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

•NTM P/E Ratio: 44.66x
•1-Year Mean: 47.97x

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

Going forward, investors can receive ~7% MORE 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: $3.70B
•Long-Term Debt: $2.82B

$MELI has a strong balance sheet, an ok BB+ S&P Credit Rating & 48x FFO Interest Coverage

RETURN ON CAPITAL🆗➡️✅
•2019: (4.8%)
•2020: 3.7%
•2021: 8.1%
•2022: 14.7%
•2023: 25.7%
•2024: 23.0%

RETURN ON EQUITY🆗➡️✅
•2019: (14.2%)
•2020: (0.1%)
•2021: 5.2%
•2022: 28.7%
•2023: 40.3%
•2024: 51.5%

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

REVENUES✅
•2019: $2.30B
•2024: $20.78B
•CAGR: 55.30%

FREE CASH FLOW✅
•2019: $314.29M
•2024: $7.05B
•CAGR: 86.32%

NORMALIZED EPS✅
•2019: ($3.71)
•2024: $37.69

SHARE BUYBACKS❌
•2019 Shares Outstanding: 48.69M
•LTM Shares Outstanding: 50.70M

MARGINS🆗➡️✅
•LTM Gross Margins: 52.7%
•LTM Operating Margins: 12.7%
•LTM Net Income Margins: 9.2%

***NOW TO VALUATION 🧠

As stated above, investors can expect to receive ~7% MORE in EPS

Using Benjamin Graham’s 2G rule of thumb, $MELI has to grow earnings at a 22.33% CAGR over the next several years to justify its valuation

Today, analysts anticipate 2025 - 2027 EPS growth over the next few years to be more than the (22.33%) required growth rate:

2025E: $46.91 (24.5% YoY)
2026E: $64.98 (38.5% YoY)
2027E: $84.98 (30.8% YoY)

$MELI has an ok track record of meeting analyst estimates ~2 years out, but let’s assume $MELI ends 2027 with $84.98 in EPS & see its CAGR potential assuming different multiples

40x P/E: $3400💵 … ~17.6% CAGR

38x P/E: $3230💵 … ~15.4% CAGR

36x P/E: $3060💵 … ~13.2% CAGR

34x P/E: $2890💵 … ~10.9% CAGR

As you can see, $MELI appears to have attractive return potential IF we assume >36x 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 $2165💵 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 consider $MELI a strong buy closer to $1945💵 (~10% below today’s price) where I can reasonably expect ~12% CAGR while assuming a conservative 32x 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 𝐢�[...]

� 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭 𝐡𝐚𝐬 𝐛𝐞𝐞𝐧 𝐨𝐛𝐭𝐚𝐢𝐧𝐞𝐝 𝐟𝐫𝐨𝐦 𝐬𝐨𝐮𝐫𝐜𝐞𝐬 𝐛𝐞𝐥𝐢𝐞𝐯𝐞𝐝 𝐭𝐨 𝐛𝐞 𝐫𝐞𝐥𝐢𝐚𝐛𝐥𝐞, 𝐛𝐮𝐭 𝐢𝐬 𝐧𝐨𝐭 𝐠𝐮𝐚𝐫𝐚𝐧𝐭𝐞𝐞𝐝 𝐚𝐬 𝐭𝐨 𝐜𝐨𝐦𝐩𝐥𝐞𝐭𝐞𝐧𝐞𝐬𝐬 𝐨𝐫 𝐚𝐜𝐜𝐮𝐫𝐚𝐜𝐲.
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⁠The Kobeissi Letter
The market no longer believes the Fed:

Since the "Fed pivot" began in September 2024, market-based inflation expectations have more than DOUBLED.

In fact, markets now see +3.3% inflation over the next 2 years, the highest since March 2023.

Has the Fed lost its credibility? https://t.co/KWjK2LekQM

This is absolutely insane:

From Wednesday to Friday, the S&P 500 lost -$100 billion PER trading hour for a total of -$2 TRILLION.

Then, after the market closed on Friday, S&P 500 futures erased ANOTHER -$120 billion in minutes.

What happened? Let us explain.

(a thread) https://t.co/Rc1GCF1876 - The Kobeissi Letter
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⁠The Kobeissi Letter
How hot is inflation?

1, 3, and 6-month annualized Headline AND Core PCE inflation are now all above +3.0%.

1-month annualized Core PCE inflation is now running at a whopping +4.5%.

This is 250 basis points ABOVE the Fed's long-run target, all as the Atlanta Fed now sees -0.5% GDP contraction in Q1 2025.

Truly incredible.

This is absolutely insane:

From Wednesday to Friday, the S&P 500 lost -$100 billion PER trading hour for a total of -$2 TRILLION.

Then, after the market closed on Friday, S&P 500 futures erased ANOTHER -$120 billion in minutes.

What happened? Let us explain.

(a thread) https://t.co/Rc1GCF1876 - The Kobeissi Letter
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⁠Investing visuals
How you can tell that $ASML is a cyclical business👇 https://t.co/05Y11qXIx6
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⁠The Kobeissi Letter
BREAKING: Hedge funds sold the second-largest amount of global technology stocks in 5 years this week, according to Goldman Sachs data.

This was only smaller than the early August 2024 sell-off.

The most activity was seen in US tech which accounted for 75% of the net selling.

Not even the early stages of the 2022 bear market experienced such a rapid exit from these stocks.

The sector has led this quarter’s losses with the Nasdaq 100 index declining -13% over the last 6 weeks.

Hedge funds continue to dump Big Tech.
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⁠Finding Compounders
RT @gainify_io: $NKE has taken three hits in a row.

Each of the last 3 earnings triggered revenue and EPS downgrades from Wall Street.

Sentiment finally bottomed or more cuts coming? https://t.co/NyJhwVXczc
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⁠The All-In Podcast
Trump’s Tariffs: 40 Years in the Making 🇺🇸💰

On E221, the besties discussed President Trump's newly announced 25% auto tariffs.

@chamath:

" The one thing I'll say about Donald Trump is you may not agree with the tariffs, but he's been incredibly consistent."

"I stumbled into an interview he did with Larry King in 1987, and he walked through the entire trade imbalance 40 years ago."

@realDonaldTrump in 1987:

" The fact is that you don't have free trade. We think of it as free trade, but you right now don't have free trade."

Chamath:

 "Here's what tariffs do: tariffs are a level-setting mechanism that fixes a historical imbalance."

"What they want is to create the economic incentives to re-shore as much industry as possible into the United States."
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AkhenOsiris
Mike Santoli:

Market bottoms are a process not a moment, that 40% of 10% corrections deepen to at least 15% even outside of recessions and initial correction lows frequently need to be retested over a number of weeks. In this context, the index retracing most of its snapback bounce is fairly typical. Of course, it’s called a “retest” because sometimes they fail.

Frank Cappelleri of CappThesis on Friday asked a kaon-like question: “Was the back half of March a failure to go up … or a failure to go down? In other words — which side has been more frustrated by the lack of net movement?”

The staticky technical and fundamental atmospherics around Big Tech don’t have much to do with the suspense over the April 2 White House deadline for a new set of “reciprocal” tariffs.

Yet tariffs are standing in as the convenient focal point for nearly all other relevant investor worries: Perceived risks to growth and inflation, as well as wariness around erratic or capricious policymaking that is keeping businesses off balance and upending global alliances.

Such a pileup of feared negatives suggests at least remaining open to ways that things might turn “less bad.”

Could the April 2 tariff deadline prove a psychological clearing event for stocks that culminates this correction phase? Might next week’s jobs report reassure investors that the labor market is resilient? And has the market’s setback lowered that bar enough for first-quarter earnings to act as a source of relief?

All pragmatic questions in a moment of piqued and pervasive pessimism.
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