Competitive Advantage Period: The Neglected Value Driver

14 APRIL 2026

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A company's anticipated value creation is measured by how much its return on invested capital (ROIC) exceeds its cost of capital, the amount it can invest, and how long it can sustain a positive spread.
This report is about the “how long” part through the concept of market-implied competitive advantage period (CAP).
We provide a brief history of valuation and review how analysts value stocks in practice, then examine the evolution of strategy to see what types of advantages appear more durable.
Next we review empirical observations about U.S. public companies, including longevity, the distribution of ROICs, the pattern of ROICs, and ways to model regression toward the mean, and note that a company's stage within the life cycle helps inform the proper valuation approach.
We offer four methods to model the terminal value, lay out steps to measure market-implied CAP, and end with a case study.

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Competitive Advantage Period: The Neglected Value Driver

A company’s value creation is based on how much its return on invested capital exceeds its cost of capital, the amount it can invest, and how long it can sustain the spread. This report is about the “how long” part, or the competitive advantage period (CAP). We give a history of valuation and strategy, review how analysts value stocks, and argue the life cycle stage informs the valuation approach. We offer guidance for modeling the terminal value and the implied CAP and end with a case study.

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