The Value Equation

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A 95% operating profit margin sounds like an investor's dream.For net lease REITs, it's both an advantage and a ceiling....
09/30/2026

A 95% operating profit margin sounds like an investor's dream.

For net lease REITs, it's both an advantage and a ceiling.

The advantage is that almost every dollar of revenue flows through to profit. It's one of the most efficient business models in existence.

The ceiling happens once you're at 95%, because there's nowhere left to go. The economies of scale that reward growth in other business models, where a bigger company gets meaningfully more efficient, don't apply here. Squeezing out one more percent of margin would barely move the needle for investors.

That means, REIT growth isn't driven by margin expansion.

It's the steady acquisition of new properties at yields above the cost of capital, and the spread between what the business earns and what new investors accept.

The model tells you where the return actually comes from.

For REITS, it’s probably not going to come from the margin.

09/28/2026

How can a company with worse returns be the better investment?

An oft-overlooked variable in the Value Equation is maintenance capex. (The ongoing cost of keeping a business running t...
09/25/2026

An oft-overlooked variable in the Value Equation is maintenance capex. (The ongoing cost of keeping a business running that comes off the top of your returns before anything else.)

For businesses like Costco, estimating that number accurately is one of the trickiest parts of the model.

For a REIT like EPRT, it effectively disappears.

Net lease REITs like EPRT structure their leases so tenants pay for property maintenance themselves. Which means the landlord's maintenance capex obligation approaches zero.

The Value Equation reflects that directly in a cleaner, simpler return calculation where the business model determines the math, the math determines the return…

And the structure of the lease is where it all starts.

(Head to The Value Equation YT channel for the math that makes this all make sense.)

09/23/2026

The question shouldn’t be “Which is the better business?” but “Which is the better INVESTMENT?”

09/22/2026

Most landlords earn rent, so how does this one earn 12.5% on returns? Watch for the math on this seemingly “boring” business model.

Most investors assume the best business to own is the best stock to buy.The Value Equation says otherwise:Costco's equit...
09/19/2026

Most investors assume the best business to own is the best stock to buy.

The Value Equation says otherwise:

Costco's equity creation yield at the end of 2024 was 16.8% while Essential Properties Real REIT’s (EPRT) was 8.5%. By that measure, Costco is nearly 2x the business.

But Costco was trading at almost 3x the cash flow multiple of EPRT with the growth prospects of a mature company to match. The Value Equation predicted a 2025 return of just over 6% for Costco before multiple changes and just over 12.5% for EPRT.

Costco returned below 5% in 2025. EPRT returned approximately 0%...

But for a completely different reason than Costco, and with a near 4% dividend yield cushioning it.

A great business at the wrong price is still the wrong price. That’s just math.

Check out the latest video on The Value Equation for the full breakdown.

09/17/2026

What makes REITs one of the most efficient business models out there?

09/15/2026

REITS are companies just like any other…but with a twist.

09/07/2026

Costco’s returns have repeatedly trounced those of the S&P 500. What gets the credit for their success?

In 2025, Costco’s earnings per share grew nearly 10%, store sales climbed over 8%, and the membership model held strong....
09/05/2026

In 2025, Costco’s earnings per share grew nearly 10%, store sales climbed over 8%, and the membership model held strong. So how come Costco shareholders made less than the predicted returns?

Well, when you pay 53x cash flow for a business (nearly double the S&P 500 at the time, by the way), you’re buying the expectation that the multiple will either hold or expand. And there is almost no scenario where expansion is likely at that valuation.

The Value Equation flagged this before the year even began because we’re on the same page as Warren Buffet.

Buffett said to look at stocks as a business.

What he meant was: understand what the business actually earns, what it costs to run, and what you are paying to own it.

Those three things together tell you almost everything worth knowing.

And anyone who looked at those numbers would have been able to predict Costco’s first and only underperformance in its public existence.

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