Morgan Stanley examines competitive advantage period, or CAP, as a neglected driver of equity value. The paper says investors often focus on growth and margins, but the duration of excess returns may matter just as much, especially when terminal value drives most of a stock’s worth.
Competitive Advantage Period: The Neglected Value Driver
Morgan Stanley
Michael Mauboussin, Dan Callahan
Research
69 Pages
Key Takeaways
CAP Shapes Value: Most companies fall in a 5 to 20 year CAP range, showing that duration of excess returns is often a hidden but important valuation input.
Most Firms Fit DCF: About 68% of U.S. public companies were in growth or maturity from 1971 to 2024, where CAP based DCF analysis is most relevant.
Maturity Wins Historically: From 1990 to 2024, maturity stage stocks earned 9.7% annualized excess returns with a 0.71 Sharpe ratio, the best of any life cycle stage.
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