The Bottom Line:
- Portfolio consists of 18 stocks including PayPal, Ulta Beauty and Alibaba
- Analyzes each stock based on fundamentals, growth, cash flow and valuation
- Uses a stock analyzer tool to determine low, middle and high price targets
- Emphasizes importance of forming your own investment thesis vs. following others
- Sees opportunity in stocks that have fallen from grace like PayPal and Alibaba
Analyzing a Diverse Portfolio of 18 Stocks
Examining PayPal’s Fundamentals and Future Prospects
PayPal has experienced a significant decline in its stock price, falling from an all-time high of $310 per share in July 2021 to as low as $50 per share in October. Despite this fall from grace, the company’s fundamentals remain strong. The eight pillar analysis reveals decent return on invested capital, share buybacks, free cash flow growth, and net income growth. Analysts’ earnings per share projections, ranging from $4.29 to $8.15, indicate an optimistic future for this seemingly “dying” company. Moreover, PayPal’s revenue growth, although not explosive, remains steady at 7-10% annually. While the number of active users has declined, the company has seen an increase in transactions and price per transaction, which is a positive sign for its future growth.
Ulta Beauty’s Impressive Returns and Growth Potential
Ulta Beauty stands out as a high-quality business in the retail world, with impressive return on invested capital of 23% over five years and 29% overall. The company’s $8.5 billion market cap and $21.5 billion enterprise value, coupled with only $3 billion in net debt against $900 million in free cash flow, demonstrate its financial strength. Ulta Beauty’s intelligent expansion strategy and consistent same-store sales growth set it apart from other retail locations. The company’s focus on share buybacks instead of dividends aligns with the goal of acquiring cheap shares, which can be beneficial for investors in the long run. Analysts expect strong earnings and revenue growth for Ulta Beauty, with double-digit growth projected for the coming years.
Alibaba’s Undervalued Potential Amidst Geopolitical Concerns
Alibaba, the controversial Chinese e-commerce giant, has experienced a significant fall from its all-time high of $319 per share in October 2020. This decline is largely driven by geopolitical factors rather than the company’s underlying fundamentals. Alibaba generates impressive free cash flow, with $21 billion in the last year alone, and boasts a market cap of $196 billion and an enterprise value of $207 billion. The company’s ability to pay off its debt in less than half a year using its generated cash flow is a testament to its financial strength. Despite the current geopolitical concerns surrounding Chinese stocks, Alibaba’s low valuation of nine times free cash flow presents an attractive opportunity for investors who believe in China’s long-term economic growth potential.
Fundamental Analysis: Growth, Cash Flow, and Valuation
Examining PayPal’s Fundamentals and Future Prospects
PayPal has experienced a significant decline in its stock price, falling from an all-time high of $310 per share in July 2021 to as low as $50 per share in October. Despite this fall from grace, the company’s fundamentals remain strong. The eight pillar analysis reveals decent return on invested capital, share buybacks, free cash flow growth, and net income growth. Analysts’ earnings per share projections, ranging from $4.29 to $8.15, indicate an optimistic future for this seemingly “dying” company. Moreover, PayPal’s revenue growth, although not explosive, remains steady at 7-10% annually. While the number of active users has declined, the company has seen an increase in transactions and price per transaction, which is a positive sign for its future growth.
Ulta Beauty’s Impressive Returns and Growth Potential
Ulta Beauty stands out as a high-quality business in the retail world, with impressive return on invested capital of 23% over five years and 29% overall. The company’s $8.5 billion market cap and $21.5 billion enterprise value, coupled with only $3 billion in net debt against $900 million in free cash flow, demonstrate its financial strength. Ulta Beauty’s intelligent expansion strategy and consistent same-store sales growth set it apart from other retail locations. The company’s focus on share buybacks instead of dividends aligns with the goal of acquiring cheap shares, which can be beneficial for investors in the long run. Analysts expect strong earnings and revenue growth for Ulta Beauty, with double-digit growth projected for the coming years.
Alibaba’s Undervalued Potential Amidst Geopolitical Concerns
Alibaba, the controversial Chinese e-commerce giant, has experienced a significant fall from its all-time high of $319 per share in October 2020. This decline is largely driven by geopolitical factors rather than the company’s underlying fundamentals. Alibaba generates impressive free cash flow, with $21 billion in the last year alone, and boasts a market cap of $196 billion and an enterprise value of $207 billion. The company’s ability to pay off its debt in less than half a year using its generated cash flow is a testament to its financial strength. Despite the current geopolitical concerns surrounding Chinese stocks, Alibaba’s low valuation of nine times free cash flow presents an attractive opportunity for investors who believe in China’s long-term economic growth potential.
Using a Stock Analyzer Tool for Price Target Determination
Utilizing the Stock Analyzer Tool for Price Target Determination
The stock analyzer tool proves to be a valuable resource when determining price targets for potential investments. By inputting conservative assumptions for revenue growth, profit margins, and free cash flow margins, investors can gain insight into the potential future performance of a company. For PayPal, a 10-year analysis with revenue growth assumptions ranging from 4% to 10%, profit margins between 12% and 18.5%, and free cash flow margins of 16% to 24% provides a comprehensive view of the company’s potential. Applying a desired return of 9% and conservative price-to-earnings and price-to-free-cash-flow multiples, the stock analyzer tool generates a low price target of $55 to $70, a high price target of $160 to $200, and a middle price target of $95 to $122.
Assessing Ulta Beauty’s Potential Returns Using the Stock Analyzer Tool
Applying the stock analyzer tool to Ulta Beauty, with revenue growth assumptions of 3%, 5%, and 7%, profit margins of 9.5% to 11%, and free cash flow margins of 15% to 21%, yields valuable insights into the company’s potential returns. Given Ulta Beauty’s high return on invested capital, the tool applies premium price-to-earnings multiples of 15, 18, and 21. With a desired return of 9%, the stock analyzer tool generates a low price target of $340, a high price target of $660, and a middle price target of $475. Based on the current stock price and the middle assumptions, this represents a potential return of 12%, making Ulta Beauty an attractive investment opportunity.
Evaluating Alibaba’s Intrinsic Value Using Conservative Assumptions
When analyzing Alibaba using the stock analyzer tool, conservative assumptions are employed to account for the geopolitical risks associated with investing in Chinese stocks. With revenue growth assumptions of 3%, 6%, and 9%, profit margins of 15% to 23%, and free cash flow margins of 17% to 27%, the tool provides a range of potential outcomes for Alibaba’s future performance. Applying price-to-earnings multiples of 16 to 20 and a desired return of 9%, the stock analyzer tool calculates a low price target, a high price target, and a middle price target for Alibaba. Given the company’s current valuation of nine times free cash flow, these conservative assumptions highlight the potential for significant returns, provided that investors are comfortable with the inherent risks of investing in Chinese equities.
The Importance of Forming Your Own Investment Thesis
Developing a Personal Investment Philosophy
Forming your own investment thesis is crucial for making informed decisions and avoiding the pitfalls of blindly following others. While it can be tempting to simply mimic the investments of successful investors or popular figures, it is essential to remember that their goals, risk tolerance, and time horizons may differ from your own. By conducting thorough research and analysis, you can develop a deep understanding of the companies you invest in and make decisions based on your own convictions.
Staying True to Your Thesis Amidst Market Fluctuations
Once you have established your investment thesis, it is important to remain steadfast in your beliefs, even in the face of short-term market fluctuations. Inevitably, some of your investments will experience declines, while others may appreciate in value. The key is to continually reassess your thesis and determine whether the underlying fundamentals of the company have changed. If your original thesis remains intact, short-term price movements should not sway your conviction. In fact, when a stock you believe in experiences a decline, it may present an opportunity to acquire more shares at a discounted price.
Learning from Mistakes and Adapting Your Strategy
No investor is immune to making mistakes, and it is crucial to learn from these experiences and adapt your strategy accordingly. There may be instances where you realize that your original thesis was flawed, despite the fact that you made a profit on the investment. Conversely, you may lose money on a stock in the short term, but upon further analysis, determine that your thesis remains valid, prompting you to buy more shares. The ability to critically evaluate your decisions, admit when you were wrong, and adjust your approach is a hallmark of a successful investor. By continuously refining your investment philosophy and staying true to your convictions, you can navigate the complexities of the market and make well-informed decisions that align with your long-term financial goals.
Finding Opportunity in Fallen Stocks: PayPal and Alibaba
Embracing the Opportunity in PayPal’s Fall from Grace
PayPal, once a darling of the stock market, has experienced a significant decline in its share price, plummeting from an all-time high of $310 in July 2021 to a low of $50 in October. Despite this fall from grace, the company’s fundamentals remain strong, as evidenced by its decent return on invested capital, share buybacks, free cash flow growth, and net income growth. Analysts’ projections for earnings per share, ranging from $4.29 to $8.15, paint an optimistic picture for the future of this seemingly “dying” company. Furthermore, PayPal’s steady revenue growth of 7-10% annually, coupled with an increase in transactions and price per transaction, indicates potential for future growth, even as the number of active users has declined.
Alibaba: A Hidden Gem Amidst Geopolitical Turbulence
Alibaba, the Chinese e-commerce giant, has faced significant challenges due to geopolitical factors, resulting in a steep decline from its all-time high of $319 per share in October 2020. However, a closer examination of the company’s fundamentals reveals an undervalued opportunity. Alibaba generates an impressive $21 billion in free cash flow annually, boasting a market cap of $196 billion and an enterprise value of $207 billion. The company’s ability to pay off its debt in less than half a year using its generated cash flow is a testament to its financial strength. Despite the current geopolitical concerns surrounding Chinese stocks, Alibaba’s low valuation of nine times free cash flow presents an attractive prospect for investors who believe in China’s long-term economic growth potential.
Ulta Beauty: A Retail Powerhouse with Impressive Returns
Ulta Beauty stands out as a high-quality business in the retail sector, with an impressive return on invested capital of 23% over five years and 29% overall. The company’s $8.5 billion market cap and $21.5 billion enterprise value, combined with a modest $3 billion in net debt against $900 million in free cash flow, showcase its financial strength. Ulta Beauty’s intelligent expansion strategy and consistent same-store sales growth set it apart from other retail locations. The company’s emphasis on share buybacks rather than dividends aligns with the goal of acquiring cheap shares, which can benefit investors in the long run. Analysts anticipate strong earnings and revenue growth for Ulta Beauty, with double-digit growth projected for the coming years, making it an attractive investment opportunity in the retail space.
