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https://x.com/i/lists/1669153613199835138?t=R0mCicxs7zfJE_yOAek4gQ&s=09
Dimitry Nakhla | Babylon Capital®
RT @DimitryNakhla: 10 months ago I shared my analysis on $MANH suggesting it was overvalued at $257💵
I suggested revisiting the stock at $179💵
Despite a strong run, $MANH just plummeted -23% post-Q4 earnings 📉
As I stated in my analysis:
“As you can see, we’d have to assume well above a 60x multiple in order for $MANH to have attractive return potential
While this could happen, this assumption leaves us with no margin of safety, especially considering that the multiple does not appear to be justified by the growth rate
In fact, in the last 10 years, $MANH multiple expanded by ~84% — implying that multiple expansion has contributed heavily to its returns
While $MANH is a quality business that I hope to own at some point, I don’t consider it anywhere near the buy zone today at $257.50💵
Instead, I’d start to get interested (*interested*) closer to 50x earnings or at $179💵 — 30% below today’s price”
#stocks #investing
A sober valuation analysis on $MANH 🧘🏽♂️
•NTM P/E Ratio: 70.66x
•5-Year Mean: 61.90x
•NTM FCF Yield: 1.63%
•5-Year Mean: 2.11%
As you can see, $MANH appears to be trading above fair value
Going forward, investors can receive ~12% LESS in earnings per share & ~23% LESS in FCF per share 🧠***
Before we get into valuation, let’s take a look at why $MANH is a quality business
BALANCE SHEET✅
•Cash & Total Inv: $270.74M
•Long-Term Debt: $0
$MANH has a strong balance sheet
RETURN ON CAPITAL✅
•2018: 91.0%
•2019: 66.3%
•2020: 46.2%
•2021: 49.1%
•2022: 63.4%
•2023: 69.4%
RETURN ON EQUITY✅
•2018: 65.0%
•2019: 59.3%
•2020: 48.3%
•2021: 47.1%
•2022: 54.0%
•2023: 69.9%
$MANH has solid return metrics, highlighting the financial efficiency of the business
REVENUES✅
•2013: $414.52M
•2023: $928.73M
•CAGR: 8.40%
FREE CASH FLOW✅
•2013: $84.65M
•2023: $241.49M
•CAGR: 11.05%
NORMALIZED EPS✅
•2013: $0.92
•2023: $3.74
•CAGR: 15.05%
SHARE BUYBACKS✅
•2014 Shares Outstanding: 75.84M
•LTM Shares Outstanding: 62.61M
By reducing its shares outstanding ~17.4%, $MANH increased its EPS by ~21.0% (assuming 0 growth)
MARGINS✅
•LTM Gross Margins: 53.6%
•LTM Operating Margins: 22.6%
•LTM Net Income Margins: 19.0%
***NOW TO VALUATION 🧠
As stated above, investors can expect to receive ~12% LESS in EPS & ~23% LESS in FCF per share
Using Benjamin Graham’s 2G rule of thumb, $MANH has to grow earnings at a 35.33% CAGR over the next several years to justify its valuation
Today, analysts anticipate 2024 - 2026 EPS growth over the next few years to be less than the (35.33%) required growth rate:
2024E: $3.77 (0.7% YoY) *FY Dec
2025E: $4.36 (15.9% YoY)
2026E: $5.08 (16.4% YoY)
$MANH has a solid track record of meeting analyst estimates ~2 years out, but let’s assume $MANH ends 2026 with $5.08 in EPS & see its CAGR potential assuming different multiples
60x P/E: $304.80💵 … ~6.1% CAGR
57x P/E: $289.56💵 … ~4.2% CAGR
54x P/E: $274.32💵 … ~2.2% CAGR
As you can see, we’d have to assume well above a 60x multiple in order for $MANH to have attractive return potential
While this could happen, this assumption leaves us with no margin of safety, especially considering that the multiple does not appear to be justified by the growth rate
In fact, in the last 10 years, $MANH multiple expanded by ~84% — implying that multiple expansion has contributed heavily to its returns
While $MANH is a quality business that I hope to own at some point, I don’t consider it anywhere near the buy zone today at $257.50💵
Instead, I’d start to get interested (*interested*) closer to 50x earnings or at $179💵 — 30% below today’s price
#stocks #investing
___
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Dimitry Nakhla | Babylon Capital®
It’s earnings season & here are the stocks I’m following this week 🗓️
Mon 1/27
☀️ $SOFI
🌖 $BRO
Tue 1/28
☀️ $BA $LMT
🌖 $CB $SBUX $SYK
Wed 1/29
☀️ $ASML $ADP $MSCI $NDAQ $DHR
🌖 $TSLA $MSFT $META $LRCX $CP
Thu 1/30
☀️ $MA $TMO $SHW $TSCO
🌖 $AAPL $V $KLAC
Fri 1/31
☀️ $ABBV
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Dimitry Nakhla | Babylon Capital®
$BF.B stock trades at its lowest multiple in >10 years🥃
2025-2027 EPS CAGR estimate of +7.5% 📊
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22x - 14.4% CAGR
21x - 14.1% CAGR
20x - 11.7% CAGR
19x - 9.2% CAGR
18x - 6.7% CAGR https://t.co/XFfYimGhIu
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2. The Internet. “I have personal experience with this one. The Internet was laughed at. It was heaped with scorn from 1993 to 1997-98. In fact, those of you who were in the industry at the time will remember the New York Times had a reporter on staff named Peter Lewis… I’m convinced he was specifically hired by the editors to just write negative stories about the Internet. It was all he did, and it was always the Internet was never going to be a consumer medium. The Internet is not nearly as big as these people think. Nobody is ever going to trust the internet for e-commerce.”
3. The car. “The car was absolutely viewed as a triviality and a toy when it first emerged. In fact, J.P. Morgan himself refused to invest in Ford Motor Company with the response that it’s just a toy for rich people, which is in fact what it was at the time. If you had one of the first cars, you had to be a rich person. You had to have a driver. You often actually had to also have a stoker with your early cars to keep the engine going. And then you also had to travel with a full-time mechanic because the thing would break down every three miles.”
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“The great innovations of the present, I believe, are virtually guaranteed to be viewed as trivial and to be viewed as jokes. I think history 50 to 100 years from now will enshroud them in legend. In our time, they won’t be recognized as such. Of course, in the future, when they become legends, our descendants will themselves have their own trivial innovations to laugh at.”
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