At 44.95% operating margins and $8 billion quarterly free cash flow, Broadcom insiders sold $1.25 billion while the earnings yield dropped to 0.47%.
This framework sees a magnificently profitable business trading at a price that assumes its best days are behind it, while management's selling suggests they might be right.
Does Broadcom possess a durable competitive advantage that protects returns?
This framework sees a widening moat built on pricing power and customer lock-in. The margin expansion during a competitive period demonstrates the kind of enduring advantage that compounds wealth over decades.
How much cash does an owner actually get to keep after maintaining the business?
This framework sees exceptional cash generation with one caveat — the 11.27% SBC burden means existing shareholders give up more than a dime of every revenue dollar to employees. Still, the cash machine runs beautifully.
Are managers acting as owners or just employees?
This framework sees a troubling pattern — management returns capital aggressively to shareholders while personally heading for the exits. When the folks running the store are selling during the best quarter in company history, an owner must ask why.
If you bought this entire business today, would the earnings justify the price?
This framework sees a price that requires perfection. At 0.47% earnings yield, you're paying $213 for every dollar of earnings while treasuries pay you $4.33 risk-free. The math works only if growth continues far longer than the market expects.
Applying this framework reveals a paradox: Broadcom runs one of the finest businesses in technology, with expanding margins, predictable earnings, and torrential cash flows. Yet at 53 times earnings with insiders selling steadily, the price assumes growth will slow dramatically from today's 25% to the market-implied 8% forever. The framework suggests waiting for a more sensible entry point, as even wonderful companies become mediocre investments at wonderful prices. When treasury bills yield 9 times more than Broadcom's earnings yield, might patience be the better part of wisdom?
This analysis applies Warren Buffett's published investment framework to publicly available financial data. It is not authored by, endorsed by, or affiliated with Warren Buffett. Educational purposes only. Not financial advice.