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โ Dimitry Nakhla | Babylon Capitalยฎ
A sober valuation analysis on $BABA ๐ง๐ฝโโ๏ธ
โขNTM P/E Ratio: 12.59x
โข5-Year Mean: 16.36x
โขNTM FCF Yield: 8.43%
โข5-Year Mean: 5.62%
As you can see, $BABA appears to be trading below fair value
Going forward, investors can receive ~30% MORE in earnings per share & ~50% MORE in FCF per share ๐ง ***
Before we get into valuation, letโs take a look at $BABA quality characteristics
BALANCE SHEETโ
โขCash & Short-Term Inv: $61.77B
โขLong-Term Debt: $24.50B
$BABA has a great balance sheet & 20x FFO Interest Coverage Ratio
RETURN ON CAPITAL๐
โข2020: 8.9%
โข2021: 8.3%
โข2022: 7.3%
โข2023: 7.8%
โข2024: 10.1%
โขLTM: 9.9%
RETURN ON EQUITY๐
โข2020: 18.9%
โข2021: 14.6%
โข2022: 4.3%
โข2023: 5.9%
โข2024: 6.4%
โขLTM: 5.7%
$BABA return metrics are lackluster, however itโs important to note that $BABA championed double-digit ROIC & ROE in prior years (2014-2018) & that the recent decline may be temporary
REVENUESโ
โข2019: $56.15B
โข2024: $130.35B
โขCAGR: 18.34%
FREE CASH FLOW๐
โข2019: $17.21B
โข2024: $20.84B
โขCAGR: 3.90%
NORMALIZED EPSโ
โข2019: $5.58
โข2024: $8.60
โขCAGR: 9.03%
SHARE BUYBACKS๐โก๏ธโ
โข2019 Shares Outstanding: 2.62B
โขLTM Shares Outstanding: 2.51B
By reducing its shares outstanding 4.2%, $BABA increased its EPS by 4.4% (assuming 0 growth)
MARGINS๐
โขLTM Gross Margins: 37.9%
โขLTM Operating Margins: 14.0%
โขLTM Net Income Margins: 7.3%
Margins have compressed substantially, a rebound in margin expansion would could be very bullish for $BABA shareholders
***NOW TO VALUATION ๐ง
As stated above, investors can expect to receive ~30% MORE in EPS & ~50% MORE in FCF per share
Using Benjamin Grahamโs 2G rule of thumb, $BABA has to grow earnings at a 6.30% CAGR over the next several years to justify its valuation
Today, analysts anticipate 2025 - 2026 EPS growth over the next few years to be more than (6.30%) required growth rate:
2024A: $8.60 (14.1% YoY) *FY Mar
2025E: $8.91 (0.5% YoY)
2026E: $9.90 (11.1% YoY)
$BABA has an ok track record of meeting analyst estimates ~2 years out, but letโs assume $BABA ends 2026 with $9.90 in EPS & see its CAGR potential assuming different multiples
16x P/E: $158.40๐ต โฆ ~24.1% CAGR
15x P/E: $148.50๐ต โฆ ~18.9% CAGR
14x P/E: $138.60๐ต โฆ ~13.7% CAGR
13x P/E: $128.70๐ต โฆ ~8.3% CAGR
As you can see, $BABA appears to have attractive return potential if we assume >14x multiple, a valuation that may can be justified by its reduced growth rate & still has the potential to expand as Chinaโs stimulus cycle just begins
Yet, itโs important to note the history of regulatory & political risks associated with $BABA as this creates a level of uncertainty & unpredictability
Today at $117๐ต $BABA appears to be a great consideration for investment, albeit with risks that can justify leaving out of a portfolio of businesses
#stocks #investing
___
๐๐๐๐๐๐๐๐๐๐โผ๏ธ: ๐๐ก๐ข๐ฌ ๐ข๐ฌ ๐๐๐ ๐๐ง๐ฏ๐๐ฌ๐ญ๐ฆ๐๐ง๐ญ ๐๐๐ฏ๐ข๐๐. ๐๐๐๐ฒ๐ฅ๐จ๐ง ๐๐๐ฉ๐ข๐ญ๐๐ฅยฎ ๐๐ง๐ ๐ข๐ญ๐ฌ ๐ซ๐๐ฉ๐ซ๐๐ฌ๐๐ง๐ญ๐๐ญ๐ข๐ฏ๐๐ฌ ๐ฆ๐๐ฒ ๐ก๐๐ฏ๐ ๐ฉ๐จ๐ฌ๐ข๐ญ๐ข๐จ๐ง๐ฌ ๐ข๐ง ๐ญ๐ก๐ ๐ฌ๐๐๐ฎ๐ซ๐ข๐ญ๐ข๐๐ฌ ๐๐ข๐ฌ๐๐ฎ๐ฌ๐ฌ๐๐ ๐ข๐ง ๐ญ๐ก๐ข๐ฌ ๐ญ๐ฐ๐๐๐ญ.
๐๐ก๐ ๐ข๐ง๐๐จ๐ซ๐ฆ๐๐ญ๐ข๐จ๐ง ๐๐จ๐ง๐ญ๐๐ข๐ง๐๐ ๐ข๐ง ๐ญ๐ก๐ข๐ฌ ๐ญ๐ฐ๐๐๐ญ ๐ข๐ฌ ๐ข๐ง๐ญ๐๐ง๐๐๐ ๐๐จ๐ซ ๐ข๐ง๐๐จ๐ซ๐ฆ๐๐ญ๐ข๐จ๐ง๐๐ฅ ๐ฉ๐ฎ๐ซ๐ฉ๐จ๐ฌ๐๐ฌ ๐จ๐ง๐ฅ๐ฒ ๐๐ง๐ ๐ฌ๐ก๐จ๐ฎ๐ฅ๐ ๐ง๐จ๐ญ ๐๐ ๐๐จ๐ง๐ฌ๐ญ๐ซ๐ฎ๐๐ ๐๐ฌ ๐ข๐ง๐ฏ๐๐ฌ๐ญ๐ฆ๐๐ง๐ญ ๐๐๐ฏ๐ข๐๐ ๐ญ๐จ ๐ฆ๐๐๐ญ ๐ญ๐ก๐ ๐ฌ๐ฉ๐๐๐ข๐๐ข๐ ๐ง๐๐๐๐ฌ ๐จ๐ ๐๐ง๐ฒ ๐ข๐ง๐๐ข๐ฏ๐ข๐๐ฎ๐๐ฅ ๐จ๐ซ ๐ฌ๐ข๐ญ๐ฎ๐๐ญ๐ข๐จ๐ง. ๐๐๐ฌ๐ญ ๐ฉ๐๐ซ๐๐จ๐ซ๐ฆ๐๐ง๐๐ ๐ข๐ฌ ๐ง๐จ ๐ ๐ฎ๐๐ซ๐๐ง๐ญ๐๐ ๐จ๐ ๐๐ฎ๐ญ๐ฎ๐ซ๐ ๐ซ๐๐ฌ๐ฎ๐ฅ๐ญ๐ฌ.
๐๐ง๐๐จ๐ซ๐ฆ๐๐ญ๐ข๐จ๐ง ๐๐จ๐ง๐ญ๐๐ข๐ง๐๐ ๐ข๐ง ๐ญ๐ก๐ข๐ฌ ๐ญ๐ฐ๐๐๐ญ ๐ก๐๐ฌ ๐๐๐๐ง ๐จ๐๐ญ๐๐ข๐ง๐๐ ๐๐ซ๐จ๐ฆ ๐ฌ๐จ๐ฎ๐ซ๐๐๐ฌ ๐๐๐ฅ๐ข๐๐ฏ๐๐ ๐ญ๐จ ๐๐ ๐ซ๐๐ฅ๐ข๐๐๐ฅ๐, ๐๐ฎ๐ญ ๐ข๐ฌ ๐ง๐จ๐ญ ๐ ๐ฎ๐๐ซ๐๐ง๐ญ๐๐๐ ๐๐ฌ ๐ญ๐จ ๐๐จ๐ฆ๐ฉ๐ฅ๐๐ญ๐๐ง๐๐ฌ๐ฌ ๐จ๐ซ ๐๐๐๐ฎ๐ซ๐๐๐ฒ.
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A sober valuation analysis on $BABA ๐ง๐ฝโโ๏ธ
โขNTM P/E Ratio: 12.59x
โข5-Year Mean: 16.36x
โขNTM FCF Yield: 8.43%
โข5-Year Mean: 5.62%
As you can see, $BABA appears to be trading below fair value
Going forward, investors can receive ~30% MORE in earnings per share & ~50% MORE in FCF per share ๐ง ***
Before we get into valuation, letโs take a look at $BABA quality characteristics
BALANCE SHEETโ
โขCash & Short-Term Inv: $61.77B
โขLong-Term Debt: $24.50B
$BABA has a great balance sheet & 20x FFO Interest Coverage Ratio
RETURN ON CAPITAL๐
โข2020: 8.9%
โข2021: 8.3%
โข2022: 7.3%
โข2023: 7.8%
โข2024: 10.1%
โขLTM: 9.9%
RETURN ON EQUITY๐
โข2020: 18.9%
โข2021: 14.6%
โข2022: 4.3%
โข2023: 5.9%
โข2024: 6.4%
โขLTM: 5.7%
$BABA return metrics are lackluster, however itโs important to note that $BABA championed double-digit ROIC & ROE in prior years (2014-2018) & that the recent decline may be temporary
REVENUESโ
โข2019: $56.15B
โข2024: $130.35B
โขCAGR: 18.34%
FREE CASH FLOW๐
โข2019: $17.21B
โข2024: $20.84B
โขCAGR: 3.90%
NORMALIZED EPSโ
โข2019: $5.58
โข2024: $8.60
โขCAGR: 9.03%
SHARE BUYBACKS๐โก๏ธโ
โข2019 Shares Outstanding: 2.62B
โขLTM Shares Outstanding: 2.51B
By reducing its shares outstanding 4.2%, $BABA increased its EPS by 4.4% (assuming 0 growth)
MARGINS๐
โขLTM Gross Margins: 37.9%
โขLTM Operating Margins: 14.0%
โขLTM Net Income Margins: 7.3%
Margins have compressed substantially, a rebound in margin expansion would could be very bullish for $BABA shareholders
***NOW TO VALUATION ๐ง
As stated above, investors can expect to receive ~30% MORE in EPS & ~50% MORE in FCF per share
Using Benjamin Grahamโs 2G rule of thumb, $BABA has to grow earnings at a 6.30% CAGR over the next several years to justify its valuation
Today, analysts anticipate 2025 - 2026 EPS growth over the next few years to be more than (6.30%) required growth rate:
2024A: $8.60 (14.1% YoY) *FY Mar
2025E: $8.91 (0.5% YoY)
2026E: $9.90 (11.1% YoY)
$BABA has an ok track record of meeting analyst estimates ~2 years out, but letโs assume $BABA ends 2026 with $9.90 in EPS & see its CAGR potential assuming different multiples
16x P/E: $158.40๐ต โฆ ~24.1% CAGR
15x P/E: $148.50๐ต โฆ ~18.9% CAGR
14x P/E: $138.60๐ต โฆ ~13.7% CAGR
13x P/E: $128.70๐ต โฆ ~8.3% CAGR
As you can see, $BABA appears to have attractive return potential if we assume >14x multiple, a valuation that may can be justified by its reduced growth rate & still has the potential to expand as Chinaโs stimulus cycle just begins
Yet, itโs important to note the history of regulatory & political risks associated with $BABA as this creates a level of uncertainty & unpredictability
Today at $117๐ต $BABA appears to be a great consideration for investment, albeit with risks that can justify leaving out of a portfolio of businesses
#stocks #investing
___
๐๐๐๐๐๐๐๐๐๐โผ๏ธ: ๐๐ก๐ข๐ฌ ๐ข๐ฌ ๐๐๐ ๐๐ง๐ฏ๐๐ฌ๐ญ๐ฆ๐๐ง๐ญ ๐๐๐ฏ๐ข๐๐. ๐๐๐๐ฒ๐ฅ๐จ๐ง ๐๐๐ฉ๐ข๐ญ๐๐ฅยฎ ๐๐ง๐ ๐ข๐ญ๐ฌ ๐ซ๐๐ฉ๐ซ๐๐ฌ๐๐ง๐ญ๐๐ญ๐ข๐ฏ๐๐ฌ ๐ฆ๐๐ฒ ๐ก๐๐ฏ๐ ๐ฉ๐จ๐ฌ๐ข๐ญ๐ข๐จ๐ง๐ฌ ๐ข๐ง ๐ญ๐ก๐ ๐ฌ๐๐๐ฎ๐ซ๐ข๐ญ๐ข๐๐ฌ ๐๐ข๐ฌ๐๐ฎ๐ฌ๐ฌ๐๐ ๐ข๐ง ๐ญ๐ก๐ข๐ฌ ๐ญ๐ฐ๐๐๐ญ.
๐๐ก๐ ๐ข๐ง๐๐จ๐ซ๐ฆ๐๐ญ๐ข๐จ๐ง ๐๐จ๐ง๐ญ๐๐ข๐ง๐๐ ๐ข๐ง ๐ญ๐ก๐ข๐ฌ ๐ญ๐ฐ๐๐๐ญ ๐ข๐ฌ ๐ข๐ง๐ญ๐๐ง๐๐๐ ๐๐จ๐ซ ๐ข๐ง๐๐จ๐ซ๐ฆ๐๐ญ๐ข๐จ๐ง๐๐ฅ ๐ฉ๐ฎ๐ซ๐ฉ๐จ๐ฌ๐๐ฌ ๐จ๐ง๐ฅ๐ฒ ๐๐ง๐ ๐ฌ๐ก๐จ๐ฎ๐ฅ๐ ๐ง๐จ๐ญ ๐๐ ๐๐จ๐ง๐ฌ๐ญ๐ซ๐ฎ๐๐ ๐๐ฌ ๐ข๐ง๐ฏ๐๐ฌ๐ญ๐ฆ๐๐ง๐ญ ๐๐๐ฏ๐ข๐๐ ๐ญ๐จ ๐ฆ๐๐๐ญ ๐ญ๐ก๐ ๐ฌ๐ฉ๐๐๐ข๐๐ข๐ ๐ง๐๐๐๐ฌ ๐จ๐ ๐๐ง๐ฒ ๐ข๐ง๐๐ข๐ฏ๐ข๐๐ฎ๐๐ฅ ๐จ๐ซ ๐ฌ๐ข๐ญ๐ฎ๐๐ญ๐ข๐จ๐ง. ๐๐๐ฌ๐ญ ๐ฉ๐๐ซ๐๐จ๐ซ๐ฆ๐๐ง๐๐ ๐ข๐ฌ ๐ง๐จ ๐ ๐ฎ๐๐ซ๐๐ง๐ญ๐๐ ๐จ๐ ๐๐ฎ๐ญ๐ฎ๐ซ๐ ๐ซ๐๐ฌ๐ฎ๐ฅ๐ญ๐ฌ.
๐๐ง๐๐จ๐ซ๐ฆ๐๐ญ๐ข๐จ๐ง ๐๐จ๐ง๐ญ๐๐ข๐ง๐๐ ๐ข๐ง ๐ญ๐ก๐ข๐ฌ ๐ญ๐ฐ๐๐๐ญ ๐ก๐๐ฌ ๐๐๐๐ง ๐จ๐๐ญ๐๐ข๐ง๐๐ ๐๐ซ๐จ๐ฆ ๐ฌ๐จ๐ฎ๐ซ๐๐๐ฌ ๐๐๐ฅ๐ข๐๐ฏ๐๐ ๐ญ๐จ ๐๐ ๐ซ๐๐ฅ๐ข๐๐๐ฅ๐, ๐๐ฎ๐ญ ๐ข๐ฌ ๐ง๐จ๐ญ ๐ ๐ฎ๐๐ซ๐๐ง๐ญ๐๐๐ ๐๐ฌ ๐ญ๐จ ๐๐จ๐ฆ๐ฉ๐ฅ๐๐ญ๐๐ง๐๐ฌ๐ฌ ๐จ๐ซ ๐๐๐๐ฎ๐ซ๐๐๐ฒ.
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โ Librarian Capital
FT: "This year (John Lewis) posted its first full-year profit after 3 consecutive years of losses"
This is likely misleading as it includes exceptionals, including non-cash impairments on shop values
JL's PBT Before Exceptionals was positive in FY22-23 https://t.co/GoVH7rghlq
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FT: "This year (John Lewis) posted its first full-year profit after 3 consecutive years of losses"
This is likely misleading as it includes exceptionals, including non-cash impairments on shop values
JL's PBT Before Exceptionals was positive in FY22-23 https://t.co/GoVH7rghlq
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โ Value Spotlight (Andrew Sather)
2 Ways to Check your WACC vs ROIC Calculations (Tutorial)
$JACK https://t.co/P7PY1gZWQu
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2 Ways to Check your WACC vs ROIC Calculations (Tutorial)
$JACK https://t.co/P7PY1gZWQu
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โ Investing visuals
โจNew: Investing Visuals is now on Instagram! โจ
Get a quick look at all my visuals in one place. Follow me there: @investingvisuals
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โจNew: Investing Visuals is now on Instagram! โจ
Get a quick look at all my visuals in one place. Follow me there: @investingvisuals
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This is wild.
We posted a report on a suspicious purchase of Fair Isaac stock by Representative Josh Gottheimer in May.
$FICO has now risen 67% since the trade.
It's a credit scoring service.
Gottheimer sits on the House Financial Services Committee. https://t.co/7F5IfVNXac
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This is wild.
We posted a report on a suspicious purchase of Fair Isaac stock by Representative Josh Gottheimer in May.
$FICO has now risen 67% since the trade.
It's a credit scoring service.
Gottheimer sits on the House Financial Services Committee. https://t.co/7F5IfVNXac
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โ Quiver Quantitative
RT @InsiderRadar: ๐จInsider Trading Alert
New Fortress Energy Inc, $NFE, sees major insider buy:
๐นCEO: ~$49,999,993 purchase on Oct 1
Largest insider purchase in 5 years
The shares traded up 5.4% last Friday, but have dropped 4.5% this morning https://t.co/NE75u9uHCZ
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RT @InsiderRadar: ๐จInsider Trading Alert
New Fortress Energy Inc, $NFE, sees major insider buy:
๐นCEO: ~$49,999,993 purchase on Oct 1
Largest insider purchase in 5 years
The shares traded up 5.4% last Friday, but have dropped 4.5% this morning https://t.co/NE75u9uHCZ
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โ Stock Analysis Compilation
Artisan Partners on Argenx $ARGX US
Thesis: Argenxโs Vyvgart presents a significant growth opportunity, with blockbuster potential in multiple autoimmune conditions, making it a biotech leader to watch.
(Extract from their Q2 letter) https://t.co/NQwu4yLQgZ
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Artisan Partners on Argenx $ARGX US
Thesis: Argenxโs Vyvgart presents a significant growth opportunity, with blockbuster potential in multiple autoimmune conditions, making it a biotech leader to watch.
(Extract from their Q2 letter) https://t.co/NQwu4yLQgZ
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