🗞️ 10 Quality Compounders at Attractive Valuations

Happy Sunday! (Unless you’re on the product development team at Crowdstrike 😬)

This week we’re discussing:

• Stripe’s latest valuation 💰️

• Netflix’s resounding lead in streaming 📺️

• 10 quality compounders trading at attractive valuations 📈

And more. Let’s dig in!

News Roundup

• Stripe Valued at $70 Billion: On Monday of this week, it was announced that one of the largest venture capitals firms in the US Sequoia Capital, purchased $861 million worth of shares in the online payments processor Stripe. The investment, which is being purchased from existing investors, values Stripe at roughly $70 billion.

  As of the company’s latest update, Stripe processes just over $1 trillion in payments volume annually. That’s roughly the same as its closest competitor, Adyen. Both companies process a little over $1 trillion in payment volume, and possess similar growth rates. Adyen, however, currently trades at a market cap of just $39 billion.

• Google Acquiring Wiz? This week it was announced that search giant Alphabet is in “advanced talks” to acquire Israeli cybersecurity company Wiz for $23 billion. The acquisition would be the largest by far in Google’s history at nearly double the price Google paid for Motorola in 2012.

  Wiz, which helps companies secure their cloud environments, would help further improve Google Cloud’s offering to customers. Google Cloud has already more than tripled its revenue over the last 4 years while also turning the corner to consistent profitability.

Earnings Digest

• Netflix: Streaming giant Netflix reported better than expected earnings on Thursday following the market close. Netflix, which is now home to 278 million paid members, added a new 8 million subscribers during the quarter. Netflix’s subscriber additions came in well above its own guidance and forced the company to raise its revenue and profit outlook for the full-year.

  Despite already being one of the largest players in the streaming universe, Netflix believes there is still a massive market in front of them. In its shareholder letter, Netflix stated “If we execute well… we believe that we have a lot more room to grow… it’s a $600B+ market, and today Netflix accounts for just ~6% of that revenue.” Netflix’s stock closed down 2% this week.

• Taiwan Semiconductor Mfg. Co (TSMC): TSMC, which is the leading chip manufacturer globally and a chokepoint in the semiconductor supply chain, delivered 2nd quarter results on Thursday that were better than Wall Street’s expectations.

  Despite expected seasonality in the company’s smartphone division, TSMC reported 40% overall revenue growth compared to a year ago led by strength in its High Performance Computing (HPC) division. The HPC segment houses products built for Generative AI applications and has seen major demand growth over the last few years.

  Although Taiwan Semi surpassed expectations, concerns over geopolitical events sent TSMC’s stock down 12% this week.

• American Express: American Express has seen a resurgence in growth over the last 5 years as younger generations are adopting more and more American Express branded cards. The card issuer, which also operates its own payments network, delivered 44% growth in earnings per share surpassing expectations, but missed slightly on its revenue growth figure.

  The company has added 7.3 million new cardholders over the last 12 months and continues to grow its average fee per card. In fact, this quarter American Express surpassed $100 in quarterly fees per card. This figure has grown at ~12% annually over the last 4 years.

Recommended Content

10 Quality Compounders at Attractive Valuations

There are only 26 companies in the US that have:

1. Grown revenue at 10% per year over the last decade.

2. Grown EPS at 15% per year over the last decade.

3. And currently trade at an EV/EBIT of less than 15x.

Here are 10 of them:

1.) Ulta Beauty 

Ulta is the largest beauty retailer in the United States. Owns & operates ~1.4k stores across the country.

• EV/EBIT: 12.4x

• 10-yr Revenue CAGR: 15%

• 10-yr EPS CAGR: 23%

2.) Crocs

Crocs designs and distributes casual footwear and accessories across 85 countries globally. While the company has added new product lines over the years, its most known for its signature clogs.

• EV/EBIT: 10x

• 10-yr Revenue CAGR: 12.9%

• 10-yr EPS CAGR: 56%

3.) Paycom

Paycom is a leading provider of human capital management (HCM) software for small and medium-sized businesses in the US.

• EV/EBIT: 13.1x

• 10-yr Revenue CAGR: 31%

• 10-yr EPS CAGR: 108%

4.) United Rentals

United Rentals builds and rents construction and industrial equipment to both businesses and individual customers. In total, the company operates ~1.6k rental locations globally.

• EV/EBIT: 13.5x

• 10-yr Revenue CAGR: 11.2%

• 10-yr EPS CAGR: 24.9%

5.) Skechers

Skechers is one of the largest footwear companies globally. Skechers sells through global wholesale channels as well as direct-to-consumer through its ~5k stores around the globe.

• EV/EBIT: 13.1x

• 10-yr Revenue CAGR: 15.9%

• 10-yr EPS CAGR: 16.8%

6.) Builders FirstSource

Builders FirstSource sells building materials and manufactured components to homebuilders throughout the United States

• EV/EBIT: 9.6x

• 10-yr Revenue CAGR: 27%

• 10-yr EPS CAGR: 42%

7.) D.R. Horton

One of the largest homebuilders in America. D.R. Horton primarily sells single family detached homes. Over the last 12 months, the company closed ~89,000 homes.

• EV/EBIT: 7.5x

• 10-yr Revenue CAGR: 18.2%

• 10-yr EPS CAGR: 25.2%

8.) IES Holdings

IES designs and installs integrated electrical systems for businesses, and helps design network infrastructure within data centers.

• EV/EBIT: 12.8x

• 10-yr Revenue CAGR: 18.2%

• 10-yr EPS CAGR: 46.8%

9.) Lithia Motors

Lithia Motors operates ~300 auto retailing stores in the US. Its retail stores primarily sell higher-end new and used vehicles as well as providing vehicle financing.

• EV/EBIT: 11.4x

• 10-yr Revenue CAGR: 22.8%

• 10-yr EPS CAGR: 23.4%

10.) Caesars Entertainment

Caesars is a leading gaming and hospitality company in the US. The company manages 55 properties across 16 states.

• EV/EBIT: 13.7x

• 10-yr Revenue CAGR: 47%

• 10-yr EPS CAGR: 19%

Meme of the week

Crowdstrike’s Blunder

Friday morning at around 4AM EST, Crowdstrike pushed a product update that led to the largest global IT outage in history. Businesses of all kinds including air travel, banks, and TV networks ground to a halt.

Incidentally, this outage opened many people’s eyes to just how important Crowdstrike is to the modern internet. So naturally, investors might feel compelled to think it’s somehow a good thing that this occurred.

However, there’s likely to be some negative repercussions from this. Customers have reportedly already begun discussing the need to find alternative vendors. In fact, shortly after the incident, Elon Musk announced that his companies had “deleted Crowdstrike from all our systems”.

Crowdstrike’s stock was down 12% on Friday.