Offshore
Photo
Dimitry Nakhla | Babylon Capital®
RT @DimitryNakhla: Even with MercadoLibre's stock price surging +24% over the past month, its forward multiple tightened by -4%, compressing from 51.30x to 49.13x $MELI https://t.co/MhWAWn6s8e
tweet
RT @DimitryNakhla: Even with MercadoLibre's stock price surging +24% over the past month, its forward multiple tightened by -4%, compressing from 51.30x to 49.13x $MELI https://t.co/MhWAWn6s8e
tweet
Offshore
Photo
Dimitry Nakhla | Babylon Capital®
RT @ftr_investors: 𝗜𝗻𝘃𝗲𝘀𝘁𝗼𝗿 𝗧𝗮𝗹𝗸 #𝟰𝟭
Name: Aria Radnia @QualityInvest5
Age: 19
Residence/Country: Canada
Invests since: November 2021
𝗜𝗻𝘁𝗿𝗼𝗱𝘂𝗰𝘁𝗶𝗼𝗻
I’m currently a full-time student and also work at FinChat @finchat_io (the world’s best stock research platform, which you can try for free). I also have prior experience in sales, which has been instrumental in shaping the person I am today. The lessons learned from rejection and the process of perfecting a "pitch" apply universally throughout life and only improve with time.
I first became interested in investing when a close friend pitched me General Motors $GM as an undervalued Peter Lynch-style investment based on a low P/B valuation. Looking back, it’s hilarious to see how far I've come from that style of investing. Like everyone else, I initially started investing to grow my money.
𝗪𝗵𝗮𝘁 𝗶𝘀 𝘆𝗼𝘂𝗿 𝗶𝗻𝘃𝗲𝘀𝘁𝗺𝗲𝗻𝘁 𝘀𝘁𝗿𝗮𝘁𝗲𝗴𝘆?
Today, I'd categorize my approach as a concentrated portfolio of quality + growth. I place significant emphasis on owning high-quality, wide-moat businesses but am willing to sacrifice some quality if it means a notable increase in growth. My recent purchase of Uber $UBER is the perfect example of this strategy.
Uber is a strong-moat business that is difficult to compete with—but not impossible. A 10/10 moat business would be something like $SPGI S&P Global, where the moat is literally protected by regulations and customer incentives. But at the same time, that business may only grow revenues in the mid- to high-single digits annually. Just off a whim, I'd rank $UBER around an 8/10 in terms of moat strength, but with a 30%+ FCF growth profile, that more than makes up for the slightly weaker moat, in my opinion. Of course not every business fits this mold, but in general those are the two things I put the most emphasis on, a wide moat and ideally a business that grows its earnings/FCF around the 15% mark (or higher) for the foreseeable future!
𝗛𝗼𝘄 𝗺𝗮𝗻𝘆 𝘀𝘁𝗼𝗰𝗸𝘀 𝗮𝗿𝗲 𝗰𝘂𝗿𝗿𝗲𝗻𝘁𝗹𝘆 𝗵𝗲𝗹𝗱 𝗶𝗻 𝘆𝗼𝘂𝗿 𝗽𝗼𝗿𝘁𝗳𝗼𝗹𝗶𝗼?
Currently, I own seven stocks, but my smallest holding, TransMedics $TMDX, hovers around a 1% position—negligible in terms of overall performance, as it's more of a small speculative bet.
𝗪𝗵𝗶𝗰𝗵 𝘀𝗲𝗰𝘁𝗼𝗿𝘀 𝗱𝗼 𝘆𝗼𝘂 𝗺𝗮𝗶𝗻𝗹𝘆 𝗳𝗼𝗰𝘂𝘀 𝗼𝗻?
Technically, every holding (except TransMedics) in my portfolio is a tech company. I'm not concerned about sector concentration—that's kind of the goal with this investing style. As long as they have different risk factors (which they do), it's not an issue for me.
𝗪𝗵𝗮𝘁 𝗮𝗿𝗲 𝘆𝗼𝘂𝗿 𝗵𝗶𝗴𝗵𝗲𝘀𝘁 𝗰𝗼𝗻𝘃𝗶𝗰𝘁𝗶𝗼𝗻 𝘀𝘁𝗼𝗰𝗸𝘀?
$AMZN - Amazon is my highest-conviction bet, purely based on weighting—it’s 30% of my portfolio. AWS alone is a business with potentially decades of runway. Over a very long time horizon, I see nothing that could derail it from achieving above-market returns, making valuation less important the longer you hold.
$ASML - ASML, similar to AWS, has a long runway, and almost nothing can derail it.
$MA - Mastercard has a similar story, but arguably the widest moat of the three.
$UBER - Uber, I actually think will outperform all three of these companies for the more immediate term (the next 3–5 years).
𝗪𝗵𝗮𝘁 𝗶𝘀 𝘁𝗵𝗲 𝘀𝘁𝗼𝗰𝗸 𝗶𝗻 𝘆𝗼𝘂𝗿 𝗽𝗼𝗿𝘁𝗳𝗼𝗹𝗶𝗼 𝘄𝗶𝘁𝗵 𝘁𝗵𝗲 𝗵𝗶𝗴𝗵𝗲𝘀𝘁 𝗿𝗲𝘁𝘂𝗿𝗻?
Because I've continuously averaged up on my holdings, my total Amazon $AMZN position sits at a 40% gain. But in terms of my most accretive buys, I have shares of Amazon at $106, which translates to a 117% return.
𝗪𝗵𝗮𝘁 𝗶𝘀 𝘁𝗵𝗲 𝗯𝗶𝗴𝗴𝗲𝘀𝘁 𝗶𝗻𝘃𝗲𝘀𝘁𝗺𝗲𝗻𝘁 𝗺𝗶𝘀𝘁𝗮𝗸𝗲 𝘆𝗼𝘂 𝗵𝗮𝘃𝗲 𝗺𝗮𝗱𝗲?
Selling based on short-term concerns, worrying that t[...]
RT @ftr_investors: 𝗜𝗻𝘃𝗲𝘀𝘁𝗼𝗿 𝗧𝗮𝗹𝗸 #𝟰𝟭
Name: Aria Radnia @QualityInvest5
Age: 19
Residence/Country: Canada
Invests since: November 2021
𝗜𝗻𝘁𝗿𝗼𝗱𝘂𝗰𝘁𝗶𝗼𝗻
I’m currently a full-time student and also work at FinChat @finchat_io (the world’s best stock research platform, which you can try for free). I also have prior experience in sales, which has been instrumental in shaping the person I am today. The lessons learned from rejection and the process of perfecting a "pitch" apply universally throughout life and only improve with time.
I first became interested in investing when a close friend pitched me General Motors $GM as an undervalued Peter Lynch-style investment based on a low P/B valuation. Looking back, it’s hilarious to see how far I've come from that style of investing. Like everyone else, I initially started investing to grow my money.
𝗪𝗵𝗮𝘁 𝗶𝘀 𝘆𝗼𝘂𝗿 𝗶𝗻𝘃𝗲𝘀𝘁𝗺𝗲𝗻𝘁 𝘀𝘁𝗿𝗮𝘁𝗲𝗴𝘆?
Today, I'd categorize my approach as a concentrated portfolio of quality + growth. I place significant emphasis on owning high-quality, wide-moat businesses but am willing to sacrifice some quality if it means a notable increase in growth. My recent purchase of Uber $UBER is the perfect example of this strategy.
Uber is a strong-moat business that is difficult to compete with—but not impossible. A 10/10 moat business would be something like $SPGI S&P Global, where the moat is literally protected by regulations and customer incentives. But at the same time, that business may only grow revenues in the mid- to high-single digits annually. Just off a whim, I'd rank $UBER around an 8/10 in terms of moat strength, but with a 30%+ FCF growth profile, that more than makes up for the slightly weaker moat, in my opinion. Of course not every business fits this mold, but in general those are the two things I put the most emphasis on, a wide moat and ideally a business that grows its earnings/FCF around the 15% mark (or higher) for the foreseeable future!
𝗛𝗼𝘄 𝗺𝗮𝗻𝘆 𝘀𝘁𝗼𝗰𝗸𝘀 𝗮𝗿𝗲 𝗰𝘂𝗿𝗿𝗲𝗻𝘁𝗹𝘆 𝗵𝗲𝗹𝗱 𝗶𝗻 𝘆𝗼𝘂𝗿 𝗽𝗼𝗿𝘁𝗳𝗼𝗹𝗶𝗼?
Currently, I own seven stocks, but my smallest holding, TransMedics $TMDX, hovers around a 1% position—negligible in terms of overall performance, as it's more of a small speculative bet.
𝗪𝗵𝗶𝗰𝗵 𝘀𝗲𝗰𝘁𝗼𝗿𝘀 𝗱𝗼 𝘆𝗼𝘂 𝗺𝗮𝗶𝗻𝗹𝘆 𝗳𝗼𝗰𝘂𝘀 𝗼𝗻?
Technically, every holding (except TransMedics) in my portfolio is a tech company. I'm not concerned about sector concentration—that's kind of the goal with this investing style. As long as they have different risk factors (which they do), it's not an issue for me.
𝗪𝗵𝗮𝘁 𝗮𝗿𝗲 𝘆𝗼𝘂𝗿 𝗵𝗶𝗴𝗵𝗲𝘀𝘁 𝗰𝗼𝗻𝘃𝗶𝗰𝘁𝗶𝗼𝗻 𝘀𝘁𝗼𝗰𝗸𝘀?
$AMZN - Amazon is my highest-conviction bet, purely based on weighting—it’s 30% of my portfolio. AWS alone is a business with potentially decades of runway. Over a very long time horizon, I see nothing that could derail it from achieving above-market returns, making valuation less important the longer you hold.
$ASML - ASML, similar to AWS, has a long runway, and almost nothing can derail it.
$MA - Mastercard has a similar story, but arguably the widest moat of the three.
$UBER - Uber, I actually think will outperform all three of these companies for the more immediate term (the next 3–5 years).
𝗪𝗵𝗮𝘁 𝗶𝘀 𝘁𝗵𝗲 𝘀𝘁𝗼𝗰𝗸 𝗶𝗻 𝘆𝗼𝘂𝗿 𝗽𝗼𝗿𝘁𝗳𝗼𝗹𝗶𝗼 𝘄𝗶𝘁𝗵 𝘁𝗵𝗲 𝗵𝗶𝗴𝗵𝗲𝘀𝘁 𝗿𝗲𝘁𝘂𝗿𝗻?
Because I've continuously averaged up on my holdings, my total Amazon $AMZN position sits at a 40% gain. But in terms of my most accretive buys, I have shares of Amazon at $106, which translates to a 117% return.
𝗪𝗵𝗮𝘁 𝗶𝘀 𝘁𝗵𝗲 𝗯𝗶𝗴𝗴𝗲𝘀𝘁 𝗶𝗻𝘃𝗲𝘀𝘁𝗺𝗲𝗻𝘁 𝗺𝗶𝘀𝘁𝗮𝗸𝗲 𝘆𝗼𝘂 𝗵𝗮𝘃𝗲 𝗺𝗮𝗱𝗲?
Selling based on short-term concerns, worrying that t[...]
Offshore
Dimitry Nakhla | Babylon Capital® RT @ftr_investors: 𝗜𝗻𝘃𝗲𝘀𝘁𝗼𝗿 𝗧𝗮𝗹𝗸 #𝟰𝟭 Name: Aria Radnia @QualityInvest5 Age: 19 Residence/Country: Canada Invests since: November 2021 𝗜𝗻𝘁𝗿𝗼𝗱𝘂𝗰𝘁𝗶𝗼𝗻 I’m currently a full-time student and also work at FinChat @finchat_io (the…
he price has run up too much, and just trading too frequently—these have all been costly mistakes for me.
I've also made plenty of errors of omission. I knew for a fact that Amazon $AMZN below $130 was a great deal, so why didn't I buy more? The same goes for $GOOGL Google, for Uber at $60 just a month ago, and for companies I didn’t buy at all, like Adyen $ADYEN when it was close to €1000—now up 85% in a few months. Errors of omission and a lack of patience have been my biggest mistakes
𝗠𝘆 𝗳𝗮𝘃𝗼𝗿𝗶𝘁𝗲𝘀
Favorite book: How to Win Friends and Influence People by Dale Carnegie
Favorite podcasts: Acquired @AcquiredFM. Ben and David do a phenomenal job over there!
Favorite quote: "Each step illuminates the next."
People often get worked up about planning their lives, careers, daily routines, etc. But planning is bullsh*t—execution is everything, and you’ll figure things out as you go, making decisions on the fly with the best available knowledge. Of course, some decisions require more thought, but in general, "Each step illuminates the next." You only start planning for a problem once you’re faced with it.
Favorite FinX account:
I have two:
- Brad Freeman @StockMarketNerd is incredibly rational and does an excellent job with his earnings snapshots.
- Dimitry Nakhla @DimitryNakhla someone I've learned a lot from. Always a pleasure to read his work.
𝗪𝗵𝗲𝗿𝗲 𝗰𝗮𝗻 𝘄𝗲 𝗳𝗶𝗻𝗱 𝗺𝗼𝗿𝗲 𝗶𝗻𝗳𝗼 𝗮𝗯𝗼𝘂𝘁 𝘆𝗼𝘂?
I have a YouTube channel under the same name, @QualityInvest5 or Quality Investing with Aria: https://t.co/XfUTjWzmbS
Also, everyone should try out FinChat Pro for FREE (no card required) https://t.co/rUnoCqotGJ. Once you sign up, we automatically apply a two-week free trial to your account.
tweet
I've also made plenty of errors of omission. I knew for a fact that Amazon $AMZN below $130 was a great deal, so why didn't I buy more? The same goes for $GOOGL Google, for Uber at $60 just a month ago, and for companies I didn’t buy at all, like Adyen $ADYEN when it was close to €1000—now up 85% in a few months. Errors of omission and a lack of patience have been my biggest mistakes
𝗠𝘆 𝗳𝗮𝘃𝗼𝗿𝗶𝘁𝗲𝘀
Favorite book: How to Win Friends and Influence People by Dale Carnegie
Favorite podcasts: Acquired @AcquiredFM. Ben and David do a phenomenal job over there!
Favorite quote: "Each step illuminates the next."
People often get worked up about planning their lives, careers, daily routines, etc. But planning is bullsh*t—execution is everything, and you’ll figure things out as you go, making decisions on the fly with the best available knowledge. Of course, some decisions require more thought, but in general, "Each step illuminates the next." You only start planning for a problem once you’re faced with it.
Favorite FinX account:
I have two:
- Brad Freeman @StockMarketNerd is incredibly rational and does an excellent job with his earnings snapshots.
- Dimitry Nakhla @DimitryNakhla someone I've learned a lot from. Always a pleasure to read his work.
𝗪𝗵𝗲𝗿𝗲 𝗰𝗮𝗻 𝘄𝗲 𝗳𝗶𝗻𝗱 𝗺𝗼𝗿𝗲 𝗶𝗻𝗳𝗼 𝗮𝗯𝗼𝘂𝘁 𝘆𝗼𝘂?
I have a YouTube channel under the same name, @QualityInvest5 or Quality Investing with Aria: https://t.co/XfUTjWzmbS
Also, everyone should try out FinChat Pro for FREE (no card required) https://t.co/rUnoCqotGJ. Once you sign up, we automatically apply a two-week free trial to your account.
tweet
Offshore
Photo
App Economy Insights
$GOOG Google Lands Salesforce Cloud Deal.
💵 Salesforce commits $2.5B over 7 years.
☁️ Agentforce now runs on Google Cloud.
🔗 Deeper integrations across apps.
🤖 Gemini AI powers Agentforce.
📊 $CRM reports Wednesday.
Will AI momentum show up in the numbers? https://t.co/TnaRLYXT1q
tweet
$GOOG Google Lands Salesforce Cloud Deal.
💵 Salesforce commits $2.5B over 7 years.
☁️ Agentforce now runs on Google Cloud.
🔗 Deeper integrations across apps.
🤖 Gemini AI powers Agentforce.
📊 $CRM reports Wednesday.
Will AI momentum show up in the numbers? https://t.co/TnaRLYXT1q
tweet
Offshore
Photo
Offshore
Photo
Stock Analysis Compilation
Alger International Opportunities Fund on Taiwan Semiconductor Manufacturing Company (TSMC) $TSM US
Thesis: Taiwan Semiconductor (TSMC) is well-positioned to capitalize on the rising demand for semiconductors due to its strong business model, technological expertise, and leadership in advanced manufacturing technologies.
(Extract from their Q4 letter)
tweet
Alger International Opportunities Fund on Taiwan Semiconductor Manufacturing Company (TSMC) $TSM US
Thesis: Taiwan Semiconductor (TSMC) is well-positioned to capitalize on the rising demand for semiconductors due to its strong business model, technological expertise, and leadership in advanced manufacturing technologies.
(Extract from their Q4 letter)
tweet
Offshore
Photo
Dimitry Nakhla | Babylon Capital®
A quality valuation analysis on $MSFT 🧘🏽♂️
•NTM P/E Ratio: 29.56x
•5-Year Mean: 30.90x
•NTM FCF Yield: 2.51%
•5-Year Mean: 2.95%
As you can see, $MSFT appears to be trading near fair value
Going forward, investors can expect to receive ~5% MORE in earnings per share & ~15% LESS in FCF per share🧠***
Before we get into valuation, let’s take a look at why $MSFT is a quality business
BALANCE SHEET✅
•Cash & Equivalents: $71.56B
•Long-Term Debt: $39.72B
$MSFT has an excellent balance sheet, an AAA S&P Credit Rating & 46x FFO Interest Coverage Ratio
RETURN ON CAPITAL✅
•2019: 22.7%
•2020: 26.4%
•2021: 31.1%
•2022: 34.0%
•2023: 31.0%
•2024: 29.7%
RETURN ON EQUITY✅
•2019: 42.4%
•2020: 40.1%
•2021: 47.1%
•2022: 47.2%
•2023: 38.8%
•2024: 37.1%
$MSFT has great return metrics, highlighting the financial efficiency of the business
REVENUES✅
•2014: $86.83B
•2024: $245.12B
•CAGR: 10.93%
FREE CASH FLOW✅
•2014: $27.02B
•2024: $74.07B
•CAGR: 10.61%
NORMALIZED EPS✅
•2014: $2.63
•2024: $11.80
•CAGR: 16.19%
SHARE BUYBACKS✅
•2014 Shares Outstanding: 8.40B
•LTM Shares Outstanding: 7.47B
By reducing its shares outstanding ~11%, $MSFT increased its EPS by ~12% (assuming 0 growth)
MARGINS✅
•LTM Gross Margins: 69.4%
•LTM Operating Margins: 45.0%
•LTM Net Income Margins: 35.4%
PAID DIVIDENDS✅
•2014: $1.12
•2024: $3.00
•CAGR: 10.35%
***NOW TO VALUATION 🧠
As stated above, investors can expect to receive ~5% MORE in EPS & ~15% LESS in FCF per share
Using Benjamin Graham’s 2G rule of thumb, $MSFT has to grow earnings at a 14.78% CAGR over the next several years to justify its valuation
Today, analysts anticipate 2025 - 2027 EPS growth over the next few years to be slightly less than the (14.78%) required growth rate:
2025E: $13.18 (11.7% YoY) *FY Jun
2026E: $15.04 (14.1% YoY)
2027E: $17.69 (17.6% YoY)
$MSFT has a decent track record of meeting analyst estimates ~2 years out, but let’s assume $MSFT ends 2027 with $17.69 in EPS & see its CAGR potential assuming different multiples
32x P/E: $566.08💵 … ~16.3% CAGR
30x P/E: $530.70💵 … ~13.2% CAGR
29x P/E: $513.01💵 … ~11.5% CAGR
28x P/E: $495.32💵 … ~9.9% CAGR
As you can see, we’d have to assume a 29x multiple for $MSFT to have attractive return potential
At 28x earnings $MSFT has decent CAGR potential
$MSFT is one of the highest quality companies in the world & is firing on all cylinders
Although I wouldn’t want to rely on a >32x multiple, I feel comfortable accumulating the a tranche of $MSFT shares at $403💵 while relying on 28x - 29x
My next tranche of adds would likely be closer to $375💵 (~10% below today’s price) where I could reasonably assume double-digit CAGR potential while relying on 26x, ensuring some margin of safety
___
𝐃𝐈𝐒𝐂𝐋𝐎𝐒𝐔𝐑𝐄‼️: 𝐓𝐡𝐢𝐬 𝐢𝐬 𝐍𝐎𝐓 𝐈𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐀𝐝𝐯𝐢𝐜𝐞. 𝐁𝐚𝐛𝐲𝐥𝐨𝐧 𝐂𝐚𝐩𝐢𝐭𝐚𝐥® 𝐚𝐧𝐝 𝐢𝐭𝐬 𝐫𝐞𝐩𝐫𝐞𝐬𝐞𝐧𝐭𝐚𝐭𝐢𝐯𝐞𝐬 𝐦𝐚𝐲 𝐡𝐚𝐯𝐞 𝐩𝐨𝐬𝐢𝐭𝐢𝐨𝐧𝐬 𝐢𝐧 𝐭𝐡𝐞 𝐬𝐞𝐜𝐮𝐫𝐢𝐭𝐢𝐞𝐬 𝐝𝐢𝐬𝐜𝐮𝐬𝐬𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭.
𝐓𝐡𝐞 𝐢𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧 𝐜𝐨𝐧𝐭𝐚𝐢𝐧𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭 𝐢𝐬 𝐢𝐧𝐭𝐞𝐧𝐝𝐞𝐝 𝐟𝐨𝐫 𝐢𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧𝐚𝐥 𝐩𝐮𝐫𝐩𝐨𝐬𝐞𝐬 𝐨𝐧𝐥𝐲 𝐚𝐧𝐝 𝐬𝐡𝐨𝐮𝐥𝐝 𝐧𝐨𝐭 𝐛𝐞 𝐜𝐨𝐧𝐬𝐭𝐫𝐮𝐞𝐝 𝐚𝐬 𝐢𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐚𝐝𝐯𝐢𝐜𝐞 𝐭𝐨 𝐦𝐞𝐞𝐭 𝐭𝐡𝐞 𝐬𝐩𝐞𝐜𝐢𝐟𝐢𝐜 𝐧𝐞𝐞𝐝𝐬 𝐨𝐟 𝐚𝐧𝐲 𝐢𝐧𝐝𝐢𝐯𝐢𝐝𝐮𝐚𝐥 𝐨𝐫 𝐬𝐢𝐭𝐮𝐚𝐭𝐢𝐨𝐧. 𝐏𝐚𝐬𝐭 𝐩𝐞𝐫𝐟𝐨𝐫𝐦𝐚𝐧𝐜𝐞 𝐢𝐬 𝐧𝐨 𝐠𝐮𝐚𝐫𝐚𝐧𝐭𝐞𝐞 𝐨𝐟 𝐟𝐮𝐭𝐮𝐫𝐞 𝐫𝐞𝐬𝐮𝐥𝐭𝐬.
𝐈𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧 𝐜𝐨𝐧𝐭𝐚𝐢𝐧𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭 𝐡𝐚𝐬 𝐛𝐞𝐞𝐧 𝐨𝐛𝐭𝐚𝐢𝐧𝐞𝐝 𝐟𝐫𝐨𝐦 𝐬𝐨𝐮𝐫𝐜𝐞𝐬 𝐛𝐞𝐥𝐢𝐞𝐯𝐞𝐝 𝐭𝐨 𝐛𝐞 𝐫𝐞𝐥𝐢𝐚𝐛𝐥𝐞, 𝐛𝐮𝐭 𝐢𝐬 𝐧𝐨𝐭 𝐠𝐮𝐚𝐫𝐚𝐧𝐭𝐞𝐞𝐝 𝐚𝐬 𝐭𝐨 𝐜𝐨𝐦𝐩𝐥𝐞𝐭𝐞𝐧𝐞𝐬𝐬 𝐨�[...]
A quality valuation analysis on $MSFT 🧘🏽♂️
•NTM P/E Ratio: 29.56x
•5-Year Mean: 30.90x
•NTM FCF Yield: 2.51%
•5-Year Mean: 2.95%
As you can see, $MSFT appears to be trading near fair value
Going forward, investors can expect to receive ~5% MORE in earnings per share & ~15% LESS in FCF per share🧠***
Before we get into valuation, let’s take a look at why $MSFT is a quality business
BALANCE SHEET✅
•Cash & Equivalents: $71.56B
•Long-Term Debt: $39.72B
$MSFT has an excellent balance sheet, an AAA S&P Credit Rating & 46x FFO Interest Coverage Ratio
RETURN ON CAPITAL✅
•2019: 22.7%
•2020: 26.4%
•2021: 31.1%
•2022: 34.0%
•2023: 31.0%
•2024: 29.7%
RETURN ON EQUITY✅
•2019: 42.4%
•2020: 40.1%
•2021: 47.1%
•2022: 47.2%
•2023: 38.8%
•2024: 37.1%
$MSFT has great return metrics, highlighting the financial efficiency of the business
REVENUES✅
•2014: $86.83B
•2024: $245.12B
•CAGR: 10.93%
FREE CASH FLOW✅
•2014: $27.02B
•2024: $74.07B
•CAGR: 10.61%
NORMALIZED EPS✅
•2014: $2.63
•2024: $11.80
•CAGR: 16.19%
SHARE BUYBACKS✅
•2014 Shares Outstanding: 8.40B
•LTM Shares Outstanding: 7.47B
By reducing its shares outstanding ~11%, $MSFT increased its EPS by ~12% (assuming 0 growth)
MARGINS✅
•LTM Gross Margins: 69.4%
•LTM Operating Margins: 45.0%
•LTM Net Income Margins: 35.4%
PAID DIVIDENDS✅
•2014: $1.12
•2024: $3.00
•CAGR: 10.35%
***NOW TO VALUATION 🧠
As stated above, investors can expect to receive ~5% MORE in EPS & ~15% LESS in FCF per share
Using Benjamin Graham’s 2G rule of thumb, $MSFT has to grow earnings at a 14.78% CAGR over the next several years to justify its valuation
Today, analysts anticipate 2025 - 2027 EPS growth over the next few years to be slightly less than the (14.78%) required growth rate:
2025E: $13.18 (11.7% YoY) *FY Jun
2026E: $15.04 (14.1% YoY)
2027E: $17.69 (17.6% YoY)
$MSFT has a decent track record of meeting analyst estimates ~2 years out, but let’s assume $MSFT ends 2027 with $17.69 in EPS & see its CAGR potential assuming different multiples
32x P/E: $566.08💵 … ~16.3% CAGR
30x P/E: $530.70💵 … ~13.2% CAGR
29x P/E: $513.01💵 … ~11.5% CAGR
28x P/E: $495.32💵 … ~9.9% CAGR
As you can see, we’d have to assume a 29x multiple for $MSFT to have attractive return potential
At 28x earnings $MSFT has decent CAGR potential
$MSFT is one of the highest quality companies in the world & is firing on all cylinders
Although I wouldn’t want to rely on a >32x multiple, I feel comfortable accumulating the a tranche of $MSFT shares at $403💵 while relying on 28x - 29x
My next tranche of adds would likely be closer to $375💵 (~10% below today’s price) where I could reasonably assume double-digit CAGR potential while relying on 26x, ensuring some margin of safety
___
𝐃𝐈𝐒𝐂𝐋𝐎𝐒𝐔𝐑𝐄‼️: 𝐓𝐡𝐢𝐬 𝐢𝐬 𝐍𝐎𝐓 𝐈𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐀𝐝𝐯𝐢𝐜𝐞. 𝐁𝐚𝐛𝐲𝐥𝐨𝐧 𝐂𝐚𝐩𝐢𝐭𝐚𝐥® 𝐚𝐧𝐝 𝐢𝐭𝐬 𝐫𝐞𝐩𝐫𝐞𝐬𝐞𝐧𝐭𝐚𝐭𝐢𝐯𝐞𝐬 𝐦𝐚𝐲 𝐡𝐚𝐯𝐞 𝐩𝐨𝐬𝐢𝐭𝐢𝐨𝐧𝐬 𝐢𝐧 𝐭𝐡𝐞 𝐬𝐞𝐜𝐮𝐫𝐢𝐭𝐢𝐞𝐬 𝐝𝐢𝐬𝐜𝐮𝐬𝐬𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭.
𝐓𝐡𝐞 𝐢𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧 𝐜𝐨𝐧𝐭𝐚𝐢𝐧𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭 𝐢𝐬 𝐢𝐧𝐭𝐞𝐧𝐝𝐞𝐝 𝐟𝐨𝐫 𝐢𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧𝐚𝐥 𝐩𝐮𝐫𝐩𝐨𝐬𝐞𝐬 𝐨𝐧𝐥𝐲 𝐚𝐧𝐝 𝐬𝐡𝐨𝐮𝐥𝐝 𝐧𝐨𝐭 𝐛𝐞 𝐜𝐨𝐧𝐬𝐭𝐫𝐮𝐞𝐝 𝐚𝐬 𝐢𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐚𝐝𝐯𝐢𝐜𝐞 𝐭𝐨 𝐦𝐞𝐞𝐭 𝐭𝐡𝐞 𝐬𝐩𝐞𝐜𝐢𝐟𝐢𝐜 𝐧𝐞𝐞𝐝𝐬 𝐨𝐟 𝐚𝐧𝐲 𝐢𝐧𝐝𝐢𝐯𝐢𝐝𝐮𝐚𝐥 𝐨𝐫 𝐬𝐢𝐭𝐮𝐚𝐭𝐢𝐨𝐧. 𝐏𝐚𝐬𝐭 𝐩𝐞𝐫𝐟𝐨𝐫𝐦𝐚𝐧𝐜𝐞 𝐢𝐬 𝐧𝐨 𝐠𝐮𝐚𝐫𝐚𝐧𝐭𝐞𝐞 𝐨𝐟 𝐟𝐮𝐭𝐮𝐫𝐞 𝐫𝐞𝐬𝐮𝐥𝐭𝐬.
𝐈𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧 𝐜𝐨𝐧𝐭𝐚𝐢𝐧𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭 𝐡𝐚𝐬 𝐛𝐞𝐞𝐧 𝐨𝐛𝐭𝐚𝐢𝐧𝐞𝐝 𝐟𝐫𝐨𝐦 𝐬𝐨𝐮𝐫𝐜𝐞𝐬 𝐛𝐞𝐥𝐢𝐞𝐯𝐞𝐝 𝐭𝐨 𝐛𝐞 𝐫𝐞𝐥𝐢𝐚𝐛𝐥𝐞, 𝐛𝐮𝐭 𝐢𝐬 𝐧𝐨𝐭 𝐠𝐮𝐚𝐫𝐚𝐧𝐭𝐞𝐞𝐝 𝐚𝐬 𝐭𝐨 𝐜𝐨𝐦𝐩𝐥𝐞𝐭𝐞𝐧𝐞𝐬𝐬 𝐨�[...]
Offshore
Photo
Dimitry Nakhla | Babylon Capital®
A quality valuation analysis on $MSFT 🧘🏽♂️
•NTM P/E Ratio: 29.56x
•5-Year Mean: 30.90x
•NTM FCF Yield: 2.51%
•5-Year Mean: 2.95%
As you can see, $MSFT appears to be trading near fair value
Going forward, investors can expect to receive ~5% MORE in earnings per share & ~15% LESS in FCF per share🧠***
Before we get into valuation, let’s take a look at why $MSFT is a quality business
BALANCE SHEET✅
•Cash & Equivalents: $71.56B
•Long-Term Debt: $39.72B
$MSFT has an excellent balance sheet, an AAA S&P Credit Rating & 46x FFO Interest Coverage Ratio
RETURN ON CAPITAL✅
•2019: 22.7%
•2020: 26.4%
•2021: 31.1%
•2022: 34.0%
•2023: 31.0%
•2024: 29.7%
RETURN ON EQUITY✅
•2019: 42.4%
•2020: 40.1%
•2021: 47.1%
•2022: 47.2%
•2023: 38.8%
•2024: 37.1%
$MSFT has great return metrics, highlighting the financial efficiency of the business
REVENUES✅
•2014: $86.83B
•2024: $245.12B
•CAGR: 10.93%
FREE CASH FLOW✅
•2014: $27.02B
•2024: $74.07B
•CAGR: 10.61%
NORMALIZED EPS✅
•2014: $2.63
•2024: $11.80
•CAGR: 16.19%
SHARE BUYBACKS✅
•2014 Shares Outstanding: 8.40B
•LTM Shares Outstanding: 7.47B
By reducing its shares outstanding ~11%, $MSFT increased its EPS by ~12% (assuming 0 growth)
MARGINS✅
•LTM Gross Margins: 69.4%
•LTM Operating Margins: 45.0%
•LTM Net Income Margins: 35.4%
PAID DIVIDENDS✅
•2014: $1.12
•2024: $3.00
•CAGR: 10.35%
***NOW TO VALUATION 🧠
As stated above, investors can expect to receive ~5% MORE in EPS & ~15% LESS in FCF per share
Using Benjamin Graham’s 2G rule of thumb, $MSFT has to grow earnings at a 14.78% CAGR over the next several years to justify its valuation
Today, analysts anticipate 2025 - 2027 EPS growth over the next few years to be slightly less than the (14.78%) required growth rate:
2025E: $13.18 (11.7% YoY) *FY Jun
2026E: $15.04 (14.1% YoY)
2027E: $17.69 (17.6% YoY)
$MSFT has a decent track record of meeting analyst estimates ~2 years out, but let’s assume $MSFT ends 2027 with $17.69 in EPS & see its CAGR potential assuming different multiples
32x P/E: $566.08💵 … ~16.3% CAGR
30x P/E: $530.70💵 … ~13.2% CAGR
29x P/E: $513.01💵 … ~11.5% CAGR
28x P/E: $495.32💵 … ~9.9% CAGR
As you can see, we’d have to assume a 29x multiple for $MSFT to have attractive return potential
At 28x earnings $MSFT has decent CAGR potential
$MSFT is one of the highest quality companies in the world & is firing on all cylinders
Although I wouldn’t want to rely on a >32x multiple, I feel comfortable accumulating the a tranche of $MSFT shares at $403💵 while relying on 28x - 29x
My next tranche of adds would likely be closer to $375💵 (~7% below today’s price) where I could reasonably assume double-digit CAGR potential while relying on 26x, ensuring some margin of safety
___
𝐃𝐈𝐒𝐂𝐋𝐎𝐒𝐔𝐑𝐄‼️: 𝐓𝐡𝐢𝐬 𝐢𝐬 𝐍𝐎𝐓 𝐈𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐀𝐝𝐯𝐢𝐜𝐞. 𝐁𝐚𝐛𝐲𝐥𝐨𝐧 𝐂𝐚𝐩𝐢𝐭𝐚𝐥® 𝐚𝐧𝐝 𝐢𝐭𝐬 𝐫𝐞𝐩𝐫𝐞𝐬𝐞𝐧𝐭𝐚𝐭𝐢𝐯𝐞𝐬 𝐦𝐚𝐲 𝐡𝐚𝐯𝐞 𝐩𝐨𝐬𝐢𝐭𝐢𝐨𝐧𝐬 𝐢𝐧 𝐭𝐡𝐞 𝐬𝐞𝐜𝐮𝐫𝐢𝐭𝐢𝐞𝐬 𝐝𝐢𝐬𝐜𝐮𝐬𝐬𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭.
𝐓𝐡𝐞 𝐢𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧 𝐜𝐨𝐧𝐭𝐚𝐢𝐧𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭 𝐢𝐬 𝐢𝐧𝐭𝐞𝐧𝐝𝐞𝐝 𝐟𝐨𝐫 𝐢𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧𝐚𝐥 𝐩𝐮𝐫𝐩𝐨𝐬𝐞𝐬 𝐨𝐧𝐥𝐲 𝐚𝐧𝐝 𝐬𝐡𝐨𝐮𝐥𝐝 𝐧𝐨𝐭 𝐛𝐞 𝐜𝐨𝐧𝐬𝐭𝐫𝐮𝐞𝐝 𝐚𝐬 𝐢𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐚𝐝𝐯𝐢𝐜𝐞 𝐭𝐨 𝐦𝐞𝐞𝐭 𝐭𝐡𝐞 𝐬𝐩𝐞𝐜𝐢𝐟𝐢𝐜 𝐧𝐞𝐞𝐝𝐬 𝐨𝐟 𝐚𝐧𝐲 𝐢𝐧𝐝𝐢𝐯𝐢𝐝𝐮𝐚𝐥 𝐨𝐫 𝐬𝐢𝐭𝐮𝐚𝐭𝐢𝐨𝐧. 𝐏𝐚𝐬𝐭 𝐩𝐞𝐫𝐟𝐨𝐫𝐦𝐚𝐧𝐜𝐞 𝐢𝐬 𝐧𝐨 𝐠𝐮𝐚𝐫𝐚𝐧𝐭𝐞𝐞 𝐨𝐟 𝐟𝐮𝐭𝐮𝐫𝐞 𝐫𝐞𝐬𝐮𝐥𝐭𝐬.
𝐈𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧 𝐜𝐨𝐧𝐭𝐚𝐢𝐧𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭 𝐡𝐚𝐬 𝐛𝐞𝐞𝐧 𝐨𝐛𝐭𝐚𝐢𝐧𝐞𝐝 𝐟𝐫𝐨𝐦 𝐬𝐨𝐮𝐫𝐜𝐞𝐬 𝐛𝐞𝐥𝐢𝐞𝐯𝐞𝐝 𝐭𝐨 𝐛𝐞 𝐫𝐞𝐥𝐢𝐚𝐛𝐥𝐞, 𝐛𝐮𝐭 𝐢𝐬 𝐧𝐨𝐭 𝐠𝐮𝐚𝐫𝐚𝐧𝐭𝐞𝐞𝐝 𝐚𝐬 𝐭𝐨 𝐜𝐨𝐦𝐩𝐥𝐞𝐭𝐞𝐧𝐞𝐬𝐬 𝐨𝐫[...]
A quality valuation analysis on $MSFT 🧘🏽♂️
•NTM P/E Ratio: 29.56x
•5-Year Mean: 30.90x
•NTM FCF Yield: 2.51%
•5-Year Mean: 2.95%
As you can see, $MSFT appears to be trading near fair value
Going forward, investors can expect to receive ~5% MORE in earnings per share & ~15% LESS in FCF per share🧠***
Before we get into valuation, let’s take a look at why $MSFT is a quality business
BALANCE SHEET✅
•Cash & Equivalents: $71.56B
•Long-Term Debt: $39.72B
$MSFT has an excellent balance sheet, an AAA S&P Credit Rating & 46x FFO Interest Coverage Ratio
RETURN ON CAPITAL✅
•2019: 22.7%
•2020: 26.4%
•2021: 31.1%
•2022: 34.0%
•2023: 31.0%
•2024: 29.7%
RETURN ON EQUITY✅
•2019: 42.4%
•2020: 40.1%
•2021: 47.1%
•2022: 47.2%
•2023: 38.8%
•2024: 37.1%
$MSFT has great return metrics, highlighting the financial efficiency of the business
REVENUES✅
•2014: $86.83B
•2024: $245.12B
•CAGR: 10.93%
FREE CASH FLOW✅
•2014: $27.02B
•2024: $74.07B
•CAGR: 10.61%
NORMALIZED EPS✅
•2014: $2.63
•2024: $11.80
•CAGR: 16.19%
SHARE BUYBACKS✅
•2014 Shares Outstanding: 8.40B
•LTM Shares Outstanding: 7.47B
By reducing its shares outstanding ~11%, $MSFT increased its EPS by ~12% (assuming 0 growth)
MARGINS✅
•LTM Gross Margins: 69.4%
•LTM Operating Margins: 45.0%
•LTM Net Income Margins: 35.4%
PAID DIVIDENDS✅
•2014: $1.12
•2024: $3.00
•CAGR: 10.35%
***NOW TO VALUATION 🧠
As stated above, investors can expect to receive ~5% MORE in EPS & ~15% LESS in FCF per share
Using Benjamin Graham’s 2G rule of thumb, $MSFT has to grow earnings at a 14.78% CAGR over the next several years to justify its valuation
Today, analysts anticipate 2025 - 2027 EPS growth over the next few years to be slightly less than the (14.78%) required growth rate:
2025E: $13.18 (11.7% YoY) *FY Jun
2026E: $15.04 (14.1% YoY)
2027E: $17.69 (17.6% YoY)
$MSFT has a decent track record of meeting analyst estimates ~2 years out, but let’s assume $MSFT ends 2027 with $17.69 in EPS & see its CAGR potential assuming different multiples
32x P/E: $566.08💵 … ~16.3% CAGR
30x P/E: $530.70💵 … ~13.2% CAGR
29x P/E: $513.01💵 … ~11.5% CAGR
28x P/E: $495.32💵 … ~9.9% CAGR
As you can see, we’d have to assume a 29x multiple for $MSFT to have attractive return potential
At 28x earnings $MSFT has decent CAGR potential
$MSFT is one of the highest quality companies in the world & is firing on all cylinders
Although I wouldn’t want to rely on a >32x multiple, I feel comfortable accumulating the a tranche of $MSFT shares at $403💵 while relying on 28x - 29x
My next tranche of adds would likely be closer to $375💵 (~7% below today’s price) where I could reasonably assume double-digit CAGR potential while relying on 26x, ensuring some margin of safety
___
𝐃𝐈𝐒𝐂𝐋𝐎𝐒𝐔𝐑𝐄‼️: 𝐓𝐡𝐢𝐬 𝐢𝐬 𝐍𝐎𝐓 𝐈𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐀𝐝𝐯𝐢𝐜𝐞. 𝐁𝐚𝐛𝐲𝐥𝐨𝐧 𝐂𝐚𝐩𝐢𝐭𝐚𝐥® 𝐚𝐧𝐝 𝐢𝐭𝐬 𝐫𝐞𝐩𝐫𝐞𝐬𝐞𝐧𝐭𝐚𝐭𝐢𝐯𝐞𝐬 𝐦𝐚𝐲 𝐡𝐚𝐯𝐞 𝐩𝐨𝐬𝐢𝐭𝐢𝐨𝐧𝐬 𝐢𝐧 𝐭𝐡𝐞 𝐬𝐞𝐜𝐮𝐫𝐢𝐭𝐢𝐞𝐬 𝐝𝐢𝐬𝐜𝐮𝐬𝐬𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭.
𝐓𝐡𝐞 𝐢𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧 𝐜𝐨𝐧𝐭𝐚𝐢𝐧𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭 𝐢𝐬 𝐢𝐧𝐭𝐞𝐧𝐝𝐞𝐝 𝐟𝐨𝐫 𝐢𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧𝐚𝐥 𝐩𝐮𝐫𝐩𝐨𝐬𝐞𝐬 𝐨𝐧𝐥𝐲 𝐚𝐧𝐝 𝐬𝐡𝐨𝐮𝐥𝐝 𝐧𝐨𝐭 𝐛𝐞 𝐜𝐨𝐧𝐬𝐭𝐫𝐮𝐞𝐝 𝐚𝐬 𝐢𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐚𝐝𝐯𝐢𝐜𝐞 𝐭𝐨 𝐦𝐞𝐞𝐭 𝐭𝐡𝐞 𝐬𝐩𝐞𝐜𝐢𝐟𝐢𝐜 𝐧𝐞𝐞𝐝𝐬 𝐨𝐟 𝐚𝐧𝐲 𝐢𝐧𝐝𝐢𝐯𝐢𝐝𝐮𝐚𝐥 𝐨𝐫 𝐬𝐢𝐭𝐮𝐚𝐭𝐢𝐨𝐧. 𝐏𝐚𝐬𝐭 𝐩𝐞𝐫𝐟𝐨𝐫𝐦𝐚𝐧𝐜𝐞 𝐢𝐬 𝐧𝐨 𝐠𝐮𝐚𝐫𝐚𝐧𝐭𝐞𝐞 𝐨𝐟 𝐟𝐮𝐭𝐮𝐫𝐞 𝐫𝐞𝐬𝐮𝐥𝐭𝐬.
𝐈𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧 𝐜𝐨𝐧𝐭𝐚𝐢𝐧𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭 𝐡𝐚𝐬 𝐛𝐞𝐞𝐧 𝐨𝐛𝐭𝐚𝐢𝐧𝐞𝐝 𝐟𝐫𝐨𝐦 𝐬𝐨𝐮𝐫𝐜𝐞𝐬 𝐛𝐞𝐥𝐢𝐞𝐯𝐞𝐝 𝐭𝐨 𝐛𝐞 𝐫𝐞𝐥𝐢𝐚𝐛𝐥𝐞, 𝐛𝐮𝐭 𝐢𝐬 𝐧𝐨𝐭 𝐠𝐮𝐚𝐫𝐚𝐧𝐭𝐞𝐞𝐝 𝐚𝐬 𝐭𝐨 𝐜𝐨𝐦𝐩𝐥𝐞𝐭𝐞𝐧𝐞𝐬𝐬 𝐨𝐫[...]