⁠Dimitry Nakhla | Babylon Capital®
📈 $COST Stock Surge: More Than Just EPS

$COST stock soared +215% in the last 5 years

The catch:

🔹Multiple Expansion: $COST P/E jumped from 33.80x to 50.77x, a 50% increase in multiple

🔹EPS Growth: EPS have nearly doubled, indicating that multiple expansion has been a big driver behind $COST share price appreciation
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⁠Dimitry Nakhla | Babylon Capital®
Bullish AI Trends & $TMO 🧬

1. Biotech Boom - AI breakthroughs driving demand for $TMO cutting-edge equipment like next gen sequencing machines & chromatography systems🔬

2. Efficiency - AI optimizing manufacturing, slashing costs, boosting profits📈

3. Increased demand + pricing power = accelerated revenue growth🚀

Two months ago I stated:

“I’d be more interested in $TMO closer to $500💵 (8% below today’s price) where I can reasonably expect ~11% to ~12% CAGR while assuming a 23x - 24x end multiple, ensuring a margin of safety”

$TMO traded at my target price for less than 24 hours 📈 https://t.co/r2awaMkY7L - Dimitry Nakhla | Babylon Capital®
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⁠Startup Archive
Why Larry Page said he’d leave his money to Elon Musk if he got hit by a bus

In this panel with Elon Musk, venture capitalist Steve Jurvetson tells a story of Google cofounder Larry Page saying he should leave all of his money to Elon Musk:

“I could give my money to a nonprofit and a lot less would get done than a corporation that’s pursuing things that are directly aligned with things I care about, like getting off of oil and colonizing other planets.”

Page believes in those missions and thinks that “a corporation endowed with the right to do that as its business purpose is the best vehicle out there.”

Jurvetson contrasts this with the approach of Bill Gates who spent the first half of his life building a gigantic for-profit company and the second half working with non-profits.

A “purpose-driven business” could offer the best of both worlds.

In fact, Jurvetson shares that the best-performing startups in his venture portfolio often have compelling missions. And it aligns well with Sam Altman’s advice that it’s easier to start a hard company than an easy company:

“The most precious commodity in the startup ecosystem right now is talented people, and for the most part, talented people want to work on something they find meaningful… An easy startup is a headwind; a hard startup is a tailwind. If people care about your success because you seem committed to doing something significant, it’s a background force helping you with hiring, advice, partnerships, fundraising, etc.”

Video source: @StanfordGSB (2013)
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⁠Stock Analysis Compilation
Baron Opportunity Fund on Broadcom $AVGO US

Thesis: Broadcom Inc. is poised for strong revenue and earnings growth as it partners with hyperscalers to develop custom AI accelerator chips, while also benefiting from VMware's performance and an early recovery in its non-AI semiconductor business.

(Extract from their Q3 letter)
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⁠Stock Analysis Compilation
Baron Focused Growth Fund on Airbnb $ABNB US

Thesis: Airbnb, Inc. is a strong investment opportunity due to its robust brand, continued double-digit revenue growth, impressive margins, and attractive valuation compared to its peers despite potential industry challenges.

(Extract from their Q3 letter)
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⁠Hidden Value Gems
An interesting week ahead for some 🇬🇧 stocks, interim results and trading updates from $GAW.L $CURY.L $VTY.L $WTB.L
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⁠Dimitry Nakhla | Babylon Capital®
RT @DimitryNakhla: Two months ago I stated:

“I’d be more interested in $TMO closer to $500💵 (8% below today’s price) where I can reasonably expect ~11% to ~12% CAGR while assuming a 23x - 24x end multiple, ensuring a margin of safety”

$TMO traded at my target price for less than 24 hours 📈 https://t.co/r2awaMkY7L

A sober valuation analysis on $TMO 🧘🏽‍♂️

•NTM P/E Ratio: 23.68x
•5-Year Mean: 24.92x

•NTM FCF Yield: 4.09%
•5-Year Mean: 3.59%

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

Going forward, investors can receive ~5% MORE in earnings per share & ~14% MORE in FCF per share 🧠***

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

BALANCE SHEET🆗
•Cash & Short-Term Inv: $6.65B
•Long-Term Debt: $31.20B

$TMO has a good balance sheet (acquisitions a big growth driver), a A- S&P Credit Rating & 6x FFO Interest Coverage

RETURN ON CAPITAL✅*
•2019: 8.3%
•2020: 13.4%
•2021: 12.8%
•2022: 10.3%
•2023: 8.7%
•LTM: 8.6%

*lower ROIC due to acquisition strategy

RETURN ON EQUITY✅
•2019: 12.9%
•2020: 19.9%
•2021: 20.5%
•2022: 16.4%
•2023: 13.1%
•LTM: 12.9%

$TMO has strong return metrics, highlighting the financial efficiency of the business

REVENUES✅
•2013: $13.09B
•2023: $42.86B
•CAGR: 12.59%

FREE CASH FLOW✅
•2013: $1.73B
•2023: $6.93B
•CAGR: 14.88%

NORMALIZED EPS✅
•2013: $5.42
•2023: $21.55
•CAGR: 14.80%

SHARE BUYBACKS❌
•2013 Shares Outstanding: 365.80M
•LTM Shares Outstanding: 384.25M

MARGINS✅
•LTM Gross Margins: 40.7%
•LTM Operating Margins: 17.4%
•LTM Net Income Margins: 14.5%

***NOW TO VALUATION 🧠

As stated above, investors can expect to receive ~5% MORE in EPS & ~14% MORE in FCF per share

Using Benjamin Graham’s 2G rule of thumb, $TMO has to grow earnings at an 11.84% CAGR over the next several years to justify its valuation

Today, analysts anticipate 2025 - 2026 EPS growth over the next few years to be less than the (11.84%) required growth rate:

2024E: $21.70 (0.7% YoY) *FY Dec

2025E: $23.58 (8.7% YoY)
2026E: $26.37 (11.8% YoY)

$TMO has an excellent track record of meeting analyst estimates ~2 years out, so let’s assume $TMO ends 2026 with $26.37 in EPS & see its CAGR potential assuming different multiples

27x P/E: $711.99💵 … ~14.0% CAGR

26x P/E: $685.62💵 … ~12.0% CAGR

25x P/E: $659.25💵 … ~10.0% CAGR

24x P/E: $632.88💵 … ~7.9% CAGR

As you can see, $TMO appears to have attractive return potential IF we assume >26x earnings (a multiple above its 5-year mean & multiple that may be slightly demanding given its growth rate

However, $TMO is an excellent business with a wide moat & will benefit from future ongoing sector demand

Yet, those buying $TMO today at $541💵 are buying it for a fair price, with little margin of safety

I’d be more interested in $TMO closer to $500💵 (8% below today’s price) where I can reasonably expect ~11% to ~12% CAGR while assuming a 23x - 24x end multiple, ensuring a comfortable 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. - Dimitry Nakhla | Babylon Capital® tweet