My portfolio is up 50% this year. I have a portfolio that is 100% growth stocks and I’ve taken some time to look at valuations to evaluate if I have companies that seem to be over their skis in terms of valuation.
I’ve been looking at lots of stocks in terms of reverse dfc and it seems to me that MercadoLibre is undervalued by about 50%. They are still growing sales by more than 30% y/y and are improving their operating margin by increasing take rates and reducing costs. They turn out outstanding results quarter after quarter and when faced with competitive threats from players such as Amazon and Shopee, they just keep coming out on top.
I have a somewhat focused portfolio of 9 stocks, but with the numbers I’m seeing, I just really want to put everything into MercadoLibre (not that I have a big portfolio – just around 30k)
Every other growth stock I evaluate seems either overvalued or reasonably valued, taking into account ten years of reasonable growth assumptions. Take Nvidia for example. I own Nvidia and based on my reverse DCF, if they can grow FCF by 30% for ten years, the stock is currently fairly valued. I think they might be able to pull that off, so Nvidia might be worth owning.
But according to the same model, MercadoLibre only needs to grow FCF 11% annually over the next 10 years to justify their current valution. This just seems like an absurdly low bar for them.
If my model is off, it would be off in the same direction for all the companies im evaluating. Part of me thinks I should just invest in this one company that has both amazing fundamentals and low valuation. Another part of me is just saying “hell no! Always stay diversified!”
It’s like Cramer vs Munger in my head. One voice says “5 stocks minimum”. The other says, “why buy anything but your best idea?” Peter Lynch is also in my head. I live in Mexico and use Mercado Libre’s services, so it’s a company I can get behind on a personal level. I think Lynch would approve.
I’ve just never put all my money into one stock before, but this seems like an insane bargain.
What do you think? I’d love to either be talked off the ledge here or encouraged.
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