⁠Dimitry Nakhla | Babylon Capital®
3 months ago I stated:

“Today at $239.00💵 $CRM appears to be worthwhile consideration for investment”

Since then, $CRM shares gained +42% ✅

As I suggested in the post attached below👇🏽

“As you can see, we’d have to assume >24x earnings for $CRM to have double digit CAGR potential (a multiple justified by its growth rate & moat)

Today at $239.00💵 $CRM appears to be worthwhile consideration for investment especially when you assess the trajectory of the company’s FCF & Net Income margins (steadily trending higher with further room to expand)”

#stocks #investing

A sober valuation analysis on $CRM 🧘🏽‍♂️

•NTM P/E Ratio: 23.79x
•3-Year Mean: 36.36x

•NTM FCF Yield: 5.00%
•3-Year Mean: 3.85%

As you can see, $CRM appears to be trading below fair value

Going forward, investors can expect to receive ~52% MORE in earnings per share & ~30% MORE in FCF per share🧠***

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

BALANCE SHEET✅
•Cash & Equivalents: $17.67B
•Long-Term Debt: $8.43B

$CRM has an excellent balance sheet, an A+ S&P Credit Rating & 413x FFO Interest Coverage Ratio

RETURN ON CAPITAL🆗
•2020: 1.2%
•2021: 0.9%
•2022: 0.8%
•2023: 2.5%
•2024: 8.2%
•LTM: 9.0%

RETURN ON EQUITY🆗
•2020: 0.5%
•2021: 10.8%
•2022: 2.9%
•2023: 0.4%
•2024: 7.0%
•LTM: 9.3%

$CRM return metrics are ok, although more recently trending in the right direction

REVENUES✅
•2014: $4.07B
•2024: $34.86B
•CAGR: 23.95%

FREE CASH FLOW✅
•2014: $576.36M
•2024: $9.49B
•CAGR: 32.34%

NORMALIZED EPS✅
•2014: $0.35
•2024: $8.22
•CAGR: 37.11%

SHARE BUYBACKS❌
•2014 Shares Outstanding: 597.61M
•LTM Shares Outstanding: 971.50M

By increasing its shares outstanding ~63%, $CRM diluted its EPS by ~38% (assuming 0 growth)

MARGINS✅
•LTM Gross Margins: 76.0%
•LTM Operating Margins: 18.4%
•LTM Net Income Margins: 15.3%

***NOW TO VALUATION 🧠

As stated above, investors can expect to receive ~52% MORE in EPS & ~30% MORE FCF per share

Using Benjamin Graham’s 2G rule of thumb, $CRM has to grow earnings at an 11.90% 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 more than the (11.90%) required growth rate:

2025E: $9.90 (20.5% YoY) *FY Jan
2026E: $11.01 (11.2% YoY)
2027E: $12.58 (14.2% YoY)

$CRM has an excellent track record of meeting analyst estimates ~2 years out, so let’s assume $CRM ends 2027 with $12.58 in EPS & see its CAGR potential assuming different multiples

25x P/E: $314.50💵 … ~12.3% CAGR

24x P/E: $301.92💵 … ~10.5% CAGR

23x P/E: $289.34💵 … ~8.6% CAGR

As you can see, we’d have to assume >24x earnings for $CRM to have double digit CAGR potential (a multiple justified by its growth rate & moat)

Today at $239.00💵 $CRM appears to be worthwhile consideration for investment especially when you assess the trajectory of the company’s FCF & Net Income margins (steadily trending higher with further room to expand)

To ensure some margin of safety, if there’s further weakness, it could be wise to piece into the position, for example:

Initiating ~50% of the position at ~$239💵 & adding a second tranche at ~$200💵 or at ~20x NTM earnings

#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. - Dimitry Nakhla | Babylon Capital®
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⁠Dimitry Nakhla | Babylon Capital®
RT @Invest_Smart_18: @DimitryNakhla Easily the most under followed account in the #investing #stocks space out here. Such high quality analysis. Great job and sincere thank you
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⁠Quiver Quantitative
We posted this report on a politicians' purchase of DT Midstream stock back in June.

$DTM has now risen 62% since the trade was made. https://t.co/vreUXKtU9M
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⁠Investing visuals
Is Palantir $PLTR in a bubble? 🤔

Let’s look at the facts, as there is quite some debate going on about this on X👇

Valuation ⚖️
• Trades at 39x enterprise value/next-twelve-months revenue: 89% higher than the next-highest software company, Samsara, at 20.6x
• Price-to-sales ratio (forward): 40.3x, vs. a 3-year average of 14.5x
• Price-to-free-cash-flow (forward): 125x, vs. a 3-year average of 68x

Quick conclusion 🔍
All metrics are highly elevated. Does this mean $PLTR is overvalued? Not necessarily. Let’s examine the fundamentals:
• Revenue growth has accelerated to 30%
• Net retention increased to 118% (best-in-class)
• Rule of 40 score: 68 (elite)
• Total customers up +39%
• Very strong balance sheet

My Take 📜
$PLTR is a stellar business with strong execution, positioning itself as the go-to data & AI platform. But to justify its valuation, expectations are sky-high. Here are two potential scenarios:

Scenario 1 – The NVIDIA $NVDA Play 📈
$PLTR fundamentals catch up to its valuation, similar to $NVDA's story. If $PLTR delivers, today’s price might be justified.

Scenario 2 – The Cloudflare $NET Play 📉
Expectations are too high. Even with strong execution, $PLTR may struggle to meet them. This can possibly lead to a significant stock drop similar to Cloudflare in 2022 which declined -80% after a massive run of +500%

--Which scenario do you think will play out?--
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⁠Stock Analysis Compilation
Alta Fox on REV Group $REVG US

Thesis: With significant EBITDA growth potential and an under-levered balance sheet, REVG’s aggressive share repurchase strategy and low valuation make it a highly attractive industrial small-cap investment

(Extract from their Q3 letter) https://t.co/g26lXg8Pj9
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⁠Quiver Quantitative
Election season is over.

Congressional stock trading is back in session.

We've had a busy week: https://t.co/ROVcS5i3Md
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⁠Startup Archive
Palmer Luckey on the three companies he considered starting after Oculus

After selling Oculus to Facebook for $2 billion when he was 21 years old, Palmer Luckey was fired for his political views.

He then said to himself:

“Okay, I have to do something that proves they shouldn’t have fired me, that I am smart, and that I am not a one-hit wonder because being a one-hit wonder would be so depressing.”

Palmer considered three ideas for his second company:

1. Working in the national security space (this became Anduril). He saw that cost-plus contracting was a broken contract structure that led to massive cost overruns and misaligned incentives. Palmer explains, “I think that I could start a company that does a lot the things companies like Lockheed and Raytheon and Northrop are bad at doing that I’m good at doing.”

2. A non-profit private prison company. “I think private prisons are very bad. I think they lead to terrible outcomes. They’re a lobbying machine where all the money that is generated largely goes back into lobbying government officials for stricter sentences on the people who are the cheapest to incarcerate. So not the terrorists. Not the murderers. It’s the nonviolent offenders… Those are the ones that private prisons want to house because they’re not going to kill people… And that’s how you end up with all these mandatory minimum sentencing laws for crimes that don’t matter in my opinion.” After realizing that lobbying wasn’t going to work to solve this problem because there’s too much money in it, Palmer considered starting a non-profit private prison that doesn’t get paid until released prisoners have been out five years without going back. “If they go back, I don’t get paid. It means I’m taking on the risk, and it means my incentives are going to be very aligned with getting people out of prison and not having them come back, whereas current prisons are the opposite. I decided against that because I realized it was not actually a skill set that I had. I’m a technology guy… The legal issues with doing this state by state are very tough.”

3. Petroleum-based food products. “I think the only way to solve obesity in America is to allow anybody to eat as much as they want of anything with no self control or changes to their physical activity whatsoever. It has to be the Holy Grail or we’re all just going to keep dying of obesity and related problems. And if you’re a food scientist, you generally make things out of foodstuffs, and I think that’s a big mistake. If you’re a chemical or material engineer and you want to make something with a certain texture or property, you start with long-chain hydrocarbons—oil. It’s the perfect building block for everything.. So if you could make synthetic foods out of petroleum derivatives, you could make foods that have largely the same characteristics as real foods but with zero calories because your body’s not going to process them. So I started building paraffin cheese and paraffin cheese totally works. It has no calories. It tastes mostly like cheese. And I think that you could get it to be better than cheese on some time scale because it’s actually easier to adjust it and play with it and iterate on it than with cultured dairy products. Anyway, I decided against that because it turns out the FDA completely bans this idea. It’s completely illegal.”

Ultimately Palmer decided on working in the national security space because building Anduril better fit his strengths as a technologist.

Video source: @IMA_Network (2021)
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⁠Quiver Quantitative
We released "Trump Donors" and "Kamala Donors" portfolios on Autopilot at the start of this month.

Here's how some of the companies in each portfolio have done so far:

TRUMP
Tesla, $TSLA: +38%
Trump Media, $DJT: -7%
Palantir, $PLTR: +46%
Schwab, $SCHW: +8%
Home Depot, $HD: +4%

HARRIS:
Netflix, $NFLX: +6%
Microsoft, $MSFT: +2%
Apple, $AAPL: +0%
Palantir, $PLTR: +46%
Google, $GOOGL: +5%
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