Costco is 35x NTM because it’s a differentiated business model – flywheel is stronger than it has ever been and market is giving it credit for that.
Walmart is 25x NTM, meanwhile OPM has dropped from 6% to 4% over the last 10 years. 70%-80% of share price appreciation over the last 10yrs has been multiple expansion. Market is giving that multiple since they’re investing into e-commerce. (so it is more a matter of investing through the income statement and multiple expansion reflects that accounting earnings number)
Dmart is at 75x NTM. I think it is the highest quality retail model in India but don’t think there is room for margin expansion (that’s simply not the business model – the idea is to drive topline through passing on savings to the consumer)
If the sales/profits can 10x over the next 10 years – and I slap a 25x multiple on those earnings – you’re getting a 13% cagr – so a LT market average type return. I am not willing to make the bet that the multiple stays at 75x, maybe it falls to 50x.
I think there is longevity of growth and it implies that maybe they can grow earnings for 20 years at 25% – and then if I put a 25x on those earnings – then I make a 18.3% cagr.
Very high quality business, but not a lot of margin of safety at the moment – for a good IRR I need near perfect execution (20yrs of 25% cagr in earnings – that’s 87 times)
I bought at 2k, and thought it was very expensive then. Then it went up to over 5k. I exited at 4.3k.
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