Last year, I published a book titled Global Outperformers, where I studied listed companies that returned more than 1,000% in 10 years.
There are four parts to our study, and I will share a thread below, sharing somethings our book explores about global equity investing.
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Carlos Slim was also a student of Benjamin Graham and credited him in a few interviews for shaping his investment approach.
Before private equity, he was one of the first EM “Value investing with operational impact” investors.
Thread on some of his best investments.
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Lessons on paying for quality:
1996 - Hermès was valued at 60x P/E, twice as high as LVMH (29x P/E)
Despite the high multiple, Hermès shares returned 97-fold (22% CAGR) to 2023, compared to LVMH's 17-fold (12% CAGR).
Its performance was mainly via earnings growth (20% CAGR)
LVMH fun fact:
LVMH is currently hovering <20x forward P/E again.
It’s happened 4 times since 2016:
- Dec 2018
- April 2020
- June 2022
- Dec 2022
In each period after falling below <20x P/E, shares rose >20% in the following month or two.
Let’s see if this happens again
I put together 44 companies (4 from each industry) that provide good insights into the health of suppliers, consumers, businesses and economies via the annual reports, transcripts and company blogs.
Not investment advice, just companies worth following for a global perspective.
From the Jenga Q2 Letter -
I explored what Warren Buffett meant by 'Triple Dips' - a term he used during a 1988 interview on Freddie Mac's investment case.
In the table below, I looked into some key metrics of Buffett's classic investments. Few things stood out 1/x
For 30 years now, Tractor Supply hasn’t experienced a YoY sales decline and YoY operating earnings only declined twice (1997 and 2017).
A 260 bagger since 2000, when it was valued at only 4x PE ratio despite growing earnings 11% CAGR in the prior 5 years.
Chinese Equities pessimism-
Some high-quality Chinese companies and their EV/EBIT (1 yr forward, 10-year low and all-time low) multiples.
What makes current market conditions different is the pessimism isn't isolated to one specific industry, it's a lot broader this time. 1/3
Kazakhstan Stock Exchange KSE: KASE
Even more impressive than both Halyk Bank and Kaspi is KASE which has compounded rev (54%) and net income (77%) CAGR over the past 5 yrs.
It's been an 11-bagger (USD) over the past 3 years but still has twice its market cap in cash. No debt.
Growing up in Lagos, I never thought I’d get the opportunity to be in Omaha for the Berkshire conference.
Had a great time here, got to meet some heroes, learn so much and connect with amazing people.
Thank you to
@goodinvestingc
for organising a fantastic community.
Ulta Beauty $Ulta has only fallen below <15x forward P/E 3 times since going public in 2007:
- December 2008 (GFC)
- March 2020 (Covid-19)
- Today
Yes, long term growth has certainly slowed (+20% per 2018) and Sephora is killing it but this is still a high quality stalwart.
L'Oreal is approaching where Coca-Cola was in 1999 during the tech bubble.
Only a handful of companies have bigger moats than both.
But Coca-Cola at 40x P/E in 1999 returned 0% in the following 5 years despite doubling its net income between 1999-2004.
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Some of my favorite lessons from Beating the Street by Peter Lynch:
1. Flexibility. A growth fund is forced to buy overpriced companies every few years.
Lessons on paying for quality (2):
Kweichow Moutai went public in 2002 at 40x P/E, twice as expensive as Diageo (20x P/E).
In the following 21 years, Moutai returned 210x (29% CAGR), while Diageo returned 3x (7% CAGR).
Moutai earnings grew 26% CAGR during that period!
Mercedes F1
The turnaround by Toto Wolff is a case study in sports investing.
Between 2012 and 2022, revenue has grown 15% CAGR while EBIT margins improved from -26% (losses) to 24% (high profit margins).
Net assets grew 15.6% CAGR during the 10 years!
Income statement ⬇️
The factor study reviewed key things like profitability, multiples, and growth. I was surprised by a few things.
In multiples, I hadn't realised how "cheap" outperformers needed to be. 50% of the outperformers had an EV/Revenue <1x and 49% had an EV/EBIT <10x in 2012.
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Fun fact:
The 6 Greek 🇬🇷 IT companies has been the best performing IT region.
Quest Holdings, Epsilon, Ideal Holdings, Entersoft, Profile Systems & Software and Performance Technologies.
An equally weighted portfolio of all 6 companies has annualised 61% over the past 5 years!
$Ulta - Sephora has more premium brands but there's some advantages in the lower-end focus.
Currently 14x P/E now but should be around 21x. 40 new stores annually + ticket should see revenue increase 5-6% per year.
+ $4 bill worth of shares repurchased over the next 4 years.
Malaysian software -
I was screening recent IPOs and came across AutoCount listed in Malaysia. They pretty much compete with Xero in all things SME accounting.
45% EBIT margins in 2021 & 2022, insiders owning 75% and more than doubled revenue and earnings in past 3 years.
European equities:
I’m currently writing an article on Poland. Was originally meant to be 2,000 words but realised there’s too much to write.
Here’s a table from the report.
Polish equities vs Europe’s five largest economies. Poland does better in 4/6 of these metrics
Earlier this month, I published a 10,000 words write-up exploring Polish equities from an outsider's lens and shared four Polish investment themes -> consumer, software, gaming and industrials.
You can read it here ->
InMode is one of the most promising companies in the aesthetics industry.
My investment in L’Oréal led me to explore the global aesthetics treatment industry.
I believe InMode could be a potential 5-bagger, and I hope this thread explains the investment case.
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Quality consumer staples: L'Oreal v Kweichow Moutai
L'Oreal (26x EV/EBIT) now trades at 2x Moutai's (13x EV/EBIT). Despite Moutai (66%) having 3x higher EBIT margin than L'Oreal (20%), 2x higher return on capital and growing earnings twice as fast.
Moutai is also debt free.
To read the entire research book, you can download it here (link below).
If you might want a physical copy, please do reach out (printing a few free copies).
I hope it's worth your time and positively impacts your investment journey!
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An equally weighted portfolio of Kazakhstan's largest banks gained +76% (divi included) in the past year (USD), bringing its 5-year total return to 234% (27% CAGR).
Kaspi gets most of the attention, but CenterCredit has been a 6x over the past 3 years, currently 2x P/E.
Among the 16 listed Kazakhstan stocks, 3 are banks; ForteBank, Bank CenterCredit, Halyk.
An equally weighted portfolio of all 3 would have annualised 23% over the past 5 years.
During the 5 yrs, non performing loans/ total loans declined by half, return on assets doubled. 1/3
Can't sleep, so some companies I'm currently looking at:
Justin Allen in HK- one of the companies < 5x P/E (or <3x EV/EBIT), double-digit profitability (and almost debt-free balance sheet) that can double earnings in 3-5 years.
The risk here is their exposure to Target (1/n)
IT Services:
The forward P/E multiple compression between May 2021 - May 2024:
- Kainos (40x to 22x)
- Globant (63x to 26x)
- EPAM (63x to 18x)
- Endava (57x to 18x)
- Reply (30x to 23x)
- Netcompany (48x to 25x)
- Coforge (37x to 28x)
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From my South African 🇿🇦 stocks journal in 2019.
I was certain SA smallcaps were far too cheap so started Jenga focused here.
Went through the JSE A-Z and Afrimat (letter A) was my first investment. They also turned out to be the only 10-bagger from Africa in past decade.
Chinese stock market -
One factor often ignored in the market drawdown has been how high the bubble reached at end of 2020.
Table below, I explored 10 very high-quality Chinese consumer-oriented names and compared their PE ratio in ‘20 v ‘23.
(From Jenga Q4 letter)
When Bill Ackman shared his UMG thesis, I started looking globally for similar Music IP companies and Saregama listed in India came up (and Tips Industries).
Wrote about the music IP model in Global Outperformers but a quick overview from Saregama’s presentation.
Among the 50 largest globally listed companies, only 3 are down > -25% over the past 3 years:
- Tencent (China)
- Kweichow Moutai (China)
- ICBC (China)
Among the top 250, only 3 are down >-50%
- Alibaba (China)
- Ping An (China)
- Wuliangye (China)
Sentiment!
One of the few times Munger and Buffett publicly recommended a stock. From Fortune magazine in 1988:
Freddie Mac- 23% return on equity, 8x P/E ratio and 15% growth rate.
Buffett called this a "triple dip".
Reminds me of 360 DigiTech now but stock thread for another day.
PlayWay (Listed in Poland)
SimRail was released last month and reviews on Steam have been very good. Premium pricing too. Game play looks slick!
WW2 Rebuilder has also started strong.
Hopefully, PlayWay can maintain 60% EBIT margins for H1 2023.
Some companies Carlos Slim purchased during the 1980s Mexican debt crisis.
In 1983 companies like Hulera Centenario (Firestone tyres) were at just 5% of book value. (Interest rates were above 20%+)
Cigatam was the most important purchase.
Japanese holding companies are always full of surprises- an example ImpactHD.
At first glance, it looks like a HR company for retailers. Boring slow growth stuff.
But since 2017, earnings have grown 5-fold (43% CAGR) and targeting earnings to compound by 26% till 2026.
Depths of markets - Elan Corp (Japan)
Elan Corp delivered 22% CAGR for shareholders over the past 9 years.
While listed under healthcare, Elan has nothing to do with drugs or biotech. They simply provide hospital patients with bedding and pyjamas sets during their stay.
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For accountability, performance of 2023 stock picks:
Zengame +238%
Huisen Household -49%
Bosideng -7%
Reitmans +10%
Biem.L.F.dlkk +18%
Kaspi +31%
Evolution AB +14%
Equally weighted average of +36%
Looking back, I’d have invested in all again except Huisen, (avoid frauds)
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I had a great discussion with
@strike_market
and shared my views on the Chinese and global consumer space.
My stock picks in China were (Zengame, Huisen Households, Biem and Bosideng) and other ideas beyond China, including Reitmans Canada, Kaspi and Evolution Gaming.
The final factor we explored was size, and we included a table from the research. As you see, many outperformers are nano caps while large caps only represented 7 of the total 935 outperformers (nanocaps included).
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Japanese quality-growth:
Valuations are still broadly punchy but they've come down quite a bit over the past year. Another one to look at is AZoom (TSE: 3496) in car parking services.
AZoom was once valued at 60x P/E but is now at 23x forward earnings or 15x EV/EBIT.
Among the 16 listed Kazakhstan stocks, 3 are banks; ForteBank, Bank CenterCredit, Halyk.
An equally weighted portfolio of all 3 would have annualised 23% over the past 5 years.
During the 5 yrs, non performing loans/ total loans declined by half, return on assets doubled. 1/3
$INMD my thoughts
Buyback addiction is a big mistake in the cyclical medical aesthetics industry.
Case study - Cutera
Cutera, like InMode, had a debt-free balance sheet for many years 1998-2019.
In 2013, after it failed to recover post-GFC, management started buybacks..1/x
India has created the most outperformers in the 21st century, more than North & South America combined.
There are many reasons contributing to this, from its economic growth, its growing IT outsourcing market leadership to the rising consumption market and per capita.
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From a profitability view, you might have expected these companies to be unprofitable startups but 82% of the 446 outperformers were already profitable in 2012.
Among the unprofitable companies, we had three types;
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Some valuations in the high Quality/Moat Indian consumer staples are eye-popping high P/E:
Procter & Gamble India - 89x
Godrej CP - 60x
Hindustan Unilever - 58x
Dabur India - 55x
Gillette India - 51x
Colgate-Palmolive India - 41x
20 years ago, they were <20x! Gone too far?
Kaspi - New prospectus
"Being in Kazakhstan, we do not have the luxury of being able to rely on private equity or venture capital money to fund our operations and growth. We’ve always had to stand on our own two feet. This meant growth and profitability from the beginning."
Airports are one business model/industry with better economics in emerging markets than in developed markets.
Airports of Thailand, the three listed Mexican groups, China, Jordan & Egypt duty-free shops etc. Their economics are so much better than their developed peers.
Today on the depths of public markets:
Came across this company called Universal Engeisha in Japan. They rent flowers and plants to offices.
Compounded earnings by 15% per year, averaging 14-16% operating margins, since going public and maintained a debt-free balance sheet.
Medical aesthetics
$INMD competitor, Classys, listed in South Korea.
Q3 revenue up 45% and operating profit up 41% with 51% EBIT margins.
Ultraformer III continues to perform well and strong export sales to Brazil and Thailand.
Consumables 43% of total revenue.
I always wondered why I felt it’s necessary I publish my research publicly.
Then I met another solo manager who mentioned it’s like academic reports and peer review in the education world.
There’s just so much benefit in feedback from others (at least in your first 10 years)
If you want to learn more about Carlos Slim, here’s some resources:
- Documentary (in Spanish)
- Best interview online
- most recent interview he talks about civilisation, semiconductors, family etc.
Kering, Hermés and LVMH is like a value, quality or growth debate.
Kering is cheap, but Gucci is a bit unstable.
Hermés is indestructible, but good luck at 60x earnings.
I think LVMH will grow earnings faster than market estimates but 28x isn’t cheap though.
My industry pick of 2023 was IT Services.
An equally weighted portfolio of all 15 IT service companies below returned +48% in 2023
The big winners were Ksolves (India) and Edarat (Saudi Arabia).
IT services don’t get much coverage as most companies are small and outside the US
The learnings in the factor analysis should help with screening. i.e. 50% of all 446 outperformers had an EV/Rev <1x and EV/EBIT <10x.
Higher multiples required more growth. Companies with 25-30x EV/EBIT grew twice as fast as those with 0-5x EV/EBIT. See the table below
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Global Consumer dis:
There's a lot of weakness and poor sentiment across the sector. Some examples:
European Auto: Stellantis, Porsche, BMW
Boats: Malibu boats, Trigano,
Luxury/premium: Kering, Burberry, LVMH
Cosmetics: Ulta, Estee Lauder
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Chinese cosmetics: Giant Biogene
Good year for China's leader in recombinant collagen with revenue up 49% and net profit up 45% (41% PAT margin).
Strong sales on Tmall. Kefumei etc, continue to perform well.
76% of assets are in cash, 0 goodwill, 0% debt, and now a divi payer.
What's impressive about India's outperformance is the quality.
For example, three of the five best consumer companies in the 21st century were Indian. Balkrishna Industries returned 226,322% (47% CAGR) over 20 years by selling tyres to markets peers like Michelin missed.
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While it was a good decision to then sell given the tech bubble bust 3 years later, had Carlos Slim kept his then 3% stake in Apple and reinvested future dividends, his stake would be worth $150 billion! Almost twice his current net worth!
In investing, you can’t win everything
I love coming back to this rare public interview of Allan Gray with Forbes in 2001.
He pitched CarMax as a category killer that deserved "a much richer multiple"
Not sure how long they held for but CarMax returned 1,100% in the following 6 years and 3,600% since then.
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There's already some research into this topic, but what makes our research different is the breadth of markets covered, from Australia to Vietnam, our industry coverage, from healthcare to utilities and the depth of our case study research into specific outperformers.
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Since Dong Mingzhu became Gree Electric's CEO in 2001, its stock has returned 5900% or 20% annualised over 22 years!
Only 5 Chinese companies have performed better than Gree since 2001.
She's grown revenue and net income by 17% and 39%, respectively, over 20+ years.
I know we don't mention education services stocks anymore since the clampdown in China, but I came across this cool company today:
Emirates Driving Company, listed in the UAE, earns 60% EBIT margins annually with no balance sheet debt to teach people in UAE how to drive cars!
Texas listed stocks:
A portfolio of the three Texas stocks (Texas Roadhouse, Texas Instruments, and Texas Land Pacific) has compounded 18% CAGR in the past 5, 10 and 15 years!
Only just started learning more about Texas Roadhouse but all 3 are fantastic businesses.
Aditya Vision isn’t in our Fund directly but it’s easily one of the best retailers in public markets in my opinion, at least in electronics. My IRR is still 27% over the next 5 years.
Watch out for expansion into West Bengal and Chhattisgarh. Will boost per store economics.
South Korean consumer apparel:
KANGOL’s parent, SJ Group went public Nov 2019 at 21x P/E.
Since then, revenue and net income have more than doubled in size (27% CAGR) and consistently maintained EBIT margins >15%.
SJ Group now trades at 4x P/E or 3.5x 2023E.
(No position)
Banking sector:
Of the 548 banks with a market cap above $1 bn, only 10 have an ROE > 20% and ROA >4%. Excluding those in hyperinflationary environments, only 6:
Halyk (Kazakh)
Kaspi (Kazakh)
Capitec (South Africa)
Mashreqbank (UAE)
CIB (Egypt)
Bank of Georgia (Georgia)
In the table below, countries are sorted by the number of outperformers.
India led the world with a whopping 91 of 446 outperformers.
We highlighted the 5 best outperformers, those that did relatively well compared to their GDP, stock market and number of listings.
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Security Analysis (7th edition)
Really enjoyed the introductions by Todd Combs on finding value in common stocks and the Route One IC team on international investing.
Thought to share a couple pages below
Kweichow Moutai Q2 '24
Lots of fears but Moutai still managed to grow its revenue by 17.3% and EBIT by 15.8%. EPS up 16%. Growth slowing but wholesale prices have now stabilised.
Net income margin ended at 48.8%. Still on track for guided 15% revenue growth.
19x forward P/E..
How does a population of just 10 million become the best performer in Europe?
Sweden teaches us so many lessons. One is how a sound education system can spur youth entrepreneurship; a quarter of Swedish outperformers were created by founders younger than 25 years old!
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In total, 446 companies returned 1,000% between the ten-year period, from a sample size of 14,090 (3.16% of subset). The following four sections are:
•Factor analysis
•Geographical study
•Industry study and case studies
•Ten overall lessons on outperformers
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Another factor was growth. 31% of the 446 companies compounded their earnings by 27% over the ten years, meaning all their 1,000% may have come from earning growth alone.
But if earnings growth was all that mattered, this % should be higher, and we explore this too.
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I have been studying the eye care/ophthalmic/contact lens markets and some listed companies lately.
Pegavision, which is listed in Taiwan, has a really good breakdown of the contact lens market in its annual report.
Kaspi Q2 notes:
Lots of progress here. Postomats lockers now 35% of deliveries from 12% last year.
E-Grocery launched last year is already net income profitable, representing 5% of e-commerce GMV. Juma was amazing.
Delinquency rate at 2.4%, B2B payments leading growth.
Apple Inc
In 1997, Carlos Slim paid $17 per share and owned 3% of Apple days before Steve Jobs returned and within 12 months, it’s shares soared to $100 per share.
This was an unusual move for him as he’d historically invested in Mexico (mainly industrials and telecom)
2/x
Indian electronics retail - Aditya Vision Update:
One of my favorite retailers in public markets.
Revenue up 46% while net profit up 41%. Pure organic growth in same store sales and no. of stores.
Improving margins and group target of 20-25% revenue growth still intact.
If you ever wanted to know what compounding for decades looked like in the energy industry, check out Mari Petroleum in Pakistan.
Averaged EBIT margins of 41% for 27 years. Revenue only ever fell 3 times since 1995.
-> From their 1997 annual report below.
Before I continue, it's important to note that our research is limited and that we included areas of further study.
For example, while 2012-2022 had 446 outperformers, the prior ten years, 2002-2012, had 300 outperformers (32.7% less) due to various macro forces.
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Not so surprised on Ted's (Berkshire) stake in Ulta Beauty. Over the next 5 years:
- Earnings grow @ 4.6% CAGR = 25%
- Share buybacks @ $1bn per year (6% yield) = 33.8%
- Multiple revaluation from 12.8x to 19x in FY 2029 = 48%
Potential upside of 106.8% to FY 2029 (15-16% IRR)
$Ulta - Sephora has more premium brands but there's some advantages in the lower-end focus.
Currently 14x P/E now but should be around 21x. 40 new stores annually + ticket should see revenue increase 5-6% per year.
+ $4 bill worth of shares repurchased over the next 4 years.
M3 Japan -
No company teaches you the beauty of compounding and the price of overpaying as much as M3.
Shares never really traded cheaply. Since going public in 2004, they've only ever fallen <30x earnings on 3 occasions;
- May 2009, Dec 2009 and last month!
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L'Oreal is currently at 38x P/E, and similarly has 20% EBIT margins, as did Coca-Cola in 1999 (although with a much stronger balance sheet).
If EBIT grows 10% over next 4/5 years, I wouldn't be surprised to see the same results as with Coca-Cola then.
LVMH has better upside.
Brazilian consumer apparel:
Track & Field with another good quarter.
Revenue and profit after-tax up 26% with EBIT margins of 21%. Non lease debt still $0. Now valued forward 11x P/E.
Still so rare to see an EM apparel retailer with decent numbers. (No position)
Track & Field - (Brazil’s lululemon)
H1 2023 -
Revenue increased 21.9% while EBIT grew 25.8% with EBIT margins at 22.3%
Debt free balance sheet maintained. 7 new stores during the quarter with e-commerce still driving growth.
TFSports performing well and now profitable too
Global Outperformers update:
As of today, number of 10 baggers has fallen to 370 co’s from 446 a year ago. India has gone up from 90 co’s to now 150 co’s, almost half!
Industry wise, the biggest change has been healthcare which fell from 14% to 8% representation (31/370)
The study covered May 2012 – May 2022 and companies with a market capitalisation of at least $550 million. We screened out companies from countries with hyperinflation, like Venezuela and Zimbabwe.
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Dr Martens is yet another PE-owned consumer brand that’s suffered a year after going public, despite having high margins.
I only know of Li Ning and Lululemon that’s made real progress since PE ownership. Those with higher margins seems to even do worse. Cc Olaplex.
UK Equities: GlobalData
No position due to valuations (alt. shortlisted) but GlobalData is one of the highest quality small-cap companies here in the UK and possibly in Europe.
A Bloomberg for industry data - high single-digit organic growth and M&A opportunities.
Just sent our happy new year cards.
Grateful for all the connections & relationships created here. I was initially reluctant to join Twitter but glad to have come across so many talented investors, their research and insights.
To another year of compounding for everyone!
While the PC industry was then new for Carlos Slim, his thesis was similar with his typical investments, undervalued.
When asked about it, he says “Apple’s market cap was less than half the value of the company’s assets…. and it was a good company”
Track & Field in Brazil has Lululemon’s growth (and profitability) but at half the multiples?
Store and EBIT growth are impressive. Pricing point looks good too at first glance. Will follow up with a thread once I conclude my final verdict.
Indian healthcare -
This is outside my competence, but I recently came across Balaxi Pharmaceuticals in India.
They export Indian generic healthcare products to high barrier to entry, non-English speaking frontier countries that rely heavily on exports for healthcare.
1/3
I came across this book during my research on Chinese SOE’s for Global Outperformers last year.
Finally got a physical copy and the content looks so good! Should be done over the weekend.
If you’ve read or come across similar country specific stock market books, do share!
Since here, Classys has returned 132% and 535% over the past 5 years (45% CAGR). One of Korea’s success stories in aesthetics.
Compared to InMode, they might grow a little faster with higher EBIT margins. InMode is however half its multiples.
BioPlus another one to watch.
I’ve been hearing some good reviews on CLASSYS, one of InMode’s competitors listed in South Korea. Their ultraformer devices are based on ultrasound energy.
Worth checking out for those looking for South Korean equities exposure.
Global Financial Exchanges and Data:
My 4 Groups here:
Group 1: MSCI, S&P, Factset and Moody's
Group 2: JF Wealth Holdings, East Money Information, Coocon Corp and FnGuide
Group 3: Hong Kong Exchange & Clearing, Boursa Kuwait, B3 and OTC Markets
1/3
LiveChat Software (Text S.A)
Another quarter of 25% growth in both revenue and net income, despite the appreciation of PLN relative to USD.
ARPU maintained near $158 v last quarter but churn figures slightly high.
Now at 19x trailing earnings. Good quarter.