Been thinking about when a company’s market value is most likely to increase during this journey.

The short answer: when the company clears the phase that the market finds it least likely to achieve.

For example, if the market believes in the revenue growth prospects of the company but views the balance sheet as unrepairable, then if the company can clear phase 4 (cleaning up the balance sheet) that might be when value accretion occurs.

Another example is if the market doesn’t believe in the revenue growth prospects of the business, but believes it can be profitable, then value accretion may be unlikely to occur until after clearing phase 6 (YoY revenue growth). 

On the one hand, having to clear all six phases to see value creation requires patience and could be justifiably viewed by investors as a journey fraught with risk.

On the other hand, it can also mean that there are opportunities to invest in companies that have cleared the first five phases but have not yet been rewarded with value accretion because the market is waiting to see phase 6 cleared. This could represent an asymmetric risk-reward.

Of course the risk of investing in companies going through this journey is they never run the gauntlet and clear all six phases.  Absent that, the company’s market value may never sustainably grow.

However if a company can clear all six phases, the potential for outsized upside is also potentially there as well.