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โ Dimitry Nakhla | Babylon Capitalยฎ
RT @ftr_investors: ๐๐ป๐๐ฒ๐๐๐ผ๐ฟ ๐ง๐ฎ๐น๐ธ #๐ฐ๐ญ
Name: Aria Radnia @QualityInvest5
Age: 19
Residence/Country: Canada
Invests since: November 2021
๐๐ป๐๐ฟ๐ผ๐ฑ๐๐ฐ๐๐ถ๐ผ๐ป
Iโm currently a full-time student and also work at FinChat @finchat_io (the worldโs 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, itโs hilarious to see how far I've come from that style of investing. Like everyone else, I initially started investing to grow my money.
๐ช๐ต๐ฎ๐ ๐ถ๐ ๐๐ผ๐๐ฟ ๐ถ๐ป๐๐ฒ๐๐๐บ๐ฒ๐ป๐ ๐๐๐ฟ๐ฎ๐๐ฒ๐ด๐?
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 withโbut 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!
๐๐ผ๐ ๐บ๐ฎ๐ป๐ ๐๐๐ผ๐ฐ๐ธ๐ ๐ฎ๐ฟ๐ฒ ๐ฐ๐๐ฟ๐ฟ๐ฒ๐ป๐๐น๐ ๐ต๐ฒ๐น๐ฑ ๐ถ๐ป ๐๐ผ๐๐ฟ ๐ฝ๐ผ๐ฟ๐๐ณ๐ผ๐น๐ถ๐ผ?
Currently, I own seven stocks, but my smallest holding, TransMedics $TMDX, hovers around a 1% positionโnegligible in terms of overall performance, as it's more of a small speculative bet.
๐ช๐ต๐ถ๐ฐ๐ต ๐๐ฒ๐ฐ๐๐ผ๐ฟ๐ ๐ฑ๐ผ ๐๐ผ๐ ๐บ๐ฎ๐ถ๐ป๐น๐ ๐ณ๐ผ๐ฐ๐๐ ๐ผ๐ป?
Technically, every holding (except TransMedics) in my portfolio is a tech company. I'm not concerned about sector concentrationโthat'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.
๐ช๐ต๐ฎ๐ ๐ฎ๐ฟ๐ฒ ๐๐ผ๐๐ฟ ๐ต๐ถ๐ด๐ต๐ฒ๐๐ ๐ฐ๐ผ๐ป๐๐ถ๐ฐ๐๐ถ๐ผ๐ป ๐๐๐ผ๐ฐ๐ธ๐?
$AMZN - Amazon is my highest-conviction bet, purely based on weightingโitโs 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 3โ5 years).
๐ช๐ต๐ฎ๐ ๐ถ๐ ๐๐ต๐ฒ ๐๐๐ผ๐ฐ๐ธ ๐ถ๐ป ๐๐ผ๐๐ฟ ๐ฝ๐ผ๐ฟ๐๐ณ๐ผ๐น๐ถ๐ผ ๐๐ถ๐๐ต ๐๐ต๐ฒ ๐ต๐ถ๐ด๐ต๐ฒ๐๐ ๐ฟ๐ฒ๐๐๐ฟ๐ป?
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.
๐ช๐ต๐ฎ๐ ๐ถ๐ ๐๐ต๐ฒ ๐ฏ๐ถ๐ด๐ด๐ฒ๐๐ ๐ถ๐ป๐๐ฒ๐๐๐บ๐ฒ๐ป๐ ๐บ๐ถ๐๐๐ฎ๐ธ๐ฒ ๐๐ผ๐ ๐ต๐ฎ๐๐ฒ ๐บ๐ฎ๐ฑ๐ฒ?
Selling based on short-term concerns, worrying that t[...]
RT @ftr_investors: ๐๐ป๐๐ฒ๐๐๐ผ๐ฟ ๐ง๐ฎ๐น๐ธ #๐ฐ๐ญ
Name: Aria Radnia @QualityInvest5
Age: 19
Residence/Country: Canada
Invests since: November 2021
๐๐ป๐๐ฟ๐ผ๐ฑ๐๐ฐ๐๐ถ๐ผ๐ป
Iโm currently a full-time student and also work at FinChat @finchat_io (the worldโs 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, itโs hilarious to see how far I've come from that style of investing. Like everyone else, I initially started investing to grow my money.
๐ช๐ต๐ฎ๐ ๐ถ๐ ๐๐ผ๐๐ฟ ๐ถ๐ป๐๐ฒ๐๐๐บ๐ฒ๐ป๐ ๐๐๐ฟ๐ฎ๐๐ฒ๐ด๐?
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 withโbut 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!
๐๐ผ๐ ๐บ๐ฎ๐ป๐ ๐๐๐ผ๐ฐ๐ธ๐ ๐ฎ๐ฟ๐ฒ ๐ฐ๐๐ฟ๐ฟ๐ฒ๐ป๐๐น๐ ๐ต๐ฒ๐น๐ฑ ๐ถ๐ป ๐๐ผ๐๐ฟ ๐ฝ๐ผ๐ฟ๐๐ณ๐ผ๐น๐ถ๐ผ?
Currently, I own seven stocks, but my smallest holding, TransMedics $TMDX, hovers around a 1% positionโnegligible in terms of overall performance, as it's more of a small speculative bet.
๐ช๐ต๐ถ๐ฐ๐ต ๐๐ฒ๐ฐ๐๐ผ๐ฟ๐ ๐ฑ๐ผ ๐๐ผ๐ ๐บ๐ฎ๐ถ๐ป๐น๐ ๐ณ๐ผ๐ฐ๐๐ ๐ผ๐ป?
Technically, every holding (except TransMedics) in my portfolio is a tech company. I'm not concerned about sector concentrationโthat'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.
๐ช๐ต๐ฎ๐ ๐ฎ๐ฟ๐ฒ ๐๐ผ๐๐ฟ ๐ต๐ถ๐ด๐ต๐ฒ๐๐ ๐ฐ๐ผ๐ป๐๐ถ๐ฐ๐๐ถ๐ผ๐ป ๐๐๐ผ๐ฐ๐ธ๐?
$AMZN - Amazon is my highest-conviction bet, purely based on weightingโitโs 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 3โ5 years).
๐ช๐ต๐ฎ๐ ๐ถ๐ ๐๐ต๐ฒ ๐๐๐ผ๐ฐ๐ธ ๐ถ๐ป ๐๐ผ๐๐ฟ ๐ฝ๐ผ๐ฟ๐๐ณ๐ผ๐น๐ถ๐ผ ๐๐ถ๐๐ต ๐๐ต๐ฒ ๐ต๐ถ๐ด๐ต๐ฒ๐๐ ๐ฟ๐ฒ๐๐๐ฟ๐ป?
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.
๐ช๐ต๐ฎ๐ ๐ถ๐ ๐๐ต๐ฒ ๐ฏ๐ถ๐ด๐ด๐ฒ๐๐ ๐ถ๐ป๐๐ฒ๐๐๐บ๐ฒ๐ป๐ ๐บ๐ถ๐๐๐ฎ๐ธ๐ฒ ๐๐ผ๐ ๐ต๐ฎ๐๐ฒ ๐บ๐ฎ๐ฑ๐ฒ?
Selling based on short-term concerns, worrying that t[...]
Offshore
โ Dimitry Nakhla | Babylon Capitalยฎ RT @ftr_investors: ๐๐ป๐๐ฒ๐๐๐ผ๐ฟ ๐ง๐ฎ๐น๐ธ #๐ฐ๐ญ Name: Aria Radnia @QualityInvest5 Age: 19 Residence/Country: Canada Invests since: November 2021 ๐๐ป๐๐ฟ๐ผ๐ฑ๐๐ฐ๐๐ถ๐ผ๐ป Iโm currently a full-time student and also work at FinChat @finchat_io (theโฆ
he price has run up too much, and just trading too frequentlyโthese 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 didnโt buy at all, like Adyen $ADYEN when it was close to โฌ1000โnow up 85% in a few months. Errors of omission and a lack of patience have been my biggest mistakes
๐ ๐ ๐ณ๐ฎ๐๐ผ๐ฟ๐ถ๐๐ฒ๐
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*tโexecution is everything, and youโll 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 youโre 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.
๐ช๐ต๐ฒ๐ฟ๐ฒ ๐ฐ๐ฎ๐ป ๐๐ฒ ๐ณ๐ถ๐ป๐ฑ ๐บ๐ผ๐ฟ๐ฒ ๐ถ๐ป๐ณ๐ผ ๐ฎ๐ฏ๐ผ๐๐ ๐๐ผ๐?
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 didnโt buy at all, like Adyen $ADYEN when it was close to โฌ1000โnow up 85% in a few months. Errors of omission and a lack of patience have been my biggest mistakes
๐ ๐ ๐ณ๐ฎ๐๐ผ๐ฟ๐ถ๐๐ฒ๐
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*tโexecution is everything, and youโll 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 youโre 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.
๐ช๐ต๐ฒ๐ฟ๐ฒ ๐ฐ๐ฎ๐ป ๐๐ฒ ๐ณ๐ถ๐ป๐ฑ ๐บ๐ผ๐ฟ๐ฒ ๐ถ๐ป๐ณ๐ผ ๐ฎ๐ฏ๐ผ๐๐ ๐๐ผ๐?
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
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โ App Economy Insights
$GOOG Google Lands Salesforce Cloud Deal.
๐ต Salesforce commits $2.5B over 7 years.
โ๏ธ Agentforce now runs on Google Cloud.
๐ Deeper integrations across apps.
๐ค Gemini AI powers Agentforce.
๐ $CRM reports Wednesday.
Will AI momentum show up in the numbers? https://t.co/TnaRLYXT1q
tweet
$GOOG Google Lands Salesforce Cloud Deal.
๐ต Salesforce commits $2.5B over 7 years.
โ๏ธ Agentforce now runs on Google Cloud.
๐ Deeper integrations across apps.
๐ค Gemini AI powers Agentforce.
๐ $CRM reports Wednesday.
Will AI momentum show up in the numbers? https://t.co/TnaRLYXT1q
tweet
Offshore
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Offshore
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โ 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)
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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)
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Offshore
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โ Dimitry Nakhla | Babylon Capitalยฎ
A quality valuation analysis on $MSFT ๐ง๐ฝโโ๏ธ
โขNTM P/E Ratio: 29.56x
โข5-Year Mean: 30.90x
โขNTM FCF Yield: 2.51%
โข5-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 share๐ง ***
Before we get into valuation, letโs take a look at why $MSFT is a quality business
BALANCE SHEETโ
โขCash & Equivalents: $71.56B
โขLong-Term Debt: $39.72B
$MSFT has an excellent balance sheet, an AAA S&P Credit Rating & 46x FFO Interest Coverage Ratio
RETURN ON CAPITALโ
โข2019: 22.7%
โข2020: 26.4%
โข2021: 31.1%
โข2022: 34.0%
โข2023: 31.0%
โข2024: 29.7%
RETURN ON EQUITYโ
โข2019: 42.4%
โข2020: 40.1%
โข2021: 47.1%
โข2022: 47.2%
โข2023: 38.8%
โข2024: 37.1%
$MSFT has great return metrics, highlighting the financial efficiency of the business
REVENUESโ
โข2014: $86.83B
โข2024: $245.12B
โขCAGR: 10.93%
FREE CASH FLOWโ
โข2014: $27.02B
โข2024: $74.07B
โขCAGR: 10.61%
NORMALIZED EPSโ
โข2014: $2.63
โข2024: $11.80
โขCAGR: 16.19%
SHARE BUYBACKSโ
โข2014 Shares Outstanding: 8.40B
โขLTM Shares Outstanding: 7.47B
By reducing its shares outstanding ~11%, $MSFT increased its EPS by ~12% (assuming 0 growth)
MARGINSโ
โขLTM Gross Margins: 69.4%
โขLTM Operating Margins: 45.0%
โขLTM Net Income Margins: 35.4%
PAID DIVIDENDSโ
โข2014: $1.12
โข2024: $3.00
โขCAGR: 10.35%
***NOW TO VALUATION ๐ง
As stated above, investors can expect to receive ~5% MORE in EPS & ~15% LESS in FCF per share
Using Benjamin Grahamโs 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 letโs assume $MSFT ends 2027 with $17.69 in EPS & see its CAGR potential assuming different multiples
32x P/E: $566.08๐ต โฆ ~16.3% CAGR
30x P/E: $530.70๐ต โฆ ~13.2% CAGR
29x P/E: $513.01๐ต โฆ ~11.5% CAGR
28x P/E: $495.32๐ต โฆ ~9.9% CAGR
As you can see, weโd 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 wouldnโt want to rely on a >32x multiple, I feel comfortable accumulating the a tranche of $MSFT shares at $403๐ต while relying on 28x - 29x
My next tranche of adds would likely be closer to $375๐ต (~10% below todayโs price) where I could reasonably assume double-digit CAGR potential while relying on 26x, ensuring some margin of safety
___
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 ๐จ๏ฟฝ[...]
A quality valuation analysis on $MSFT ๐ง๐ฝโโ๏ธ
โขNTM P/E Ratio: 29.56x
โข5-Year Mean: 30.90x
โขNTM FCF Yield: 2.51%
โข5-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 share๐ง ***
Before we get into valuation, letโs take a look at why $MSFT is a quality business
BALANCE SHEETโ
โขCash & Equivalents: $71.56B
โขLong-Term Debt: $39.72B
$MSFT has an excellent balance sheet, an AAA S&P Credit Rating & 46x FFO Interest Coverage Ratio
RETURN ON CAPITALโ
โข2019: 22.7%
โข2020: 26.4%
โข2021: 31.1%
โข2022: 34.0%
โข2023: 31.0%
โข2024: 29.7%
RETURN ON EQUITYโ
โข2019: 42.4%
โข2020: 40.1%
โข2021: 47.1%
โข2022: 47.2%
โข2023: 38.8%
โข2024: 37.1%
$MSFT has great return metrics, highlighting the financial efficiency of the business
REVENUESโ
โข2014: $86.83B
โข2024: $245.12B
โขCAGR: 10.93%
FREE CASH FLOWโ
โข2014: $27.02B
โข2024: $74.07B
โขCAGR: 10.61%
NORMALIZED EPSโ
โข2014: $2.63
โข2024: $11.80
โขCAGR: 16.19%
SHARE BUYBACKSโ
โข2014 Shares Outstanding: 8.40B
โขLTM Shares Outstanding: 7.47B
By reducing its shares outstanding ~11%, $MSFT increased its EPS by ~12% (assuming 0 growth)
MARGINSโ
โขLTM Gross Margins: 69.4%
โขLTM Operating Margins: 45.0%
โขLTM Net Income Margins: 35.4%
PAID DIVIDENDSโ
โข2014: $1.12
โข2024: $3.00
โขCAGR: 10.35%
***NOW TO VALUATION ๐ง
As stated above, investors can expect to receive ~5% MORE in EPS & ~15% LESS in FCF per share
Using Benjamin Grahamโs 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 letโs assume $MSFT ends 2027 with $17.69 in EPS & see its CAGR potential assuming different multiples
32x P/E: $566.08๐ต โฆ ~16.3% CAGR
30x P/E: $530.70๐ต โฆ ~13.2% CAGR
29x P/E: $513.01๐ต โฆ ~11.5% CAGR
28x P/E: $495.32๐ต โฆ ~9.9% CAGR
As you can see, weโd 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 wouldnโt want to rely on a >32x multiple, I feel comfortable accumulating the a tranche of $MSFT shares at $403๐ต while relying on 28x - 29x
My next tranche of adds would likely be closer to $375๐ต (~10% below todayโs price) where I could reasonably assume double-digit CAGR potential while relying on 26x, ensuring some margin of safety
___
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 ๐จ๏ฟฝ[...]
Offshore
โ Dimitry Nakhla | Babylon Capitalยฎ A quality valuation analysis on $MSFT ๐ง๐ฝโโ๏ธ โขNTM P/E Ratio: 29.56x โข5-Year Mean: 30.90x โขNTM FCF Yield: 2.51% โข5-Year Mean: 2.95% As you can see, $MSFT appears to be trading near fair value Going forward, investors canโฆ
๏ฟฝ ๐๐๐๐ฎ๐ซ๐๐๐ฒ.
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Offshore
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โ Dimitry Nakhla | Babylon Capitalยฎ
A quality valuation analysis on $MSFT ๐ง๐ฝโโ๏ธ
โขNTM P/E Ratio: 29.56x
โข5-Year Mean: 30.90x
โขNTM FCF Yield: 2.51%
โข5-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 share๐ง ***
Before we get into valuation, letโs take a look at why $MSFT is a quality business
BALANCE SHEETโ
โขCash & Equivalents: $71.56B
โขLong-Term Debt: $39.72B
$MSFT has an excellent balance sheet, an AAA S&P Credit Rating & 46x FFO Interest Coverage Ratio
RETURN ON CAPITALโ
โข2019: 22.7%
โข2020: 26.4%
โข2021: 31.1%
โข2022: 34.0%
โข2023: 31.0%
โข2024: 29.7%
RETURN ON EQUITYโ
โข2019: 42.4%
โข2020: 40.1%
โข2021: 47.1%
โข2022: 47.2%
โข2023: 38.8%
โข2024: 37.1%
$MSFT has great return metrics, highlighting the financial efficiency of the business
REVENUESโ
โข2014: $86.83B
โข2024: $245.12B
โขCAGR: 10.93%
FREE CASH FLOWโ
โข2014: $27.02B
โข2024: $74.07B
โขCAGR: 10.61%
NORMALIZED EPSโ
โข2014: $2.63
โข2024: $11.80
โขCAGR: 16.19%
SHARE BUYBACKSโ
โข2014 Shares Outstanding: 8.40B
โขLTM Shares Outstanding: 7.47B
By reducing its shares outstanding ~11%, $MSFT increased its EPS by ~12% (assuming 0 growth)
MARGINSโ
โขLTM Gross Margins: 69.4%
โขLTM Operating Margins: 45.0%
โขLTM Net Income Margins: 35.4%
PAID DIVIDENDSโ
โข2014: $1.12
โข2024: $3.00
โขCAGR: 10.35%
***NOW TO VALUATION ๐ง
As stated above, investors can expect to receive ~5% MORE in EPS & ~15% LESS in FCF per share
Using Benjamin Grahamโs 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 letโs assume $MSFT ends 2027 with $17.69 in EPS & see its CAGR potential assuming different multiples
32x P/E: $566.08๐ต โฆ ~16.3% CAGR
30x P/E: $530.70๐ต โฆ ~13.2% CAGR
29x P/E: $513.01๐ต โฆ ~11.5% CAGR
28x P/E: $495.32๐ต โฆ ~9.9% CAGR
As you can see, weโd 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 wouldnโt want to rely on a >32x multiple, I feel comfortable accumulating the a tranche of $MSFT shares at $403๐ต while relying on 28x - 29x
My next tranche of adds would likely be closer to $375๐ต (~7% below todayโs price) where I could reasonably assume double-digit CAGR potential while relying on 26x, ensuring some margin of safety
___
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[...]
A quality valuation analysis on $MSFT ๐ง๐ฝโโ๏ธ
โขNTM P/E Ratio: 29.56x
โข5-Year Mean: 30.90x
โขNTM FCF Yield: 2.51%
โข5-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 share๐ง ***
Before we get into valuation, letโs take a look at why $MSFT is a quality business
BALANCE SHEETโ
โขCash & Equivalents: $71.56B
โขLong-Term Debt: $39.72B
$MSFT has an excellent balance sheet, an AAA S&P Credit Rating & 46x FFO Interest Coverage Ratio
RETURN ON CAPITALโ
โข2019: 22.7%
โข2020: 26.4%
โข2021: 31.1%
โข2022: 34.0%
โข2023: 31.0%
โข2024: 29.7%
RETURN ON EQUITYโ
โข2019: 42.4%
โข2020: 40.1%
โข2021: 47.1%
โข2022: 47.2%
โข2023: 38.8%
โข2024: 37.1%
$MSFT has great return metrics, highlighting the financial efficiency of the business
REVENUESโ
โข2014: $86.83B
โข2024: $245.12B
โขCAGR: 10.93%
FREE CASH FLOWโ
โข2014: $27.02B
โข2024: $74.07B
โขCAGR: 10.61%
NORMALIZED EPSโ
โข2014: $2.63
โข2024: $11.80
โขCAGR: 16.19%
SHARE BUYBACKSโ
โข2014 Shares Outstanding: 8.40B
โขLTM Shares Outstanding: 7.47B
By reducing its shares outstanding ~11%, $MSFT increased its EPS by ~12% (assuming 0 growth)
MARGINSโ
โขLTM Gross Margins: 69.4%
โขLTM Operating Margins: 45.0%
โขLTM Net Income Margins: 35.4%
PAID DIVIDENDSโ
โข2014: $1.12
โข2024: $3.00
โขCAGR: 10.35%
***NOW TO VALUATION ๐ง
As stated above, investors can expect to receive ~5% MORE in EPS & ~15% LESS in FCF per share
Using Benjamin Grahamโs 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 letโs assume $MSFT ends 2027 with $17.69 in EPS & see its CAGR potential assuming different multiples
32x P/E: $566.08๐ต โฆ ~16.3% CAGR
30x P/E: $530.70๐ต โฆ ~13.2% CAGR
29x P/E: $513.01๐ต โฆ ~11.5% CAGR
28x P/E: $495.32๐ต โฆ ~9.9% CAGR
As you can see, weโd 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 wouldnโt want to rely on a >32x multiple, I feel comfortable accumulating the a tranche of $MSFT shares at $403๐ต while relying on 28x - 29x
My next tranche of adds would likely be closer to $375๐ต (~7% below todayโs price) where I could reasonably assume double-digit CAGR potential while relying on 26x, ensuring some margin of safety
___
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[...]