Capital Intensity vs Headline Growth

Investors often celebrate companies that post strong revenue or earnings growth. However, in mature businesses, in which rapid expansion is harder to come by,  how that growth is achieved can be more important than the headline rate itself. In particular, the capital intensity of a company’s business model plays a critical role in valuation. Capital-intensive firms must continually pour money into physical assets just to sustain or grow their earnings, whereas capital-light firms can grow with minimal reinvestment. This article argues that in the UK equity market, capital intensity often outweighs headline growth in driving valuation outcomes for mature companies. Furthermore, compares two UK-listed businesses with different reinvestment profiles and draws on academic and professional research to illustrate why ignoring capital intensity can distort valuations.