Newsletter XVIII - Investment Theses, $GLBE, & $ADSK
Recapping a Week in the Markets: Nov.20 - Nov.24
Happy (almost) Thanksgiving to my American readers & listeners! I hope you all had a great turkey dinner without the burdens of family drama, weirdness, or that weird uncle that always has a few too many over dinner.
I’m doing a little A/B testing on this week’s newsletter, and nixing the ‘Recommended Read’ and ‘News’ sections. I feel I don’t add a ton of value to these spaces - however, if you enjoy them and would like them to remain, PLEASE let me know in the comment section on this newsletter! I’m just testing things out.
Weekly Watchlist Stock
Global-e Online - GLBE 0.00%↑
Global-e is a newer play on e-commerce solutions - founded in 2013 and only recently making its public debut in 2021 under the ticker GLBE, Global-e is focused on minimizing the barriers to international e-commerce by minimizing the barriers for sellers to bring their online retail to a global scale.
Their platform allows customers to bring their products to larger and more diversified products on sign-up, in turn enabling greater revenues. While the customer is focused on doing what they do best (running their business), Global-e is focused on doing all the dirty work that comes with international expansion (taxes, shipping & handling, and providing the infrastructure for seamless local shopping).
It’s a value proposition with a lot of appeal to e-commerce sellers. Many retailers run lower-margin businesses that simply aren’t able to take on the extra costs of an international expansion - Global-e allows them to continue growing their business without all the hassle or additional (and unsustainable) cost.
Like any good e-commerce name, it doesn’t come cheap. With an enterprise value of $4.8bn and a little more than $520m in TTM revenues, Global-e trades at an EV/S multiple of 9x. That isn’t surprising, given the level of growth this company has seen - revenues have grown more than 49% over the last year and EBITDA at a blistering 366% on the heels of tailwinds to e-commerce and retail shopping moving increasingly online. The margin profile is strong for a younger company as well, with 40% GM and 8.7% EBITDA margins, and cash flows have also been growing, from $13m the year they IPO’d to $63m on TTM figures.
With an estimated ~24% of total retail sales expected to come from online shopping for FY ‘23, plus with this number still continuing to grow, Global-e is definitely steeped in a growth phase that should extend several years. Their valuation is elevated at a glance, but relative to other e-commerce players it doesn’t look terrible - Shopify, for example, is sitting at nearly a 13x EV/S multiple with 27% TTM rev growth. It’s not an apples to apples comparison, but it does help to put the price tag on Global-e in perspective.
Relative to the growth this company has seen, especially in EBITDA and FCF, I’d tentatively say that this is actually a fair price. Coming off Q3 results that saw the stock plunge more than 37% on weaker FY guidance (despite a great quarter overall), the entry point may look even more attractive at the moment.
I’m definitely going to be diving into this one pronto-like - I like Global-e’s value prop for customers, the type of value-additive exposure they give to the ecommerce space, and the company’s appealing growth in some of the key metrics I watch for younger companies.
Summarizing Your Investment Ideas
As a fundamentals-based investor, I really believe in the value of understanding the businesses you own. When put in perspective of the fact that, as a shareholder, you are literally a part-owner of a business, the point of understanding the companies you invest in is driven home.
While deep dive research is important, zooming back out and being able to summarize your business serves as a valuable litmus test for your understanding of it. Pretend you’re introducing yourself to someone as a business owner - they’re going to ask you what your business is about. If you need any more than 2-3 sentences to summarize it and why you own it (or if you can’t summarize it at all), odds are you don’t really understand the core of the business model, where the money it comes from, or the reason you’ve invested in it.
After I’m finished researching an idea and have decided to put money towards it, I do this zooming out process and summarize it in my investment journal. It’s a really crucial part of my investment process - there have been times I’ve thought I had a decent understanding of the business but upon trying to summarize it, realized I didn’t really know it as well as I thought, or that I didn’t really know why I was investing in it. Then it’s back to the drawing board.
The side bonus of this little exercise is that this little summary can help to keep you grounded during wicked downturns or tough quarters on the business. It’s something investors can refer back to, remember the core reason they invested in the first place, and check that their investment thesis isn’t broken. This simple action can help to keep self-directed investors rational on both buying and selling decisions, and ultimately lead to stronger returns over the long haul.
This week’s investor spotlight is on an article diving into one of my all-time favourite companies, Autodesk.wrote about it earlier in November and produced a really fantastic and succinct overview of the company. For anyone unfamiliar with the company, it’s a great read to dip your toes into the business and its history, alongside the products and valuation. The article also gives a great summary on the competitors that Autodesk faces in the industry and the single-most important part of Autodesk’s value proposition to investors - its moat.
Autodesk has some pretty dominant penetration into the market and is the program that most new industry professionals (as well as students) become familiarized with. This is a core asset in my portfolio and it was awesome to read a detailed but digestible article from Kairos Research on the company.
Check it out at the link above and give it a like! Also check out the rest of the newsletter - he does some great research into some really great companies. I particularly enjoyed his research into ENPH 0.00%↑, PYPL 0.00%↑, & STNE 0.00%↑. So head on over to his Substack here, sauce a follow on the newsletter, and thank me later.
What’s New at Hourglass
Episode XVIII: WSP Global - The Quiet Consolidator
I followed up my deep dive article from the beginning of September (found here) on WSP Global with a short-ish podcast episode on the company, its business model, and the flywheel at the core of the business.
I also touch briefly on the balance sheet before calling it an episode. A great listen for anyone that wants to get to know one of the world’s most underrated serial acquirers in the infrastructure space. The industry as a whole is benefitting from huge macro tailwinds that have basically codified billions of dollars of revenue for $WSP.TO. This is especially true in the United States, where WSP ranked (2022) as the #1 provider of a wide array of infrastructure and engineering & consulting services.
Give it a listen to dive into one of my absolute highest conviction positions and favourite companies! And be sure to drop a comment on the episode to let me know what you think about WSP Global.
Upcoming Deep Dive: Topicus
I promised another Canadian consolidator. This is technically true.
Topicus is listed on the TSX (though its business actually operates in Europe) as a spin-off from the one and only Constellation Software, a company that’s returned a more than 36% CAGR over its lifetime as a public company. It’s one of the most fantastic businesses, and Topicus is following in its footsteps with a proven, repeatable, and scalable business model.
I’ll be diving, as always, into the business model, industry, management team, balance sheet, and valuation. This is a company that I own in my portfolio as well and am extremely bullish on the future of. Keep an eye for that to drop next Thursday, and if you’re not already subscribed, make sure to drop your email below so that gets sent into your inbox!
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That’s all for this week folks. Have a great weekend, and happy investing when the markets open back up on Monday!