IME Twin-Engine Investment Framework

Stock selection driven by the 2 core drivers of long-term value creation: Earnings Growth & Change in Valuation Multiples

Understanding the Twin-Engine Investment Framework

IME Twin-Engine Equation

We identify two primary drivers of value creation –

  • Earnings Growth: The core driver of companies becoming larger & increasing value over a period of time
  • Valuation Multiple Changes: Changes are driven by changes in growth outlook, fundamentals, sentiment & perception

We call this the “Twin Engine Framework”.

Our research focus is on a detailed assessment of how earnings and multiples are likely to change over time.

This provides a clear perspective on likely stock prices in the future & clarity on what drives changes in stock prices (business growth, multiple changes, or both).

The twin-engine framework helps build a strong quantitative rigour & discipline to stock selection.

Engine 1 - Earnings Growth

Growth Tailwinds
Our focus is on investing in business with strong growth tailwinds - macro, industry or company-level. Value-migration trends that can boost growth further are keenly watched. Avoid companies that are swimming against the tide.
Strategy & Execution
Assess management's ability to build scalable operational frameworks that capitalize on identified tailwinds - look for teams that don't just have a vision but a proven track of disciplined execution.
Competitive Dynamics
Seek industries with rational competitive intensity and companies that consistently gain market share through superior product offerings or cost leadership.
Profitable Growth
While growth is of utmost importance - not all growth is the same. We look for "good growth" - strong return on equity and reinvestment rates. Sales engine the primary focus. Beyond top-line expansion, we prioritize margin sustainability or expansion.
Predictability
We prioritize businesses with high predictability, where the drivers of growth—such as recurring revenue, pricing power, or market expansion—are clearly defined and sustainable. We avoid companies or industries that are prone for disruption.

Engine 2 - Valuation Multiples

Growth Rate
High-quality, long-term growth acts as a catalyst for valuation. We look for a sustainable and predictable growth runway that gives the market the confidence to assign a higher multiple today for the cash flows of tomorrow.
Sentiment
Market sentiment towards sectors/industries/businesses, can change over time (driven by both fundamental & technical factors) - which can lead to large changes in valuation multiples. We focus on identifying companies & sectors, where we see the potential for market sentiment to improve over time.
Moats
A strong competitive advantage, or 'moat,' protects high returns on capital from being eroded by competition. The durability of the moat determines the longevity of the growth, justifying a premium valuation multiple over the long term.
Capital Allocation
We assess management's track record of recycling internal accruals to maximize shareholder value. We prioritize leaders who intelligently balance organic reinvestment, strategic acquisitions, and timely share buybacks to enhance per-share value.
Quality
We seek businesses where the quality of earnings is high and led by strong management execution & high governance standard, leading to lower perceived risk and a structural upward re-rating of the earnings multiple.

The twin-engine framework simplifes analysis of highly dynamic factors driving stock prices

Industry Trends

Industry outlook

Competitive dynamics

Pricing trends

Financials

Growth drivers

Margin outlook

Capital efficiency

Risks

Regulatory

Disruption

Competition

Quality

Accounting

Balance sheet strength

Barriers to entry

Management

Mgmt vision & execution

Corporate governance

Professionalisation

Catalysts/Triggers

Management change

Cyclical uptick

Restructuring

The twin-engine framework simplifies complex changes in diverse business fundamentals, into two quantifiable factors i.e. expected changes in growth & multiples.

This provides clear visibility into expected drivers of future stock price movements.

Understanding the segments we focus on

IME Twin-Engine Matric

Our ideal companies are companies with high growth, that have the potential to re-rate. These can be hard to find, and are typically found by idenitifying sectors & companies where there is an underlying change in growth momentum or the quality of the business. Both the earnings growth & valuation multiple engines work in tandem to deliver strong outperformance in this quadrant.

We also invest in companies which we believe have high growth and are available at reasonable valuations. Here, stock price growth is driven by earnings growth, and not an increase in valuation multiples.