⁠Dimitry Nakhla | Babylon Capital®
A sober valuation analysis on $MELI 🧘🏽‍♂️

•NTM P/E Ratio: 48.07x
•1-Year Mean: 48.02x

As you can see, $MELI appears to be trading near fair value

Going forward, investors can receive roughly the same in earnings per share 🧠***

Before we get into valuation, let’s take a look at why $MELI is a great business

BALANCE SHEET✅
•Cash & Short-Term Inv: $6.67B
•Long-Term Debt: $3.04B

$MELI has a strong balance sheet, an ok BB+ S&P Credit Rating & 20x FFO Interest Coverage

RETURN ON CAPITAL🆗➡️✅
•2019: (4.8%)
•2020: 3.7%
•2021: 8.1%
•2022: 14.2%
•2023: 25.3%
•LTM: 20.1%

RETURN ON EQUITY🆗➡️✅
•2019: (14.2%)
•2020: (0.1%)
•2021: 5.2%
•2022: 28.7%
•2023: 40.3%
•LTM: 42.6%

$MELI has strong and improved return metrics, highlighting the financial efficiency of the business

REVENUES✅
•2018: $1.44B
•2023: $14.47B
•CAGR: 58.64%

FREE CASH FLOW✅
•2018: $133.35M
•2023: $4.63B
•CAGR: 203.29%

NORMALIZED EPS✅
•2018: (0.82)
•2023: (22.84)

SHARE BUYBACKS❌
•2013 Shares Outstanding: 44.53M
•LTM Shares Outstanding: 51.28M

MARGINS🆗➡️✅
•LTM Gross Margins: 52.5%
•LTM Operating Margins: 11.4%
•LTM Net Income Margins: 7.8%

***NOW TO VALUATION 🧠

As stated above, investors can expect to receive roughly the same in EPS

Using Benjamin Graham’s 2G rule of thumb, $MELI has to grow earnings at a 24.04% 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 the (24.04%) required growth rate:

2024E: $33.87 (48.3% YoY) *FY Dec

2025E: $46.86 (38.3% YoY)
2026E: $62.73 (33.9% YoY)

$MELI has an ok track record of meeting analyst estimates ~2 years out, but let’s assume $MELI ends 2026 with $62.73 in EPS & see its CAGR potential assuming different multiples

42x P/E: $2,634.66💵 … ~17.1% CAGR

40x P/E: $2,509.20💵 … ~14.4% CAGR

38x P/E: $2,383.74💵 … ~11.8% CAGR

36x P/E: $2,258.28💵 … ~9.0% CAGR

As you can see, $MELI appears to have attractive return potential IF we assume >38x earnings (a multiple justified by its growth rate & moat)

$MELI boasts an expansive growth trajectory, fueled by powerful network effects that should drive sustained momentum

Key factors contributing to its promising outlook include 🔑

1. Margin expansion

2. Unparalleled access to Latin America's burgeoning economy

3. Network effects that produce self-reinforcing dynamics ensuring long-term competitiveness, among other things

Those buying $MELI today at $1872💵 are buying it for a fair price, with little margin of safety — however, these growth rates have to be revised down substantially for $MELI to miss the mark, even if the company grows earnings at 25% CAGR over the next 5 years, shareholders will likely end up with a decent return

I’d consider $MELI an exceptional buy closer to $1,700💵 (~9% below today’s price) where I can reasonably expect ~14% CAGR while assuming a 36x end multiple, ensuring some margin of safety

#stocks #investing
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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 𝐚𝐜𝐜𝐮𝐫𝐚𝐜𝐲.
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⁠Stock Analysis Compilation
Harding Loevner on HDFC Bank $HDB US

Thesis: HDFC's smooth merger integration, attractive pricing, and disciplined lending practices set it up for a strong rebound, with significant growth potential compared to overvalued competitors like ICICI.

(Extract from their Q3 letter) https://t.co/MdUK6pZeNq
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⁠Ahmad Jivraj
RT @mrjivraj: here is another practical way to think about it
age 17 => get a summer job => make $5K => put into ROTH IRA => 7% return => it becomes $128K at 65

age 18 => get another summer job => make another $5K => at 7% return, becomes $120K at 65

age 19 => get another summer job => make $5K => at 7% return, becomes $112K at 65

age 20 => make $5K => at 7% return, becomes $105K

age 21 => $5K at 7% return, becomes $98K

age 22 => $5K at 7% return, becomes $92K

That's $527K

Now, graduate and get a real job

age 23 => $6K at 7% return, becomes $103K
age 24 => $7K at 7% return, becomes $112K
age 25 => $8K at 7% return, becomes $120K
age 26 => $8K at 7% return, becomes $112K
age 27 => $8K at 7% return, becomes $104K

that's almost $1.1 million
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⁠Dimitry Nakhla | Babylon Capital®
“Look at market fluctuations as your friend rather than your enemy. Profit from folly rather than participate in it.”

— Warren Buffett 🗣️

Takeaways 📚

1. Separate noise from signal

2. Capitalize on irrational market behavior

3. Stay calm and patient

#stocks #investing
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Middle Coast Investing on ABM $ABM US

Thesis: ABM's stable janitorial services, combined with potential growth from electric vehicle power stations and microgrids, offers a steady business with transformation potential

(Extract from their Q3 letter) https://t.co/KptsYEiZc9
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Munro on ASML $ASML NA

Thesis: ASML's dominant position in semiconductor lithography and strong demand from key players like TSMC position the company for continued growth, despite near-term challenges.

(Extract from their Q3 letter) https://t.co/NSjUOlfjZU
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⁠Startup Archive
Elon Musk on building his first startup Zip2

In 1995, when he was just 23 years old, Elon dropped out of Stanford’s PhD program in physics to start Zip2 with his brother Kimbal Musk.

Elon personally wrote the first national maps, directions, yellow pages and white pages on the Internet that summer in C with a little C++.

In this CBS interview, a 27 year old Elon describes living in a $200/month office with a leaky roof:

“We found that an office was actually cheaper than apartment in Silicon Valley and we got this dinky little office that had a leaky roof. It was just the nastiest place you could imagine. I lived in it too and showered at the YMCA. This lasted for about three or four months, and the reason we chose this office — in addition to it being really cheap — was that there was an internet service provider on the floor below. So we were able to get really cheap internet access by drilling a hole in the floor and connecting to their server directly.”

In February 1999 — less than a year after this interview — Compaq would purchase Zip2 for $307 million in cash.

The interviewer also asks Elon what he thinks the future of the Internet will be, to which Elon responds:

“I think the internet is the superset of all media. It is the be all and end all of media. One will see print, broadcast, radio — essentially all media — folding into the internet. What the internet amounts to is it’s the first two-way communication medium that is intelligent. It allows consumers to choose what they want to see, when they want to see it.”
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⁠Stock Analysis Compilation
Aoris on Fastenal $FAST US

Thesis: Fastenal’s unique inventory management services and low employee turnover make it an indispensable supply chain partner with long-term growth potential.

(Extract from their Q3 letter) https://t.co/mj8xGsz2Zh
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⁠Dimitry Nakhla | Babylon Capital®
Valuations, relative to growth rates, matter … eventually … $MPWR down ~40% in a month 🔴

#stocks #investing https://t.co/0Vayd8Tjpa
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