mercredi 23 décembre 2020

Debt and cash

Yesterday, I took a look at some of my favorite retail and restaurant companies, to see if the pandemic had a big effect on their debt level.

I was surprised to see that the effect of 9 months of pandemic was generally not that bad. For instance, the debt level of MTY, O'Reilly, Ulta Beauty and Richelieu Hardware hasn't reached a worrying level at all. 

For Ross Stores and TJX, the debt level is now much higher than it was one year ago, but it's not that bad. These two have always had a low debt, so, even if their debt has increased a lot, it's still OK. 

Of course, having a huge debt isn't good. For instance, there's two companies which I like (FISV which is a financial company and BURL which is a kind of TJX) that are great on every aspect except for their debt level. But how much is the debt a threat, given the fact that interest rates are very very very very low?

At the current rates (some banks have recently offered mortgages under 1%) and with the governments printing  money like their was not any toilet paper left to wipe our asses, what is the real value of money? I'm talking here as much about "positive money" (cash on hand) than "negative money" (debt). 

What's the advantage of a company like Google that has about 120 billion dollars cash on hand? If a competitor (Google has virtually no real competitor, but it's just an example) has less money, it can borrow money for almost nothing.  

So, I think that we are in a very different period that requires to analyze things in a different way. 

The real advantage is not to have a lot of cash or to have a very small debt. The real advantage is to grow very quickly. It's always been the real advantage, but other things such as cash and debt seem to me less important these days than they were before. 

Given the current valuation of growth stocks, it seems that many people have understood that long before me. 

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