CSL Limited (ASX: CSL) is involved in the development, manufacturing and marketing of pharmaceutical and diagnostic products, and human plasma fractions. CSL is a market darling that has rewarded shareholders with 467% capital growth in the last decade. 

CSL recently broke through the $200 share price barrier, joining Cochlear Limited (ASX: COH) in this exclusive club.

The breakthrough was another instalment in an impressive 12 months, with CSL increasing from a 52-week low of $119.01. 

This share price performance is largely reflected in revenue growth for the company. In the 2008 financial year, CSL received $3.75 billion in revenue. Fast forward to the 2017 financial year and CSL increased this number to $8.99 billion. 

In that same time period, CSL grew earnings per share from $1.27 to $3.81 whilst increasing dividends paid per share from $0.46c to $2.03. Consequently, between 2008 and 2017, CSL has returned $24.60 in earnings per share whilst paying out $11.24 in dividends per share. 

As such, over the 10 years preceding 30 June 2017, CSL retained $13.36 in earnings per share. Concurrently, book value per share grew from $5.10 to $9.07 meaning that for every $1 retained by CSL, $0.30c was added to the balance sheet. 

With a market capital of $89.9 billion and a P/E ratio of 39, this negative return on retained earnings is alarming. Additionally, CSL has grown long-term debt on the balance sheet from $825.1 million in 2008 to $5 billion as at 30 June 2017. 

Attempting to explain this current negative return on retained earnings, in the 2017 financial year, CSL spent $645.3 million on research and development, while also splashing out $697 million on sales and marketing. 

As with every investment on the share market, if you trust management's allocation of spending, CSL is a company earning money now and investing in earnings for the future. However, with a P/E ratio of 39, is CSL too expensive? 

At 30 June 2017 CSL was a company with $3.16 billion in equity producing $1.77 billion in operating profit. According to recent estimates, CSL is expected to turnover approximately $2.31 billion for the 2018 financial year. 

Simply speaking, how much are you willing to pay for a company that earns $2.31 billion in operating profit whilst investing significantly for the future? The market says $89.9 billion which is suggesting that CSL has plenty of room to grow. 

Foolish Takeaway

Despite my admiration of this company, I think the market is valuing CSL too high. Whilst return on retained earnings is negative, I'm inclined to believe management is investing for future returns. However, I'm happy to wait on the side lines until these returns are realised. 

The post At $90 billion: Is CSL Limited (ASX:CSL) overvalued?    appeared first on The Motley Fool Australia.

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Xero Limited (ASX: XRO) is a provider of online accounting software for small businesses. Xero's mission is to rewire the small business economy, connecting millions of businesses to their banks, advisors and each other. 

If you had purchased Xero shares 6 years ago, your initial investment could have been 10 times higher. Since 2012, the Xero share price has increased from $4.65 to a recent all-time high of $47.81. 

Xero's share price performance is largely reflected in its revenue growth. In the last six years, Xero has increased revenue from $31.3 million to $406.6 million. Despite this extraordinary growth, Xero has failed to record a profit since its listing on the ASX. 

Since 2012, Xero has posted $276.7 million in losses and with a market capital of $5.43 billion, you'd be right to question the valuation. However, Xero appears poised to deliver profits having executed an effective market disruption. 

Market disruption companies are often associated with loss-leader type business models and Xero has been no different. However, with profits on the horizon, Xero's losses can be justified. 

With the investment of $118.8 million into product design and development whilst essentially purchasing market share with $193.9 million spent on sales and marketing, shareholders have reason to be comfortable that their losses will be returned. 

Given the scalability of Xero, this level of expenditure is reasonable considering the levels of recent growth. Subscriptions have increased over 300% since 2014 with over 1 million subscribers.  

Despite this exponential growth, the current share price of $45 is suggesting there's more to come. An extract from the 2018 annual report states that the next 18-24 months will deliver "continued strong growth for the core business". 

In agreement, Morgan Stanley whacked a $50 share price target on Xero which means that there is currently 12.6% upside if you agree with this growth sentiment.

However, is this providing enough margin for error? 

Xero has previously been placed under high growth expectations. From October 2013 to March 2014, Xero's share price improved from just over $15 to just under $42. Subsequently, the share price fell back to under $15 in October that same year. 

Foolish takeaway 

Due to its lack of profits and expectations underpinning intrinsic value, Xero is subject to fluctuating opinions and consequently a volatile share price. I believe in Xero as a business but will wait for the market to offer a discount. 

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Insurance Australia Group Ltd (ASX: IAG) is a provider of general insurance, including a full range of personal and commercial insurance products. Warren Buffett is a fan of insurance companies because of the upfront capital they provide and 3 years ago, IAG caught the eye of the 'Oracle of Omaha'. 

In 2015, Berkshire Hathaway purchased $500 million worth of Insurance Australia Group Ltd at an average price of $5.57. Since then, the IAG share price has increased 48.7%. 

This 3-year share price rise is a continuation on a decade of strong performances. Since 2008, the IAG share price has grown from below $3.30 to its current price of $8.28, largely reflecting the strong earnings growth by the company. 

From 2008 to 2017, IAG grew its earnings per share from $0.08c to $0.38c whilst increasing its dividend from $0.23c to $0.33c. As a result, in that 10-year period, IAG returned $2.67 in earnings per share whilst paying out $2.52 in fully franked dividends. 

Concurrently, IAG managed to grow book value per share from $2.24 to $2.77. As such, from 2008 to 2017, IAG achieved $0.15c in retained earnings for $0.53c growth in book value per share. 

Warren Buffett has stated that he prefers companies that have positive returns on retained earnings. Specifically speaking, Buffett believes that for every dollar retained by a business, at least one dollar of value should be created for the owners. 

Using this approach, for every $1 that IAG has retained over the past 10 years, $3.51 has been returned on book value. In fact, compared to the ASX Top 20, IAG is the strongest performing company based on this interpretation of return on retained earnings. 

If you agree with Warren Buffett, IAG is a great company to own and with a market capital of $19.6 billion, it has a P/E ratio of 19 and a dividend yield of 4.1%. Berkshire Hathaway Inc. still holds IAG shares which based on Buffett's history, indicates that value is still available.  

Another positive is that IAG appears to be running a tight ship with apparent emphasis on responsible behaviour. Unlike its primary competitor Suncorp Group Ltd (ASX: SUN), IAG is yet to be summoned before the Royal Commission into the financial sector.  

The combination of a strong financial position, historical reliability and efficiency in addition to responsible and ethical business behaviour suggests that IAG is a must consider for all long-term investors. 

Foolish takeaway

Personally, whilst I agree that there is value present on current prices, I believe there is more value elsewhere. However, should the market offer this business at a discount, I would strongly consider buying shares in Insurance Australia Group Ltd. 

The post Why Berkshire Hathaway owns this ASX company I'd also like to own appeared first on The Motley Fool Australia.

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National Australia Bank Ltd. (ASX: NAB) is Australia's fourth largest bank and intends to be Australia and New Zealand's most respected bank. Outside of dividends however, NAB has been a fairly lacklustre investment for many. 

Since mid-2007, the NAB share price has fallen from over $42 to just under $28 currently. Whilst this 33% fall is partly attributed to a significant fall amidst the Global Financial Crisis, NAB's inability to recover to pre-GFC levels is reflected in its earnings growth. 

NAB's earning per share has fallen from $2.57 in 2008 to $2.39 as at 30 September 2017. Despite this, NAB has managed to increase its fully franked dividend every year from $1.44 in 2009 to $1.98 for the 2018 financial year. 

Between 2008 and 2017, NAB returned $22.80 in earnings per share whilst paying out $18.09 in dividends. In the same time period, NAB grew book value from $16.53 to $19.17. This means that with retained earnings of $4.71, NAB has only grown book value per share by $2.64. 

The picture painted above is an ominous one for shareholders.

The combination of inefficient allocation of profits, declining earnings and increasing dividends is a strong indication that the NAB share price is operating on borrowed time. 

Currently, with a market capital of $76.1 billion, purchasing NAB shares secures you a P/E ratio of 12.6 and a dividend yield of 7%. The prospect of owning a blue-chip bank on these two metrics is enough for some investors, however I believe there is some stormy weather on the horizon. 

In conjunction with declining earnings and inefficient profit allocation, NAB is significantly exposed to a potential debt crisis and falling housing market. As at 30 September 2017, NAB had $540 billion in loans and advances on its balance sheet with interest bearing assets accounting for approximately 85% of total income. 

In addition to this, NAB is facing scrutiny over recent findings from the Royal Commission into the banking and financial sector with the company's ethics and procedures being brought into question. 

Foolish takeaway

In my opinion, whilst NAB presents an attractive income investment on current prices, I don't believe this will continue and I'm very comfortable not owning this company. 

The post Why I'd sell National Australia Bank Ltd. (ASX:NAB) despite the 7% dividend yield appeared first on The Motley Fool Australia.

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Brambles Limited (ASX: BXB) is a supply chain logistics company with operations in over 60 countries. Brambles enables access to reusable pallets, crates and containers for shared use by multiple participants throughout the supply chain. 

Since 2009, the Brambles share price has risen from just above $4.30 to $9.21. Whilst returning approximately 110% in capital growth for those post GFC investors, since July 2016, Brambles' share price has declined over 30%. 

With a current market capital of $14.5 billion, Brambles has a P/E ratio of 17 and a dividend yield of 3.1%. Based on this, the Brambles price tag appears to be reasonable with a rather average historical performance. 

Brambles has grown earnings per share from $0.46c in 2008 to $0.50c in 2017. In total, Brambles have returned $4.45 in earnings per share whilst paying out $3.02 in dividends over this 10-year stretch. 

In the same time period, Brambles grew book value per share from $1.15 to $2.33. As such, with $1.43 in retained earnings per share, Brambles has only managed to improve book value per share by $1.18. 

This means that outside of returning earnings via dividends, Brambles has eroded shareholder value. Whilst this is a cause for concern on its own, investors should also pay attention to the introduction of new technologies in the supply chain logistics industry. 

Companies like Yojee Ltd (ASX: YOJ) and GetSwift Ltd (ASX: GSW) are demonstrating the potential for industry changing technologies. In particular, the application of blockchain and artificial intelligence is poised to enhance industry efficiency and connectivity. 

Whilst the emergence of new technologies presents a risk of being left behind, if you believe in management, Brambles could take advantage of the benefits new technologies provide. In the 2017 annual report, Brambles stated its priority of "innovating to create new value by investing in new technology that enhances customer offerings". 

Foolish takeaway 

Inefficient allocation of profits is a warning sign for me when choosing businesses to invest in. However, I believe the service Brambles provides will hold value in the long-term. Given the lack of discount in the current share price, the decision on whether to invest in this company boils down to belief in management. 

Ultimately, if there is a convergence of a falling share price and further evidence of innovation, I would like to own this company.  

The post Should you buy Brambles Limited (ASX:BXB) for capital growth?  appeared first on The Motley Fool Australia.

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I wrote about Platinum Asset Management Limited (ASX: PTM) in May this year. At that time, the share price was $6.29 and whilst I thought the price tag was too high, I was a big fan of the company's historical performance and financial strength. 

With a 52-week high of $8.72 and a 52-week low of $4.61, today's 9% fall is the latest instalment in a roller coaster narrative experienced by shareholders. Consequently, the consistency of volatility affirms the need to focus solely on the company's intrinsic value. 

Platinum Asset Management has been a strong investment for the past decade. From 2008 to 2017, it has returned $2.79 in earnings per share whilst paying $2.77 in fully franked dividends. 

In that same time period, Platinum Asset Management grew book value per share by $0.25. This means that for every $1 retained in earnings, Platinum Asset Management has grown book value by $12.50. 

On the back of its funds management revenue stream, Platinum Asset Management is also tipped to grow earnings for the 2018 financial year. Since April 2017, Platinum Asset Management has increased funds under management from $23.96 billion to $27.75 billion. 

Funds under management growth has been largely attributed to the returns provided by its two largest products. In the last year, Platinum International Fund and Platinum Asia Fund have returned 14.2% and 19.5% respectively. 

Whilst both outperforming the All Ordinaries (INDEXASX: XAO), perhaps Platinum Asset Management's exposure to international markets and reliance on management and performance fees is causing investors to feel uneasy. 

International markets are on edge as the "trade war of words" between the U.S. and China continues. Additionally, Australia's debt situation is becoming more prevalent with ASIC recently slamming the $45 billion credit card industry, adding to fears of a potential debt bubble. 

Downturns aside, if you were to buy Platinum Asset Management on today's prices, you would be securing an investment with no debt, a P/E ratio of 17 and a dividend yield of approximately 5.5% on 2017's figures.

Foolish Takeaway: 

Personally, there aren't many shares I'd buy given my thoughts on short-term threats to market sentiment. However, if you disagree with my opinions, I believe Platinum Asset Management is a proven investment at an enticing price. 

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Woodside Petroleum Limited (ASX: WPL) is self-described as Australia's largest independent oil and gas company with a global portfolio, recognised for its world-class capabilities – as an explorer, developer, producer and supplier of energy.  

Since December 2008, Woodside Petroleum has seen declining sales from $8.63 to $5.94 per share in December 2017. Consequently, earnings per share have dropped from $3.02 to $1.54 in the same time period. 

Conversely, Woodside Petroleum has increased its dividend from $1.32 per share in 2008 to $1.41 per share in 2017. As a result, in the last 10 years Woodside Petroleum has earnt $20 per share whilst paying out $15.59 as a fully franked dividend.  

Irrespective of reducing sales, Woodside Petroleum has been able to effectively allocate retained profits. Woodside Petroleum has retained $3.41 per share whilst growing book value per share by $13.24.  

With a market capital of $32.9 billion, Woodside Petroleum has a P/E ratio of 19 and a dividend yield of approximately 4.5%. This elevated price tag suggests the market is expecting growth from the company. 

Oil and Gas are essential energy sources for the short to medium terms. However, investors must consider the growing viability of the renewable energy sector.  

Epitomised by the growth of the electric car industry, renewable energy is becoming a more feasible alternative and a potential threat to Woodside Petroleum's future. 

Chief Executive Peter Coleman recently commented on the renewable energy sector, stating that gas is an essential component of a clean energy future. He later went on to say that "batteries pose no threat to gas – they don't generate energy, they just store it." 

Investors may need to decide whether his comments are accurate or naive. If he's correct, Woodside Petroleum should return earnings to shareholders for some time. If not, shareholders may need to look elsewhere to invest their money. 

Foolish takeaway 

Personally, I love the book value growth on retained earnings. I think it highlights management quality. However, Peter Coleman's words and my thoughts don't align and I believe this presents too much of a risk moving forward for my liking. 

Whilst I may be wrong, I'm happy to be wrong on the side lines. 

The post Is Woodside Petroleum Limited (ASX:WPL) a long-term buy?  appeared first on The Motley Fool Australia.

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Australia and New Zealand Banking Group (ASX: ANZ) is Australia's fifth-largest listed company with a market capital of $81.36 billion. With a current share price of $28.08, ANZ has a P/E ratio of 13 which has some investors sniffing around for value. 

Shareholders who bought the stock in January 2009, just after the global financial crisis, could have secured over 200% in capital growth. In recent times however, the share price has suffered.

Since March 2015, the ANZ share price has fallen from over $36 to just over $28 currently. The pain for shareholders has continued with the recent Royal Commission into the banking sector.  

Despite hitting near 52-week lows of $26 in mid-June, the ANZ share price has made positive strides in the past 3 weeks with a 7% rise. This has some investors thinking that ANZ is eyeing off a profitable future. 

Historically, ANZ is a fundamentally strong company. Since 2008, ANZ has earnt $20.73 per share whilst paying out $14.92 in fully franked dividends. During the same time period, ANZ has grown book value per share from $12.55 to $20.07. 

This means that per share, ANZ has retained $5.81 in earnings for $7.52 in book value growth. Concurrent with effective allocation of profits, ANZ has increased earnings per share from $1.36 in 2008 to $1.95 in 2017. 

Earnings growth is largely attributed to revenue from interest bearing assets that ANZ holds. Since 2008, ANZ has grown its net interest income from $7.85 billion to $14.96 billion last year.  

Despite this growth, the factors underpinning net interest income should be questioned by investors. As at 30 June 2017, ANZ had $580.3 billion in net loans and advances which is approximately 7 times larger than its current market capital. 

A 2018 priority for the bank was to "maintain momentum in our home loan and small business franchises to deliver consistent, above-system growth in a cautious and responsible way".  

With murmurs of a housing correction and Sydney prices now falling, ANZ appears susceptible to any adverse developments.

Furthermore, with the integrity of banks being placed under scrutiny, investors should examine the "cautious and responsible" behaviour of ANZ. 

Foolish takeaway

If ANZ is acting responsibly, investors are exposed to a significant discount on a historically strong company. In my opinion however, regardless of behaviour, ANZ is far too exposed to the home loan bubble that I believe to exist. 

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Behind water, Coca-Cola is the world's most famous drink. Introduced in 1886 by Dr. John S. Pemberton and initially sold via fountains, Coca-Cola is now consumed approximately 2 billion times per day. 

Coca-Cola is Warren Buffett's favourite drink and also one of the many success stories that has contributed to the incredible returns of Berkshire Hathaway Inc. (NYSE:BRK-A).

However, The Coca-Cola Co. (NYSE:KO) is not the same company as Coca-Cola Amatil Ltd (ASX: CCL). 

Whilst The Coca-Cola Co. owns a significant stake in Coca-Cola Amatil, they are separate companies with varying performances.

Since June 2008, The Coca-Cola Co share price has increased by approximately 60%. In the same time period, Coca-Cola Amatil has increased by 31%.  

Despite the product having the same competitive advantage that prompted Buffett's investment, shareholder returns have been completely different. But does this mean that Coca-Cola Amatil has room to move? 

Coca-Cola Amatil is primarily involved in the manufacturing, distribution and marketing of beverages. Currently, Coca-Cola Amatil has a market cap of $6.52 billion and a P/E ratio of 17. 

In recent times, Coca-Cola Amatil has failed to grow earnings with sales, revenue and net profits all stagnant. From 2013, earnings per share fell from $0.66 to $0.32 in 2016 before a recovery to $0.52 as at 30 June 2017. 

Since 2008, Coca-Cola Amatil has earnt $5.77 per share and has paid out $4.80 per share as a dividend. With retained earnings of $0.97 per share, Coca-Cola Amatil has grown book value per share by only $0.27. 

The combination of poor earnings results and inefficient profit allocation partially affirms the underperformance of its American counterpart. Additionally, with a debt to equity ratio of 1.25:1, Coca-Cola Amatil does not present any overt value to me. 

Attention must also be paid to the growing anti-sugar movement and a looming sugar tax that could eat into profits. 

Foolish takeaway 

Whilst the brand of Coca-Cola is an example of a marketing masterclass, Coca-Cola Amatil is not the same company that Warren Buffett invested in across the Pacific Ocean. As such, I'll stick to water for now. 

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In 1999, Warren Buffett penned an article to Fortune magazine that contained information paramount to investor success. In his message, he noted that despite the impact airlines have had on society, the frequency of failures and lack of returns have made them poor investments.

Airline travel is considered by many to be a commodity. This results in points of meaningful differentiation being based around price, and as a result higher competition is directly linked to shrinking profit margins.

If there is an airline in the Australian market that can lay claim to a competitive advantage outside of price, it is Qantas Airways Limited (ASX:QAN). The iconic brand has never had a fatal jet airliner accident.

Qantas provides international and domestic air transportation services, the sale of worldwide and domestic holiday tours and associated support activities including catering, information technology, ground handling and engineering and maintenance.

In recent memory, Qantas has flown higher than industry and share market rival, Virgin Australia Holdings Ltd (ASX:VAH). Since 2013, the Qantas share price has grown 364% compared to the 55% decline by Virgin,

Qantas's share price growth is mirrored by its earnings per share history. Since 2013, earnings per share have grown from $0.10 to $0.55 as at 30 June 2017.

In the last four years, per share, Qantas has retained $1.50 in earnings for only $0.71 in book value growth. This is even worse if you include the 2013 figures with the equation becoming $1.60 in retained earnings for a $0.66 reduction in book value.

Despite this rather damning perspective, the market continues to prop the share price up and with a P/E ratio of 10, shareholders appear to have a leg to stand on.

However, total revenues are void of significant growth in the last 10 years of relatively strong economic conditions. Whilst market sentiment is impossible to predict, should a recession occur, revenue appears vulnerable.

Additionally, Qantas has a debt to equity ratio of 1.37:1 and it appears poorly positioned for a market downturn.

Foolish takeaway

Qantas's inefficient allocation of profits is enough for me to avoid this company. Furthermore, my opinion is compounded by the commodity-like nature of its services and high debt levels. I believe this creates too much exposure to potential losses.

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Primary Health Care Limited (ASX: PRY) fell 8.29% yesterday after UBS changed its buy rating to a sell.

UBS cited earnings headwinds, but is one opinion worth a fall of this size and is there value in Primary Health Care shares as a result? 

Primary Health Care is a service company for medical and related services, as well as a day-care surgery operator. Yesterday's tumble was another instalment in a share price history that favours timing the market, rather than time in the market. 

Since 2008, the share price has fallen from $5.84 to $2.82 in 2012 before recovering to $5.22 in 2015. The price then took a dive, losing 47% of its market capital in 8 months before a sharp bounce back to near $4 levels before yesterday's fall. 

The sporadic share price performance of Primary Health Care is somewhat mirrored in the net profit figures. Whilst unpredictable from year to year, Primary Health Care has returned $2.55 in earnings per share in the last 10 years, whilst paying out $1.65 of that as fully franked dividends for all but two years. 

Based on these figures, Primary Health Care has retained $0.90c in profits and improved Net Tangible Assets per share from negative $3.11 to negative $1.18. 

Negative Net Tangible Assets is some cause for concern. Additionally, the debt to equity ratio is currently 0.47:1 and with a current P/E ratio of 21, investors should expect some nice growth to negate these added risks. 

By 2020, Primary Health Care is expected to earn $0.22c per share whilst paying out $0.14c in dividends. If you were to buy on the beaten down price of $3.54, you would be locking in a forward P/E ratio of 16 and a dividend yield of 4%. 

Given the net tangible asset position, presence of debt and absence of probable and significant growth, the recent UBS downgrade is a fair assessment. 

Foolish takeaway

Whilst I believe the healthcare sector is poised to grow, I'm of the opinion that value can be found elsewhere.  

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Washington H Soul Pattinson & Co. Ltd (ASX: SOL) invests in coal mining, pharmaceuticals, telecommunications and building materials. Often referred to as Australia's Berkshire Hathaway Equivalent, Soul Patts has been a portfolio stalwart for many investors. 

In the last 15 years, Soul Pattinson has returned shareholders an average of 12.8% per year compared to the 8.9% per year from the All Ordinaries Accumulation Index.  

In the last ten years, Soul Patts has earned $7.55 per share whilst paying $4.68 in fully franked dividends. As such, Soul Patts has retained $2.87 in earnings and has increased book value per share from $6.58 to $13.61 

Based on these figures, Soul Patts has turned $2.87 in retained earnings into $7.03 book value growth. This is largely due to the growth of Soul Patts larger holdings, TPG Telecom Ltd (ASX: TPG), Brickworks Limited (ASX: BKW) and New Hope Corporation (ASX: NHC) 

Soul Patts has a market capitalisation of $4.71 billion and a P/E ratio of 14.9. Simply put, the historical financial performance and current price tag of this company makes it a very attractive option for investors. 

Soul Patts is expected to increase its dividend to $0.58c in FY 2019.

The reality is, Washington H Soul Pattinson & Company knows what its doing. They are seasoned investors with a track record of success. For that reason, it is without question that this business is a must consider for every investor. 

However, is the current price tag worth it? 

Timing the market and predicting corrections is a futile activity. Ultimately, you are purchasing a company with a cheaper P/E ratio than most, one that will provide you just under a 3% dividend yield and a sound investment approach via its strategies. 

Foolish takeaway

Whilst the share price may fluctuate in the short term, I expect Washington H Soul Pattinson & Company to continue compounding returns and delivering great results for shareholders. 

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Infigen Energy Limited (ASX: IFN) is an active participant in the Australian energy market. It is a developer, owner and operator of renewable energy generation assets delivering energy solutions to Australian businesses and large retailers.

In the past 10 years, Infigen has eroded shareholder value through negative earnings of $0.14c per share resulting in book value diminishing by 54%. As such, since June 2008, share prices have fallen from approximately $1.50 to its current price of $0.72c.

Currently, with a market capital of $682 million, Infigen has a P/E ratio of 16 and a projected EPS of $0.04 for the 2018 financial year. Outlook for growth is non-existent with earnings per share for 2019 matching the previous year.

Furthermore, the Debt to Equity ratio is 1.36:1 suggesting that Infigen is attempting to purchase additional growth while interest rates are low. This has been a mild success in the last 3 years as total revenue has grown 46% and free cash flow increasing 71% to $0.12c per share.

This additional free cash flow has been used to service debt commitments. Since 2016, Infigen has reduced its debt by 52%. Additionally, in February this year, Infigen stated its commitment to debt reduction via a refinancing arrangement with Goldman Sachs.

This debt refinancing will provide Infigen with increased flexibility to take advantage of opportunities in the renewable energy sector. As wind is the lowest cost renewable energy technology that can be rolled out on a large scale, the potential for unaccounted growth is worth considering for investors.

Growth in the renewable energy sector appears probable with renewable energy targets and increased mainstream popularity. However, the clean energy council has stated that policy uncertainty has the potential to undermine growth in the coming years.

Foolish takeaway

I am a big fan (sorry) of Infigen Energy Limited. Unfortunately, due to its debt levels and inability to deliver returns despite being the lowest cost renewable energy technology, I'll be avoiding this company until further notice.

If you are looking for exposure to the renewable energy sector, it might pay to have a look elsewhere….

The post Why I'm steering clear of Infigen Energy Limited (ASX:IFN) shares appeared first on The Motley Fool Australia.

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Flight Centre Travel Group Ltd (ASX: FLT) is involved in the selling of international and domestic travel. An ASX success story, the Flight Centre share price has increased from $17 in 2008 to its current price of $63.

This capital growth can be attributed to its historically strong financial performance. Since 2009, net profit has grown from $38.2 million to $230.8 million as at 30 June 2017. In the same time period, sales per share have increased from $16.84 to $25.13.

When we look a little closer, effective profit allocation comes under fire. In the past 10 years, Flight Centre has earned $20.09 per share, whilst paying out $10.93 in fully franked dividends.

This means that Flight Centre has retained $9.16 per share in profits whilst only adding $7.52 to Net Tangible Assets. Despite 271% capital growth and an additional 56% in returns via dividends over the last decade, inefficient allocation of retained profits are a potential warning sign for  investors.

Conversely, if you believe in management's ability to allocate profits moving forward, Flight Centre's earnings projections (according to analysts) demand attention. By 2020, Flight centre is expected to increase earnings per share by 36% and has a forward P/E ratio of 20.

Investors may look past this higher price tag because of Flight Centre's strong financial history. However, travel is one of the first things to suffer in a down market and with a premium already built into Flight Centre's current share price, the margin for error in this stock is much lower.

If you're not convinced on Flight Centre, Qantas Airways Limited (ASX: QAN) has a forward P/E ratio of 10.2 and will ride the same market developments that Flight Centre does.

Alternatively, if you're looking for more defensive investments, Woolworths Group Ltd (ASX: WOW) or Wesfarmers Limited (ASX: WES) may be more appropriate for you.

Foolish takeaway

Whilst a fundamentally strong company, I believe Flight Centre is too expensive given its earnings susceptibility in a bear market. I will sit on the sidelines for this one.

The post Why I'm giving Flight Centre Travel Group Ltd (ASX:FLT) shares a miss for now appeared first on The Motley Fool Australia.

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Galaxy Resources Limited (ASX: GXY) is involved in the production of lithium concentrate and exploration for minerals in Australia, Canada and Argentina. Since the beginning of 2015, Galaxy shares have skyrocketed from $0.14c to a record high of $4.46 in January 2018. 

The massive share price run has been largely attributed to the increasing popularity of renewable energy alternatives and the role lithium plays within this industry.  

Lithium ion batteries are a type of rechargeable battery that are commonly used in home electronics. In recent times, there has been an increasing shift towards using these batteries in electric vehicles.   

If you had invested $10,000 in Galaxy shares in January 2015, they would now be worth $240,000. Despite these extraordinary returns, the share price has slipped approximately 25% since the beginning of year and has some investors thinking about topping up at these lower prices. 

Currently, with a market capital of $1.4 billion, Galaxy is projected to have a P/E ratio of 7.6 by the end of the 2018 financial year. Comparatively cheap, with the global lithium ion battery market expected to triple by 2025, Galaxy shares appear to be at bargain prices. 

Agreeing with this sentiment, two brokers have labelled Galaxy as a strong buy with a target price of $4.50 identified. This leaves shareholders with a potential 34% return on investment in the shorter to medium term. 

Alternatives 

If you're not quite convinced about renewable energy, perhaps you should investigate BHP Billiton Limited (ASX: BHP) or Woodside Petroleum Limited (ASX: WPL). For the 2018 financial year, BHP is expected to increase earnings per share by 33%, whilst Woodside Petroleum projections are 46% higher on their previous year's earnings. 

Foolish takeaway 

Regardless of which side of the fence you sit on in the renewable energy debate, the benefits of lithium batteries are not mutually exclusive to either industry. As such, given the growth of the renewable energy market and the apparent discount available, I believe Galaxy shares are worth owning, although remember it carries plenty of risks as a price taker on a relatively big valuation.

The post This share could have made you 31x your investment in 3 years appeared first on The Motley Fool Australia.

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Domino's Pizza Enterprises Ltd (ASX: DMP) is an operating pizza chain comprising both franchisee owned and company owned corporate stores. From 2008 to 2016, the Domino's share price rose from $3 to just under $77. 

Whilst the share price has since fallen 31%, Domino's has grown its operations year on year. Since 2008, total sales have increased 291%, whilst earnings per share have risen 781%.  

Currently, Domino's has a market capital of $4.5 billion and a P/E ratio of 34.5. With book value per share of only $4.67, the market is suggesting that growth will continue. 

Growth 

By 2020, earnings per share (according to analysts' forecasts) are projected to increase by 47.5%, whilst dividends will grow by 47%. This means that if you bought on today's price, you would secure a forward P/E ratio of 23.2 and a dividend yield of 3.1% 

These projections are underpinned by the growth of operating stores. Domino's is expecting to more than double its 2,200 stores across its European, Japanese and Oceania network. By June 2025, the pizza chain intends to have 4,650 stores in operation. 

Whilst the projected growth is impressive, it appears to be over-accounted for on the current price.

The majority of large brokers have labelled Domino's as a "hold". However, there are some that are expecting bigger and better things. 

Domino's holds approximately 25% of the local pizza market and is doing everything in its power to extend its position. From website developments, personalised marketing campaigns and drone delivery services, Domino's is searching for competitive advantages.

It is a historically strong performer, an easy to understand business model and is constantly searching for competitive advantages. Whilst meeting the majority of Buffett's criteria, the comparatively high price reduces the margin for error. 

Foolish takeaway 

In my opinion, if the 'Oracle of Omaha' was looking at buying Domino's shares, he'd wait until Mr. Market had a bad day. Although, it's also possible that Domino's might not pass Buffett's value and quality investing style at all.

It might be worth having a look at the closet thing Australia has to an investment conglomerate in Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), or the Buffett-owned Insurance Group Australia Ltd (ASX:IAG) if you really want to follow Buffett's investment style more closely.

The post Why Warren Buffett might avoid Domino's Pizza Enterprises Ltd (ASX:DMP) shares appeared first on The Motley Fool Australia.

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Yojee Ltd (ASX:YOJ) is a logistics software company that claims to utilise blockchain technology and artificial intelligence.

Shareholders have been on a wild ride in recent times with the share price increasing from $0.03 in 2015 to a 52-week high of $0.29c in January 2018. 

The exponential growth is largely due to the potential of blockchain technology made relevant by the recent bitcoin boom.

Despite all of the excitement surrounding this stock, the last six months have seen Yojee lose more than half of its market capital with a current share price of $0.14. 

Yojee is in its nascent stages as a company with a fairly lacklustre financial history. It has failed to record a profit since listing and has only received $400,000 in sales in the first 9 months of the 2018 financial year. 

Currently, Yojee has a market capital of $111 million and negative earnings per share. With net assets only worth around $7.3 million, the market is expecting big things from the small logistics software company. 

Earnings projections are fairly uncertain, which means the value of Yojee is underpinned by the probability of signing new agreements and the assumed scalability within this high growth sector. 

The adoption of blockchain technology and artificial intelligence is setting the stage for a logistics market boom. Currently worth $8 trillion, some "experts" are estimating the industry to be worth $15.5 trillion by 2023.  

The industry is heavily diversified with the top four players controlling less than 15% of the market. As such, Yojee is not looking to partner-up with the Amazons of the world, rather:  

"The Yojee Platform supports the small and medium players, the mums and dads and the aspiring entrepreneurs in competing against the global giants".  

Being able to utilise economies of scale benefits when you are a small company is a must in this developing world. If Yojee can demonstrate the value of taking part in their collaborative network, the potential for growth is big.  

Ultimately, like all investment decisions, the quality of management is paramount. Assuming the product Yojee offers is up to standard, the determining factor becomes the ability to communicate its value to potential customers. 

Foolish takeaway

Clearly, Yojee is a high-risk speculative bet and with the amount of growth factored into the current price, I would much rather wait for it to get some runs on the board before I decide to invest. In saying that, I will watch this company very closely.  

The post Is Yojee Ltd (ASX:YOJ) the next big winner from blockchain and artificial intelligence?  appeared first on The Motley Fool Australia.

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Woolworths Group Ltd (ASX: WOW) provides food, general merchandise and specialty retailing through chain store operations. Since June 2008, Woolworths has rewarded shareholders with 26% capital growth and returning $11.72 per share in fully franked dividends. 

If you bought Woolworths 10 years ago and reinvested all of the dividends, your initial investment would be approximately 60% larger which is a shade under 5% annualised returns. This is relatively disappointing and suggests that the company has been irresponsible with retained profits.  

At 30 June 2008, Woolworths had a book value of $4.95 per share. Since then, the company has retained profits of $6.23 whilst only improving book value by $2.44 per share. Additionally, Woolworths has experienced stagnant sales growth with net profit declining in the last 5 years.  

Currently, Woolworths has a market capital of $37.9 billion and a price-to-earings (PE) ratio of 23. Comparatively high, the P/E ratio indicates that the market is expecting growth from this long-time blue-chip stock. 

Brokers are expecting the company to return $1.44 in earnings per share and $0.99 in dividends by 2020. If you purchased Woolworths on today's price, that would secure you a dividend yield of 3.40% and a forward P/E ratio of 20.2 

Woolworths does not appear to present any significant value for investors. So why is the share price near a 52 week high? 

Defensive Investing 

With all the talk about imminent share market corrections and housing bubbles, some investors are positioning themselves in long-term defensive shares. A defensive share is one that provides a constant dividend and reliable earnings regardless of share market sentiment or house price falls. 

Food and drink is arguably the last thing people will cross off their budgets and this accounts for more than 100% of Woolworths profits (due to the losses from Big W). However, Woolworths has a debt to equity ratio of 0.32:1 compared to Wesfarmers Ltd (ASX: WES) 0.23:1 and Aldi who famously prefers to expand out of profits with zero debt.  

Investors should take note of this comparison as when things get tough, Woolworths is poorly positioned to compete via cutting prices compared to its competitors. 

Foolish takeaway

Ultimately, historical performance and the premium built in to the current price is enough to avoid this stock. Furthermore, Woolworths is poorly positioned to compete with other supermarket powers in a down market. As such, I would rate Woolworths as a sell. 

The post Why I'm avoiding Woolworths Group Ltd (ASX:WOW) at this share price appeared first on The Motley Fool Australia.

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The Commonwealth Bank of Australia (ASX: CBA) has been in the news for all of the wrong reasons. The royal commission into the banking sector combined with a $700 million fine for breaches of anti-money laundering laws has shareholders pondering the value of the company. 

CBA is Australia's largest company with $121 billion in market capital and more than 800,000 shareholders. Since 2008, CBA has rewarded long-term shareholders handsomely with consistent dividends and significant capital growth.  

On current prices, CBA has a P/E ratio of 12.37 and a dividend yield of 6%. For a company that has grown earnings almost every year since 2008, this would normally have value investors excited. 

Additionally, CBA has pencilled in growth with EPS expected to increase by 4% while its dividend is projected to grow 8% by 2020. This means that if you were to buy CBA at today's price, you would be locking in a P/E ratio of 12 and a dividend yield of 6.7%. 

Comparatively speaking, CBA shares appear to present some value. However, since last year the share price has fallen 17% and with recent media attention in mind, investors are understandably nervous that where there's smoke, there's flames.  

Both the findings of the royal commission and the anti-money laundering breaches suggest ethical and business management deficiencies. If this is systemic, CBA is an avoid in my opinion.

Adding to investors' concerns is the extent to which CBA may be exposed to a potential housing market correction. Currently the largest home loan provider in Australia, CBA receives 68% of its revenue or $17.6 billion from net interest income. 

CBA has $435 billion in interest earning home loans which in conjunction with slow wage growth and increasing mortgage stress, places it in a precarious position should house prices fall dramatically. 

Word out of CBA is that the domestic mortgage market is a key focus area for the business and that it continues to maintain a high-quality portfolio.  

Simply speaking, the decision on whether to invest in CBA is hinged on your faith in management. If you trust them, current share price movements are an opportunity to top up at discounted prices. 

Foolish takeaway 

CBA is a fundamentally sound company with some issues to iron out. In my opinion, with the threats and unknowns of the domestic mortgage market and the recent scandals that CBA has been involved in, I'm happy to wait on the sidelines. 

The post Why I'm holding off buying Commonwealth Bank (CBA:ASX) shares appeared first on The Motley Fool Australia.

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It's a fall from grace that has captivated a nation. But is it the beginning of a comeback story that could earn investors some serious coin? 

Telstra provides telecommunications and information services, including mobiles, internet, and pay television. It is also providing many investors some serious heartache through a continuing downward spiral of value. 

The long-time blue chip and portfolio stalwart has fallen from $6.48 in 2015 to below $3, and in my opinion deservedly so. 

In 2008, Telstra returned $0.30c in earnings per share with $0.28c paid out as a dividend. 10 years later and Telstra has grown earnings by only 10% to $0.34c per share and has already returned a diminished dividend of $0.27c for the 2018 financial year. 

For a company with a monopolistic type presence and multiple competitive advantages, Telstra has wasted shareholders' equity for the past decade.  

With prices at multi-year lows, Telstra has a dividend yield of 7.9% and a P/E ratio of 9.30 suggesting bargain prices.

However, many investors have been stung by viewing Telstra's share price slides as temporary, only to experience more slides themselves. 

The reality is that Telstra has the infrastructure and capabilities to turn itself around. The decision on whether to invest in this company comes down to management and whether you think it can mirror Qantas Airways Limited's (ASX:QAN) 5-year turnaround and share price resurgence. 

Recent developments such as the emergence of 5G, the nearing completion of the NBN and a reduction in dividend payout ratio to invest more in business operations are all potential indicators of better shareholder returns. 

So, whilst a comeback story is on the cards, I believe there are many more undervalued businesses that are not getting the positive news they deserve.

It might also pay to have a look at established winners including 3 ASX Blue Chips to buy in 2018….

The post Is Telstra (ASX:TLS) a comeback story in the making?  appeared first on The Motley Fool Australia.

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