-off quarter. It’s a structural decision. 3️⃣ What it reveals about the business cycle This pattern usually appears when a company enters a more mature phase: • Predictable, but less expansive growth • Lower operating leverage • Talent retention through equity in a business that no longer surprises It’s not a sign of crisis. It’s a sign of stagnating value per share. 📌 A concrete example Companies like Salesforce ( $CRM (Salesforce Inc) have shown for years solid recurring revenues alongside elevated levels of stock-based compensation, even as growth normalized. The debate was never about the quarter—it was about dilution and discipline in value creation. 4️⃣ The investor’s classic mistake ❌ Confusing stability with alignment of interests Many risks aren’t born from panic. They’re born from comfort. 🧠 A serious investor doesn’t just ask how much the company earns, but: who captures that value, and at what pace the shareholder gets diluted? Earnings quality rarely moves the price today. But it almost always explains long-term returns. $GOOGL (Alphabet Inc Class A) $LLY (Eli Lilly & Co) $TSLA (Tesla Motors, Inc.) $QQQ (Invesco QQQ) $SPYG (SPDR Portfolio S&P 500 Growth ETF)