Editor's Note
[YTU]
Uncomfortable Undeniable Truths
Not to brag or be overconfident but we’ve done pretty well since inception with a compounded annual return of 19% per annum. With such performance, it is easy to get used to the high returns and assume this is the norm. However, there are some cold hard truths which we want to make sure our readers are aware of:
We are boring investors. We believe in investing in stocks we understand, have some insight as to why the stock will do well and are trading at valuations we are comfortable with. We might not invest in hot and trendy stocks, this might give a feeling that we are missing out.
We invest in a long-only portfolio. We don’t short stocks, we don’t use leverage, we try to keep it as simple as possible.
We don’t diversify for the sake of it. We invest in companies after deep dive and if we understand it, have some insights we don’t need diversification. If we don’t understand it and don’t have any insight, we don’t invest in it. Diversification is not the mindset with operate with.
There will be long periods where we’ll underperform the benchmark. We cannot be sure how long they will be. Returns are not guaranteed however we believe over the course of four to five years, we will outperform the index.
There will be stocks in our portfolio which will go to zero. We sure don’t look for them but we believe errors in this business are unavoidable and permanent loss of capital is likely.
A small portion of our bets will lead to outsized returns. It is very likely that the majority of our bets lead to nominal returns or no returns.
Macroeconomic parameters affect us in the short-term. We pay no attention at all to macroeconomic parameters like interest rates, geopolitics, debt levels and similar others however businesses do get affected with it and it will affect our performance in the short term.
With this necessary yet boring stuff out of our way, let’s dive into more interesting stuff you paid for!
Letter 2026.4:
Performance Updates
Annualized portfolio returns, compared with the index S&P 500 over different periods of time are listed in Table 1 below. We believe in long-term performance of the portfolio and so we compare returns over one year, three year, five year and since inception (January 2020). Why mention one month return then? Simply because we deliver one letter every month. I’d deem it as unimportant when comparing our performance.
Table 1: Portfolio and S&P 500 Return Comparison
Note: All the percentages are annualized except for one month performance
We would like to reiterate the fact that our goal is to generate stable returns without higher fees for you. This is not investment advice, however Table 2 below summarizes the value you’d have generated with $1000 invested, by cloning our portfolio compared to the S&P 500 index fund.
Table 2: Return Comparison with Index
Portfolio Holdings
As of June 30, 2025, there were 15 stocks in the portfolio. The portfolio stocks, purchase price and allocation are listed in Table 3 below. It is critical to note that we hold some of the stocks since inception and added opportunistically as we deemed appropriate. Average price takes into account the changes and additions to the portfolio.
Table 3: Portfolio as of June 30, 2025
Sr. No. | Portfolio Holding | Allocation | Average Purchase Price | Current Price* |
1 | Noble Corporation (NE) |
|
|
|
2 | Lithia Motors Inc (LAD) | 12.1% | $275.7 | $335.6 |
3 | Interactive Brokers Group Inc (IBKR) | 11.0% | $31.8 | $53.9 |
4 | Occidental Petroleum (OXY) | 9.7% | $46.5 | $42.6 |
5 | Berkshire Hathaway Inc Class B (BRK.B) | 14.0% | $398.1 | $487.7 |
6 | Chubb Ltd (CB) | 8.4% | $263.8 | $285.1 |
7 | Celanese Corp (CE) | 7.3% | $67.4 | $56.8 |
8 | Ferrari NV (RACE) |
|
|
|
9 | Adobe Inc (ADBE) | 5.6% | $396.3 | $385.8 |
10 | Costco Wholesale Corp (COST) | 5.2% | $526.8 | $985.1 |
11 | Howard Hughes Holdings Inc (HHH) | 3.4% | $65.8 | $67.8 |
12 | Commercial Vehicle Group Inc (CVGI) | 2.8% | $3.0 | $1.5 |
13 | Amazon.com Inc (AMZN) | 2.0% | $133.7 | $223.3 |
14 | Meta Platforms Inc (META) |
|
|
|
15 | Celsius Holdings Inc (CELH) | 1.8% | $33.3 | $45.9 |
16 | Alpha Metallurgical Resources (AMR) |
|
|
|
17 | MercadoLibre (MELI) |
|
|
|
18 | Netflix (NFLX) |
|
|
|
*Price as of June 30, 2025
Stocks added since last month: None
Portfolio Stocks Rational: Elevator Pitch
This is one of our mental models for investments and we believe that if we don’t understand our investments, we should not hold it. As a result, we make a case for each of our investments in a sentence or two, just like we would explain it to someone on an elevator, without all the funky jargon and financial numbers. All the investment holdings are explained in a sentence or two below:
Berkshire Hathaway Inc Class B (BRK.B)- 14.0% holding
Berkshire Hathaway is essentially a compounding machine powered by wholly owned businesses and large equity stakes, managed with long-term discipline and no pressure for quarterly performance. Unlike typical conglomerates, it doesn’t overpay or overextend. Its permanent capital and float from insurance gives it a structural cost-of-capital advantage few can match.
Lithia Motors Inc (LAD)- 12.1% holding
Lithia Motors is consolidating the auto dealership market faster than peers like AutoNation or Sonic. Its Driveway digital platform and coast-to-coast store network allow it to manage inventory and pricing better than peers across regions. Unlike others, it uses a “hub and spoke” model and integrates acquisitions seamlessly, improving margins and reducing cyclicality over time which transforms it from a cyclical business to a cash machine.
Interactive Brokers Group Inc (IBKR)- 11.0% holding
Interactive Brokers operates at margins others can’t touch because its platform is built in-house and scales globally. It attracts sophisticated traders, hedge funds, and institutions by offering ultra-low commissions and access to 150+ markets. Its competitors either lack global capabilities or run at higher cost structures which makes Interactive Brokers stand out. Additionally, it offers highest interest rates on uninvested cash which makes it a preferred broker for investors to not only invest but also park their cash holdings.
Occidental Petroleum (OXY)- 9.7% holding
Occidental Petroleum is a low-cost Permian basin operator, which accounts for about 40% of US oil assets and 8% of global oil assets. It operates with large-scale assets and enhanced oil recovery capabilities. Its differentiated bet on carbon capture (through Oxy Low Carbon Ventures and 1PointFive) positions it uniquely for long-term ESG-focused energy transition. Compared to peers, Occidental Petroleum spends less on exploration and focuses on optimizing its production efficiencies which helps in reducing its production costs.
Noble Corporation PLC (NE)- 8.4% holding
About 30% of the global oil comes from offshore assets which basically means from oil fields in the sea. This indicates that global oil supply is highly dependent on offshore assets. Noble Corporation owns some of the newest, most capable offshore drilling rigs, which are in high demand as deepwater activity rebounds. Compared to peers, Noble has better balance sheet health and a higher proportion of premium floaters under contract. Its current order book is about two times its market capitalization.
Chubb Ltd (CB)- 8.4% holding
Chubb is a global property and casualty insurer with presence in over 45 countries. Compared to peers, Chubb consistently earns higher underwriting profits (indicated by combined ratios), reflecting pricing discipline and risk selection. Unlike most insurers, it’s globally diversified and strong in specialty commercial lines where pricing power is high. Its peers often rely more heavily on investment income or are more concentrated in competitive segments like auto/home. Additionally Chubb provides a seamless customer experience making it a preferred choice for high networth individuals and companies.
Celanese Corp (CE)- 7.3% holding
Celanese corporation is one of the largest and low-cost producers of acetates which are used in several industries such as construction, paints, automobile etc. Celanese has cost and integration advantages in the global acetyl chain and has expanded its specialty polymers business via the DuPont M&M acquisition. This blend of commodity-plus-specialty gives it cyclical resilience and pricing power. Unlike peers, Celanese manages a tighter portfolio with higher returns on capital and more vertical integration.
Adobe Inc (ADBE)- 5.6% holding
Adobe owns the digital creativity space with products like Photoshop, Illustrator, and Premiere Pro—used globally by professionals and enterprises. Its shift to SaaS created recurring revenue and high-margin growth. Competing creative tools are popular but lack Adobe’s enterprise penetration, integration across apps, and brand power. Additionally Adobe is doing a steady and effective job of integrating AI into its apps which makes their products more productive and sticky. The AI integration has been welcomed by the users as the company has witnessed rapid growth in the relevant statistics quarter over quarter.
Costco Wholesale Corp (COST)- 5.2% holding
Costco operates at razor-thin margins on goods but earns significant profits from membership fees—creating stickiness and customer loyalty. The razor-thin margins are intentional as the management believes in passing on the cost benefits to the customers. Its scale allows it to negotiate lower prices and pass savings to members. Compared to its peers, Costco has lower SKU counts, faster inventory turnover, and a high-income, high-retention customer base.
Howard Hughes Holdings (HHH)- 3.4% holding
Howard Hughes owns irreplaceable land in high-growth, tax-friendly regions (e.g., Summerlin in Nevada, The Woodlands in Texas and develops it methodically to generate outsized IRRs. It’s not a REIT and doesn’t pay dividends, allowing for flexible capital deployment. Unlike most real estate plays, its earnings come in waves—but its asset base is undervalued relative to NAV, offering asymmetric upside.
Commercial Vehicle Group Inc (CVGI)- 2.8% holding
Commercial Vehicle Group is a cyclical industrial company that supplies seating, wiring, and cab systems to automobile manufacturers. It’s expanding into EV components and automation, which could provide upside in the next truck upcycle which is anticipated in FY 26-27. Compared to its peers, CVGI focuses on mid-volume, low-complexity segments where it can win via engineering flexibility and pricing discipline. It is trading at about one third of its short-term capital needs (working capital) which indicates its extremely cheap.
Amazon.com Inc (AMZN)- 2.0% holding
Amazon’s retail business has enormous scale, which lowers per-unit costs in fulfillment and shipping. AWS funds its expansion and earns outsized profits. Amazon owns the entire stack—from customer to delivery—and monetizes multiple layers (retail, cloud, ads, Prime). It reinvests heavily, which depresses short-term earnings but builds long-term optionality.
Netflix Inc (NFLX)- 2.0% holding
Netflix is a dominant player in the digital entertainment industry. It has its own distribution providing cost advantages, complete control over content generation and data bank from over 190 countries, this separates it from the competitors. Netflix has two tailwinds in its favor: sports viewership and AI helping manage content efficiently. AI will help deploy capital in content which will yield high returns on capital. Its valuation has corrected since June, 2025 and presents a case of great business at fair price.
Meta Platforms Inc (META)- 2.0% holding
Meta’s ad engine operates at a massive scale, monetizing over 3 billion users across its platforms. Its integrated ecosystem (Facebook, Instagram, WhatsApp) drives deep engagement and high-margin revenue. Strong cash flows fund AI investments and long-term bets, which weigh on near-term margins but extend its monetization runway. Temporary lawsuits and negative sentiment has led to business trading at mid-teens of next year’s earnings. We’ve invested in this business before and believe this dip presents a compelling opportunity.
Ferrari NV (RACE)- 2.0% holding
Ferrari operates as a luxury brand disguised as an automaker, producing under ~14,000 cars annually to preserve exclusivity and pricing power. A big chunk of these ~14,000 cars are sold to its most loyal ~600 customers creating an exclusive club of customers who would pay anything to own the new machine. Demand consistently exceeds supply, allowing for high margins and strong cash generation. Recent growth push by the management, despite being pretty moderate, has caused some concerns on brand dilution however I believe they’re temporary as the total production is half of total centi-millionaires in the world, who are their only primary customers.
Uber Technologies (UBER)- 2.0% holding
Uber operates a global mobility and delivery platform, connecting riders, drivers, and merchants at scale. Its asset-light model and network effects improve efficiency and margins as volume grows. With mobility, delivery, and advertising layered onto the same ecosystem, incremental revenue carries high contribution margins. Profitability has improved as the business is maturing and cash generation is visible on the balance sheet. Uber has massive data banks to leverage upcoming autonomous vehicle adoption. It’s a platform business with tremendous growth potential trading at mid-teens of its current earnings, this makes it pure bargain in my view.
Alpha Metallurgical Resources (AMR)- 2.0% holding
Alpha Metallurgical Resources produces metallurgical coal, a key input and irreplaceable for steelmaking, with operations leveraged to global steel demand. Its cost discipline and focus on high-quality reserves support strong margins and cash flows during favorable pricing cycles. The management has used past upcycles to pay down debt. Recently cash flows are used to buyback shares (share count reduced by one-thirds) and post that dividend will be paid out. We estimate that this dividend yield will be pretty attractive, north of 10%, subject to share price movement.
MercadoLibre Inc (MELI)- 2.0% holding
MercadoLibre operates the leading e-commerce and fintech ecosystem in Latin America, integrating marketplace, payments, and logistics. Its scale and efficient systems helps in retaining customers and vendors creating network effects. In my opinion, it is PayPal, Block (formerly square) and Amazon clubbed into one. There has been recent nervousness amongst investors because of competition rising in Brazil and similar other markets, however matching the pricing power and scale of MercadoLibre is next to impossible and so this presents a compelling opportunity to buy into a decadal compounding story.
Stock Deep-Dive: Ferrari Inc
In this monthly letter, we are going to discuss in detail one of our recent additions: Ferrari. As is customary with our deep-dives, we are going to break down the thesis behind investment in five sections:
Understanding Business and its Moat
Business Growth and Runway
Management Tenets and Trustworthiness
Valuation
Portfolio Sizing.
I must admit, these criteria are not proprietary, they are adopted from Berkshire Hathaway 2007 letter to shareholders by the legendary Warren Buffett. I am following the mold he set and my only addition is portfolio sizing. With that said, here is the dee-dive on Ferrari:
Understanding Business and its Moat
Ferrari is a luxury auto manufacturer based in Italy. It was started as a car racing company in 1929 by Enzo Ferrari and began commercial car manufacturing in 1947. Ferrari is not a conventional auto-manufacturer, it produces high-performance sports cars and race cars. It participates in car-racing programs such as Le Mans and Formula 1. Majority of the company revenues come from car sales, however other sources of revenue include revenue earned by racing teams and its lifestyle segment.
Ferrari ships its cars globally, as of 2025, 46% of its cars were sold in Europe, Middle East and Africa (EMEA), 29% in Americas (North America and Latin America), 7% in Mainland China, Taiwan and Hong Kong and the remaining 18% in the remaining Asia-Pacific region. As of 2025, it had a total dealership network of 195 spread across the globe. These dealerships are not owned by Ferrari however the brand works closely with them to maintain strong customer relations.
Ferrari has been the luxury automaker which has made its name globally over the years, it has some pretty deep moats:
Strong Brand Equity: Ferrari has been extremely protective of its brand. There is usually a wait period of two to three years to get a new Ferrari. The company prioritizes its existing customer base first when a new model is introduced and that makes it difficult to get a Ferrari for a first-time buyer. The main customers of Ferrari are multimillionaires and billionaires across the world. To contextualize, there are roughly 250,000-300,000 people with net worth greater than $50 million, so essentially only 4%-5% of these high net worth individuals get a Ferrari each year. In other words, even though you’re ultra rich, you have one in twenty chances of getting a Ferrari. This creates a strong brand value amongst the ultra-rich and makes Ferrari automobiles the most desired car on the planet. This was evident particularly during Great Financial Crisis in 2008-09 and COVID-19 crisis in 2020-2021; demand for high-end Ferrari cars were intact and despite financial metrics showed temporary dip, brand remained intact.
Ferrari is expert in creating strong demand and desirability each year. It operates with a two-pronged approach. Firstly, they participate in sporting events like Formula 1 and Le Mans where Ferrari gets the attention of millions of eye balls. For context, 2025 Formula 1 had total television viewership of 1.83 billion while that for Le Mans is 113 million. Second prong of this strategy is controlling the supply, in 2025 Ferrari just produced 13,640 cars, most of which if not all were pre-ordered. Ferrari fiercely controls the supply and total volume of cars it delivers each year, over the past 10 years its volumes have grown at merely 6.5% which is roughly an increase of 400-500 cars each year.
Customer Ecosystem: Ferrari does not sell its cars, it allocates them. None on this planet can walk into a Ferrari showroom and come buy with keys to a brand new Ferrari car. Ferrari decides if you get a new car or not. Top Ferrari models are reserved for its repeat (also known as existing) customers and a new customer starts most likely at the lowest level and then builds its relationship to the rarest and top models of Ferrari. Ferrari has strict criteria on who it allocates its car ranging from social status to net worth, including if you’ve bought and sold a Ferrari car in the past. This makes the customer ecosystem extremely sticky with high switching costs. It is estimated that about 600 people on the planet buy most of the top models of Ferrari each year. An individual needs to spend anywhere between $10-$12 million on other Ferrari cars just to get access to its top models, in some cases even more to get access to its rarest models.
Heritage and Customization: Ferrari allows almost 100% customization to non-mechanical aesthetic elements of its car models. This makes owning a car unique to each customer; even though the models can be the same, customization makes the vehicle unique to its owner. This creates a unique experience for the customers. Additionally, Ferrari carries a rich history of over 90 years and a legacy of racing, this creates a sense of winning amongst the owners of its cars. This helps in strengthening the brand.
Barriers to Entry: Luxury companies come with natural barriers to entry as a sense of luxury cannot be built overnight. It needs history, culture, heritage and myriad other factors to create a sense of luxury. As a result, Ferrari is naturally protected. Additionally, building a high performance sports car requires specifically engineered parts. Not all the engineering companies have capability to build these parts, many of these are built in-house by Ferrari, protected by patents. Additionally, for the parts Ferrari outsources, it has long standing relationships with its suppliers in a way that those suppliers use their relationship with Ferrari as a badge of honor for their business. Ferrari’s brand and its pricing power coupled with a pretty moderate requirement of parts (as they produce less cars annually) presents a pretty compelling and smooth supply chain for its plants. All these factors combined together present significant barriers to entry to compete with Ferrari.
Business Growth and Runway
Ferrari is primarily a luxury company operating in the automobile sector. As is the case with most luxury companies, their products can be termed as the key social differentiator between the rich and the non-rich. As a result, the rich keep on acquiring these products. With that said, there are always alternatives to luxury products as well, for instance for every Ferrari there is a Lamborghini or a Porsche or Maserati or something similar.
I believe the key parameter in determining if a luxury company stays up there is its scarce supply and quality of products. There have been some fears around the market that Ferrari is diluting the brand by planning to sell more cars, however this cannot be further from the truth. Table xx below shows total cars sold by Ferrari compared to its peers over the past 10 years. This table clearly implies that Ferrari is selling way less cars, in some cases one-tenth of the volumes of its competitors.
Table 4: Total Cars Sold by Ferrari vs Competitors over P10Y
Year | Total units sold each year | |||||
Lamorghini | Porche | Rolls-Royce | Maserati | Aston Martin | Ferrari | |
2015 | 3,245 | 225,000 | 3,785 | 32,474 | 3,600 | 7,664 |
2016 | 3,457 | 237,000 | 4,011 | 42,100 | 3,700 | 8,014 |
2017 | 3,815 | 246,000 | 3,362 | 51,500 | 5,100 | 8,398 |
2018 | 5,750 | 256,000 | 4,107 | 34,900 | 6,400 | 9,251 |
2019 | 8,205 | 280,000 | 5,152 | 19,300 | 5,800 | 10,131 |
2020 | 7,430 | 272,000 | 3,756 | 16,900 | 3,900 | 9,119 |
2021 | 8,405 | 301,000 | 5,586 | 24,269 | 6,200 | 11,115 |
2022 | 9,233 | 309,000 | 6,021 | 25,900 | 6,400 | 13,221 |
2023 | 10,112 | 320,000 | 6,032 | 26,600 | 6,600 | 13,663 |
2024 | 10,687 | 330,000 | 5,712 | 11,300 | 6,400 | 13,752 |
2025 | 10,747 | 340,000 | 5,664 | 7,900 | 5,400 | 13,700 |
Growth (CAGR) | 12.7% | 4.2% | 4.1% | -13.2% | 4.1% | 6.0% |
The table above summarizes two trends, firstly few luxury companies like Maserati and Rolls-Royce peaked volumes and then realizing its diminishing long-term effects, scaled down the volumes. Secondly, Ferrari has increased the volumes modestly at 6% annually however it has been pretty flat over the past 3 years at about 1.1% growth. This signifies that management is not comfortable producing more than 14,000 cars annually. Additionally, annual volumes produced by Ferrari are pretty much in line with the other luxury brands and in my view, it would be beneficial to the brand to not increase the volumes and just increase the prices of its upcoming car models. I strongly believe that management understands this and has reiterated on multiple occasions that they are quite serious about controlling the volumes so as to not dilute the brand and keep Ferrari cars an exclusive automobile offering.
In addition to managing the supply of its cars, Ferrari is investing heavily in making their cars best on the planet. Ferrari is conducting heavy capital expenditures, in the range of over one billion USD to enhance performance of their vehicles. Ferrari has forayed into electric vehicles and are planning to introduce its first fully electric car, Ferrari Luce in May 2026 which I believe will draw significant attention and increase brand’s desirability for environmentally conscious consumers. Despite being electric, this vehicle is supremely powerful with over 1,000 horsepower.
Ferrari’s unique brand positioning, management’s firm efforts on protecting the brand from dilution and an affluent social status that individuals get by owning a Ferrari will fuel the business growth for many upcoming years. Additionally, assuming that all the Ferrari cars’ manufactured in a year i.e., ~14,000 are sold to new customers, the brand needs only ~14,000 centimillionaires globally. This is just about 10%-15% of the total ultra high net worth individuals present globally. This gives me comfort that the business has a long runway to go.
Management Analysis
The management structure and ownership of Ferrari is quite unique compared to other companies. At present, the Agnelli family through Exor N.V. owns 21% of the equity with 32% voting rights, Piero Ferrari owns 10.7% of the equity with 16% voting rights. Remaining shares are owned by the public and a fraction by the board of directors and management. Agnelli family has been a long-term shareholder with shareholding over five decades and as is obvious Piero Ferrari controls the family side of the Ferrari. A big chunk of shareholding by these two entities represent that Ferrari operates like a family business which controls long-term brand value and a fair share of corporate governance to run day to day operations.
A key change in Ferrari’s management has been the appointment of Benedetto Vigna as the CEO in September 2021. Benedetto Vigna has a background in semiconductor manufacturing with STMicroelectronics where he worked for 22 years before joining Ferrari. Benedetto is a scientist with over 200 patents filed during his tenure at STMicroelectronics. This helps Ferrari in exploring the world of Electric Vehicles (EVs) and building a car that meets Ferrari’s standard. Key achievements of Benedetto since he joined are listed below:
Introduced a multi-powertrain strategy and helped Ferrari advent into EVs as well as hybrid automobiles. At present Ferrari sells 40% traditional engine cars (ICE), 40% Hybrid and 20% EVs. This helps protect the brand legacy and shows disciplined capital allocation.
He is building Ferrari Luce in a manner that retains Ferrari’s brand, he has ensured that the vehicle despite being EV is high performance, has that unique sound when the car starts and prevented unnecessary automation with considerable analogue controls.
Flattening the Ferrari sales volumes, he understands that scarcity is the moat. Since his joining in September 2021, the sales volumes have grown at a CAGR of 1.1% (2022-2025) compared to 6.4% in previous years (2015-2021) since the spin off.
He has delivered on his plans and projections. Financial projections and other strategic plans discussed on Capital Markets Day 2022 were achieved before its timeline showcasing strong execution of Benedetto.
Leveraged Ferrari’s brand and pricing power to get higher profit margins and cashflows rather than increasing the volumes. Even though the volumes from 2022-2025 grew only 1.1% per year, net profit increased at a CAGR of 19.5% and free cash flow grew at a CAGR of over 20%. This showcases not only pricing power but also the operation efficiencies driven by Benedetto.
Ferrari is entering into its new phase with the advent of EVs and the board has done an exceptional job in hiring Benedetto as the CEO. Benedetto not only brings his semiconductor manufacturing expertise which helps in EV development, but also has an experience of running a manufacturing plant efficiently. Additionally, Benedetto has shown his skin in the game by owing 30,204 common shares of Ferrari (as of latest filing). With Exor N.V. and Piero Ferrari owning controlling stake and Benedetto Vigna running day to day operations, Ferrari is poised for a brighter future and a protected brand.
There has been recent panic in the market since Exor N.V. sold about 4% of its stake in Ferrari for about 3 billion euros. However, Exor has done this to diversify into other businesses and has termed that there is nothing of concern in Ferrari as a business. Exor N.V. remains the largest shareholder of Ferrari and is committed to being a long-term shareholder. It is interesting that post this sale, Ferrari has begun aggressive share buyback programs showcasing that management is quite optimistic about the future of Ferrari.
Valuation
[YTU]
Table 5: Ferrari’s Performance Metrics for Past Five Years (in Euro)
Performance Category | Performance Metric | Performance from FY 20 - FY 25 |
Sales and Earnings | Revenue Growth | 15.6% |
Diluted Earnings Per Share (EPS) Growth | 25.5% | |
Owner Earnings Growth | 21.2% | |
Margins (latest) | Gross Margins | 51.7% |
Pre-tax Margins | 28.9% | |
Net Margins | 22.4% | |
Free Cash Flow Margins | 26.1% | |
Return Ratios (average of five years) | Return on Assets (ROA) | 15.1% |
Return on Equity (ROE) | 42.7% | |
Return on Invested Capital (ROIC) | 42.0% | |
Return on Capital Employed (ROCE) | 21.0% | |
Return on Tangible Capital | 96.0% | |
Cash Flow Metrics | Operating Cash Flow Growth | 22.3% |
Capital Expenditures Growth | 5.9% | |
Free Cash Flow Growth | 61.2% | |
Stock Price Data Points (as of March 31,2026) | Shares Outstanding | -0.73% |
Average P/E | 55 | |
Stock Price | 10.2% | |
Market Capitalization | 9.35% |
[YTU]
Table 6: Intrinsic Value Computation for Ferrari (in Euros)
Financial Year | Owner Earnings | Growth Rate | Present Value |
FY 25 | 1,318 | - | - |
FY 26 | 1,450 | 10% | 1,355 |
FY 27 | 1,595 | 10% | 1,490 |
FY 28 | 1,754 | 10% | 1,639 |
FY 29 | 1,930 | 10% | 1,803 |
FY 30 | 2,123 | 10% | 1,984 |
Discount Rate | 7.0% |
| |
Sum of Present Value of Future Earnings | 8,272 | ||
| |||
Terminal Growth Rate | 3% | ||
Weighted Average Cost of Capital | 6% | ||
Terminal Value | 72,878 | ||
Present Value of Terminal Value | 51,961 | ||
Total Equity | 60,233 | ||
| |||
Shares Outstanding (million) | 178.3 | ||
Intrinsic Value | 338 | ||
Current Price | 288 | ||
Margin of Safety | 17% |
As indicated in Table, based on a conservative 10% growth rate in owner earnings, Adobe is trading at about 25% undervaluation. Historically owner earnings have grown at a rate of 12.6% annually and we believe the growth rate will be higher in the coming five years given the AI tailwind so the assumed 10% growth rate is highly conservative.
Another valuation method to compute the intrinsic value is using the EPS growth rate. Over the past five years, diluted EPS has grown at 15.6% annually from. Assuming EPS growth rate of 15% for the next five years, EPS in fifth year would grow from $12.4 to around $25. Historically the company has traded at a P/E multiple of high thirties to mid forties. Forming a conservative estimate, the company trades at a P/E of 30, five years from now, the value of the stock would be $750 ($25 x 30). This implies a compounded annual return of about 14% from current price. Either way, Adobe looks undervalued at the moment and presents a good investment opportunity.
5. Portfolio Sizing
Adobe is a giant tech company which has led the innovation curve, used across multiple industries globally and is leading the AI integration in the creative software market. Adobe has extremely healthy margins, highly impressive return ratios and difficult if not impossible to replicate scale and network effect advantages. This has led to Adobe being 5.6% of the portfolio with an average purchase price of $395 per share.
Adobe is a great company however it might face some headwinds in near future with news for AI developments pouring in. Adobe looks undervalued however with a P/E of 24 it cannot be termed as extremely cheap. It presents an opportunity to buy a great company at fair price, as Warren and Charlie would frame it. With this, we want to position ourselves so that the volatility in the future, if it exists, provides us the opportunity to accumulate more of the stock at a lower price. If the volatility doesn’t exist, the position should be healthy enough to provide portfolio returns. Using this rationale, we believe 5.6% of the position sizing is appropriate.
Disclaimer: Don’t blame me if you lose all your money
The content provided in this letter is for educational and informational purposes only. It should not be construed as financial, investment, legal, or tax advice. The author is not your registered investment advisor, broker-dealer, or financial planner. Any views or opinions expressed are solely those of the author and are subject to change without notice. You are solely responsible for your own investment decisions. You should conduct your own research before making any investment decision. Past performance is not indicative of future results. All investments carry risk, and you may lose capital. The strategies and ideas discussed may not be suitable for your individual circumstances. This material is not intended to solicit or promote investment in any specific security or investment product, nor does it constitute a recommendation to buy, sell, or hold any financial instrument. By reading this letter, you agree to indemnify and hold harmless the author and all associated entities from any and all liability related to your personal investment decisions.
Till next time,
The Invisible Investor Monthly
