Low EBITDA margin, low ROIC business?

Hi guys:

If you think from a long-term perspective, would you ever be interested in investing in a low EBITDA margin (low teen), low ROIC (~5% ) business? I've read elsewhere that "return on capital" is one of the most important metrics that investors look for. However, as you know many businesses have traded off during this Covid-19 crisis and I was wondering if it's cheap enough, would you be interested in investing in this type of business over the long-term?

 

Do you mean ROIC as actual returns to investors in a buy-out or ROIC in the accounting sense (FCF yield on paid-in capital)? If it's the latter and you think the price of an asset is depressed relative to what it would be during better economic times, you should be able to exit at a higher valuation down the road which would improve your overall returns, and that's an investment I would still consider subject to all of the other usual factors.

If you think that the expected IRR of an investment is actually 5%, that's not attractive. Better places to put your money in that case.

 

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