Buy The Best Business In The World
It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price — Warren Buffett
What if I told you that you could buy the best company in the world right now. One of the most innovative companies to ever exist that controls a near monopoly on a market growing in excess of double digits per year? And this company continues to pour hundreds of billions back into research and development and “moonshot” ideas that are likely to pay a double-digit internal rate of return for investors? Finally, what if I said this company was available to purchase for 12x EV/EBITDA with EBIT margins near 30%, return on equity at 27% and a net income margin of 24%. Would you buy it?
Today I am writing up arguably one of the best companies in the entire world. Revenues have grown at extremely high double-digit rates for nearly two decades. Cash flow is generated every year and billions are plowed right back into the business for a double-digit return on invested capital. The stock is trading near a 52-week low, and it hasn’t been this low in two years. And the EV/EBITDA (one of my favorite valuation metrics) is the lowest it has been in over a decade.
Sure, things can get worse. The economy could continue to slowdown. The Fed may raise interest rates to 8% and investors will adjust their discount rates even higher. Free cash flows will fall, and revenue growth might slow down even further. But the stock is cheap. And it is one of the best businesses in the world.
This stock is relevant because one of our favorite political traders (hint hint: the queen of insider trading herself) recently sold it. We can speculate all we want on why she sold most of her equity in the company — which is rightly deserved as the stock went down after it on material news.
But we think the market is extremely short sighted. This is one of the best companies in the entire world and it is trading at a valuation where actual value investors will start to get interested. There is a lot of bad news in the tech sector. The environment is so terrible that is seems like bad news hits valuations every day. Eventually this too will pass. This could be a multiyear opportunity of a lifetime.
As a mentor of mine once told me, when the pitch is this fat, swing for the fucking fences.
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