Recognizing 'Value Patterns'

What are ‘value patterns’, and what do they indicate?

This is a way of describing a company’s ‘starting position’ — its investment thesis. Value patterns reflect a company’s business model economics (gross margins, R&D intensity, capital intensity), growth exposure, investor expectations and riskiness. Within a given industry like retail, for example, investors tend to think about the trends and challenges all retailers are facing. But individual companies within a sector can have very different profiles — or value patterns — depending on their individual context.

For instance, retailers include ‘early-stage, high-growth, competitively-advantaged’ formats that just need some time to expand their footprint (like Ulta Salon, the popular chain of beauty shops); and at the other extreme, ‘over-capitalized, disadvantaged, late-in-lifecycle’ companies (like ) that are dealing more with contraction and restructuring priorities. These retailers face very different risks and opportunities from a stakeholder standpoint and as a result, the prescriptions for corporate priorities and the tradeoffs are very different. Calibrating a particular company’s value pattern adds richness and, to some degree, prescription as to what kinds of moves are likely to make a company more vital — versus moves that are ill-advised.