Originally Posted by
SailorRob
Yeah a few things wrong here, huge misunderstandings. As is often the case with Sharetrader, a couple of facts mixed in with a lot of rubbish.
I'm not talking about OPEX or CAPEX.
Free cashflows are irrelevant unless you compare them to the capital invested to produce them and you correctly analyse depreciation and depletion. I can double free cash flow and double it again and again with a term deposit in a bank, just by doubling the amount of money I have invested.
Currently the oil/gas/coal sector has huge free cash flows yes, I would know having had a large portion of my net worth invested in this sector since 2020. But the returns on capital for this industry are notoriously terrible and the entire industry had earned nothing in the last 10 years until now. You could not be more wrong with what you're saying and just a few minutes of research would tell you this, the sector had shrunk to an all time low proportion of the S&P500.
So let me tell you, free cash flows have been insanely LOW and returns on capital negative for a VERY long time.
Free cash flows can only be judged based on the capital invested to produce them or what you can buy that capital for.
If as you say, free cash flows have been insanely massive for many decades then these companies would trade at 30 or 40 times earnings, the fact they trade at single digits is the market telling you that it thinks this is a one off burst in the midst of a multi decade quagmire, a pestiferous one at that.
The banking sector profits are also awful in relation to capital and if you spend 30 seconds looking at the share prices of the big banks since 2008 you'll figure it out fast. Most also trade at sub 10 PE's. Half of the market price.
You have drawn a very long bow from a few facts taken in isolation of the bigger picture.