§ 01
KO — P/E Ratio, Trailing EPS, Net Margin. Open KO on the Ledge to see current values.
§ 02
| Company | Earnings Quality | Why |
|---|---|---|
| Coca-Cola | Very high | Same products, same customers, year after year. Predictable. |
| Apple | High | Strong ecosystem, recurring services revenue, loyal base. |
| Airline | Low | Cyclical, fuel costs volatile, price wars, pandemics. |
| Biotech startup | Very low | Binary outcomes: FDA approval or zero revenue. |
§ 03
This is why Coca-Cola trades at a premium P/E despite growing slowly. Investors pay extra for predictability and sleep-at-night quality.
§ 04
Compare the P/E of KO (Coca-Cola) to an airline like DAL (Delta). The difference reflects the market's assessment of earnings quality.
§ 05
§ 06
Company A: consistent cash-conversion (OCF/NI = 95%), stable margins. Company B: one-time gains boost reported earnings, OCF/NI = 60%. Both at P/E 20x. Which deserves the multiple?
Five questions · AI feedback
Sit with the ideas.
Company A earns $3.00 per share every year like clockwork, growing 5% annually. Company B earned $5.00 last year but has ranged from -$1.00 to $8.00 over the past decade. Which likely trades at a higher P/E multiple, and why?
Why: