24 Comments
Dec 27, 2023Liked by Compounding Quality

I see Adobe as one of the companies that's going to be annihilated by AI. Graphical design is going to be commoditized by AI companies such as midjourney. If everything can be done with a prompt, 100s of hours of experience is not going to be necessary anymore. High switching costs? No more.

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author

Hi Robert,

I think you might be right. Sold Adobe in my old portfolio a month or 2 ago

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Apr 1Liked by Compounding Quality

Hi, i found you for the first time on the podcast Millennial Investing and was a very good surprise the way how you laid out all of your knowledge, congratulations was ine of the best episodes. Regarding this steps that you mentioned about Adobe, and relating all information you provide in the podcast Adobe has only 0.68% of closely held shares, as far I understood this is one of the thing that would put you off from this company, right? Inside ownership it's an important factor to consider and in this case doesn't verify, can you please elaborate a bit if this fact would be a decisive factor or not. Thank you in advance and keep doing an amazing work. Nicolau

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Dear Nicolau,

Thank you very much. It's a true honor!

It's funny that you ask about Adobe because an investment case about the company will be published soon. You are 100% right that I prefer higher insider ownership. Adobe is an example of a company that is so good that the company will do very well regardless of insider ownership if you ask me. Please note that I don't own the company as I think the company is too expensive right now.

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Aug 22, 2023Liked by Compounding Quality

Hello,

Great Article. But just a question. Sometimes you make lists with quality stock that don't have 50% of gross margin. Does it mean that gross margin is one ratio to take a look at, but not the most important?

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author

It depends a bit on the situation. When a company has a very high and consistent gross margin it's an indication that the company has pricing power.

However, I would indeed say that a gross margin > 50% is not the most critical factor. It always depends on the situation. A retailer like Costco for example will never be able to achieve a gross margin of 50% but it's still a very good business.

For me personally, the FCF Margin is more important than the gross margin.

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Aug 23, 2023Liked by Compounding Quality

Thanks ;)

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Oct 3, 2022Liked by Compounding Quality

Another wonderful article :-)

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Easy enough for me. Thanks.

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author

It's very handy to determine whether it's worth analyzing a certain stock

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πŸ‘

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Nice and quick pointers. But did you just say 'Surf to the tab'.

Surf?!

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author

Thanks for mentioning it. Just adjusted the text!

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In step 6, comparing current free cash flow yield vs 5 year average is just a quick way of checking correct? In your deeper dive you would do a dcf based on future growth prospects with not sky high assumptions and they pay fair price for a great business?

Love the article, thank you !!

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Dcf or whatever valuation method is appropriate? (I just have a bias against relative based valuation methods)

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author

I will write an article/thread about valuation in the near future!

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Sep 16, 2022Liked by Compounding Quality

That would very nice! I look forward to it :)

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Your steps are good but step 4 I don't think the share price performance matters. To me the business performance should matter and then the share price will follow but I love stocks that have been doing amazing business and will continue to do so while the share price does nothing

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Yes and no. Over time, the stock price will follow the underlying results of the company. So if the company has performed very well on the stock market over the past 15 years, it is a great indication that the underlying company has been doing very well too.

When you can find a stock where the underlying business has been performing very well but the stock price does not, you might have found a very interesting investment.

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$ADBE good company but it have a capital allocation that is β€œno bueno” to the shareholders. No no to me

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Well... By taking over Figma Adobe just wants to kill the competition. Seems like they see/saw Figma as a serious threat.

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Looks like it is but it’s a hard way to mainten your monopoly, burning two years of FCF in days like today

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I guess we will see what the future brings. It has been a long time that the stock has been so cheap.

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Sep 15, 2022Liked by Compounding Quality

Nice articule by the way 😊

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