⁠App Economy Insights
📊 This Week in Visuals:

🎨 Adobe $ADBE
🎮 GameStop $GME
🔷 Rubrik $RBRK
⚽️ Man United $MANU
https://t.co/chN7lpKHaY
tweet

⁠Stock Analysis Compilation
Davis fund on Meta $META US

Thesis: Meta is poised for long-term growth by leveraging its AI advancements, especially in generative AI, to enhance user engagement and drive significant revenue gains

(Extract from their Q2 letter) https://t.co/wHMWeNf3pV
tweet

⁠Dimitry Nakhla | Babylon Capital®
“An investor should act as though he had a lifetime investment decision card with just twenty punches on it.”

— Warren Buffett 🗣️

#stocks #investing 👇🏽

Warren Buffett's quote highlights the importance of discipline and patience in investing. By limiting ourselves to just 20 “punches” or investment decisions, we're forced to be extremely selective and focus on only the most exceptional opportunities.

This mindset helps investors avoid:

•⁠ ⁠Diversification for its own sake, which can lead to mediocre returns

•⁠ ⁠Emotional decisions driven by FOMO or short-term market volatility

•⁠ ⁠Over-trading, which can result in lower overall performance

By adopting this approach, investors can:

•⁠ ⁠Develop a deeper understanding of their investments, leading to more informed decisions

•⁠ ⁠Cultivate patience, allowing them to wait for the right moments to invest

•⁠ ⁠Build a concentrated portfolio of high-quality businesses with strong potential for long-term growth

Ultimately, Buffett's quote encourages us to think like business owners, not traders.
By being highly selective and patient, we can increase our chances of achieving outstanding returns and building long-term wealth
tweet

⁠Stock Analysis Compilation
Conestoga on Universal Technical Institute $UTI

Thesis: Universal Technical Institute is well-positioned to address critical skill gaps in the economy, supported by strong industry partnerships and a broad network of specialized training programs

(Extract from their Q2 letter) https://t.co/Dmqoy3csSr
tweet

⁠Stock Analysis Compilation
Davis fund on Tokyo Electron $8035 JP

Thesis: Tokyo Electron is well-positioned to capture the growth in semiconductor demand, driven by AI advancements and its dominance in critical chip-making tools

(Extract from their Q2 letter) https://t.co/81GChYzeXV
tweet

⁠Librarian Capital
$HAYPP now down ~24% since 3-Sep https://t.co/dX3x3Qa4Rb

Haypp $HAYPP down 16% in 3 days following proposal to revoke its snus license in Swedish market *

Market cap = SEK 2.83bn (~$280m)
Average volume = 70.3k (~$0.65m)
Top 10 shareholders own ~70%

* 20% of group net sales as of 24Q2, but declining https://t.co/ZSTDyKQMjK - Librarian Capital
tweet

⁠Librarian Capital
Deloitte is a world-famous investment banking company ... in Spain https://t.co/Z9tW3qrp17
tweet

⁠Dimitry Nakhla | Babylon Capital®
RT @DimitryNakhla: A sober valuation analysis on $AVGO 🧘🏽‍♂️

•NTM P/E Ratio: 25.06x
•5-Year Mean: 17.22x

•NTM FCF Yield: 4.19%
•5-Year Mean: 7.00%

As you can see, $AVGO appears to be trading above fair value

Going forward, investors can receive ~31% LESS in earnings per share & ~40% LESS in FCF per share 🧠***

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

BALANCE SHEET🆗
•Cash & Short-Term Inv: $9.95B
•Long-Term Debt: $66.80B

$AVGO has an ok balance sheet, a BBB S&P Credit Rating & 5.57x FFO Interest Coverage

RETURN ON CAPITAL🆗➡️✅
•2019: 7.4%
•2020: 6.6%
•2021: 13.3%
•2022: 22.8%
•2023: 25.9%
•LTM: 10.9%

RETURN ON EQUITY🆗➡️✅
•2019: 10.6%
•2020: 12.1%
•2021: 27.6%
•2022: 48.2%
•2023: 60.3%
•LTM: 12.5%

$AVGO now has stronger return metrics, highlighting the financial efficiency of the business

REVENUES✅
•2013: $2.52B
•2023: $35.82B
•CAGR: 30.39%

FREE CASH FLOW✅
•2013: $0.49B
•2023: $17.63B
•CAGR: 43.08%

NORMALIZED EPS✅
•2013: $0.29
•2023: $4.23
•CAGR: 30.73%

SHARE BUYBACKS❌
•2013 Shares Outstanding: 2.52B
•LTM Shares Outstanding: 4.64B

$AVGO increased its shares outstanding ~84%, however strong revenue & earnings growth more than made up for the share dilution

MARGINS✅
•LTM Gross Margins: 74.7%
•LTM Operating Margins: 31.6%
•LTM Net Income Margins: 11.7%

***NOW TO VALUATION 🧠

As stated above, investors can expect to receive ~31% LESS in EPS & ~40% LESS in FCF per share

Using Benjamin Graham’s 2G rule of thumb, $AVGO has to grow earnings at a 12.53% CAGR over the next several years to justify its valuation

Today, analysts anticipate 2024 - 2026 EPS growth over the next few years to be more than the (12.53%) required growth rate:

2024E: $4.85 (14.8% YoY) *FY Oct
2025E: $6.17 (27.3% YoY)
2026E: $7.26 (17.7% YoY)

$AVGO has an excellent track record of meeting analyst estimates ~2 years out, so let’s assume $AVGO ends FY 2026 with $7.26 in EPS & see its CAGR potential assuming different multiples

27x P/E: $196.02💵 … ~15.3% CAGR

25x P/E: $181.50💵 … ~11.3% CAGR

23x P/E: $166.98💵 … ~7.2% CAGR

21x P/E: $152.46💵 … ~2.8% CAGR

As you can see, $AVGO appears to have attractive return potential if we assume >25x earnings (a multiple well below its 5-year & 10-year mean, HOWEVER a multiple more than justified by its expected growth rate and wide-moat)

It’s important not to knock $AVGO for its current multiple given the attractive growth rates, so while $AVGO may appear to be trading above fair value, it is actually trading somewhere near fair value today

Although I wouldn’t want to rely on an elevated multiple, that has a recently added premium, when making certain assumptions … especially because $AVGO traded for much lower multiples despite historically aggressive growth rates

Today at $148💵 $AVGO appears to be trading near value

I’d be more interested in $AVGO closer to $125💵 where I can reasonably expect ~11.0% CAGR, assuming a 21x multiple

#stocks #investing
___

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.
tweet

⁠Librarian Capital
Hargreaves Lansdown: Nick Train hasn't given up to current CVC/Nodic offer yet

"We are in a price-finding phase for Hargreaves Lansdown $HL to establish its worth ... We continue to talk to other shareholders and industry experts"

(Lindsell Train UK Fund factsheet, 9-Sep) https://t.co/yRkvl1r6FA
tweet