CONSISTENCY IS KING!
We have selected few companies on the basis of three criteria's - ROCE greater than 15%, Free Cash flow generation and close to zero D/E ratio for last 5 years. These companies were then divided into two sets on the basis of consistency in performance.
We have selected few companies on the basis of three criteria's - ROCE greater than 15%, Free Cash flow generation and close to zero D/E ratio for last 5 years. These companies were then divided into two sets on the basis of consistency in performance.
Set one majorly comprises of PSU's. 
Set two-
Why few companies get high P/E multiples and why others trade at high dividend yield and low multiples even after decent ROCE's, free cash flow and low D/E?
In our opinion, Consistency in revenue and operating profit is the major reason.
Set One- Net Sales Growth YoY
In our opinion, Consistency in revenue and operating profit is the major reason.
Set One- Net Sales Growth YoY
Set Two- Net Sales Growth YoY
Set One- EBITDA Growth YoY
Set Two- EBITDA Growth YoY
From the above tables, it is very clear that companies in set 2 have shown consistent growth every year in sales and operating profit levels whereas, companies in set 1 are not able to do same. The YoY growth numbers vary a lot and the instances of negative growth are very high.
Over the time, investors have liked the companies with consistent growth and thus, they command high valuation. Even if the sales growth rate is in single digit but company keeps improving operating efficiency, then it will keep commanding high multiples.
