Dear compounders,

Who would have thought that LVMH, for years one of the most admired compounders in Europe, could fall this far?

Just like Novo Nordisk, the subject of the previous installment [read it here], LVMH was long perceived as one of the best businesses in the world, and rightfully so. Yet the stock is now in its worst drawdown since the Global Financial Crisis, down about 55% from its peak, and it has lost roughly 41% over the last five years. Ouch.

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That brings me back to my piece on half a lost decade stocks. Five years of going nowhere, or in LVMH’s case going backwards, can do serious damage to a portfolio and to an investor’s conviction.

A full lost decade is still a long way off, though. Over the last ten years, the stock is up around 140%, which tells you how extraordinary the run before the decline was. There is one important difference to the setups I described in that piece. There, I was looking for companies whose share price went sideways while earnings kept compounding underneath. LVMH’s net profit of €10.9bn in 2025 was below the roughly €12bn it earned in 2021, so this drawdown reflects shrinking earnings as well as a shrinking multiple. I also don’t consider LVMH a business that compounds intrinsic value at 15-20%+, so I might look for an entire lost decade, as unfathomable as this may sound …

Read my prior LVMH analyses:

• 2025-07: LVMH ($LVMH) - ($)

• 2026-04: LVMH ($MC) – Is the Luxury King Losing Its Crown? - ($)

I still consider LVMH a world-class business, and investors who paid €900 a share were right about its quality. Where they went astray was in three other assessments. They underestimated how much demand Covid had pulled forward, they extrapolated growth rates the industry could not sustain, and they trusted management to protect the exclusivity of its key brands while chasing volume. Those three mistakes are what the market has been correcting ever since. In short, they were wrong about the embedded expectations at COVID price levels, which LVMH could not achieve.

Further below, I will also introduce you to , who has been short the luxury sector throughout the last few years and, as far as I can tell, still is. Shorting luxury was a deeply contrarian call when he started. Hats off to him for that call!

And with the sector down this much, still being short is beginning to feel contrarian again.

One housekeeping note before we start. Since I wrote this post, the share price has fallen further to €378 as of Friday’s close. I have kept the charts as they were, so keep in mind that they are slightly dated.

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Idea #3: LVMH

What is the price trying to tell us?

LVMH has broken both of its long-term uptrends, the one that started at the GFC low in early 2009 and the steeper one that began in 2016. It is yet another textbook example of the mental model from Part 3 of my framework series: the longer and steeper the uptrend, the more violent the reversion when it finally breaks. The stock now trades well below the downtrend that started in March 2024, which has three touchpoints.

If you zoom in, there is also a shorter-term downtrend that kicked off in January 2026 and already has four touchpoints.

Neither line has been seriously challenged.

When I drafted this section, LVMH had just slipped below the psychologically important €400 level. It has since dropped further to €378, so the break has extended rather than reversed.

In the language of my framework, a true confirmation would come if the stock rallied back toward €400 and got rejected there, turning former support into resistance.

As I wrote in Part 3 of my framework:

“Clean trends have multiple touchpoints. Price interacts with the line repeatedly. Buyers step in near the same level. Sellers emerge where you’d expect them to. Each interaction is a form of confirmation. It tells you that market participants are responding to that level. Supply and demand are being validated in the open.”

Is sentiment bombed out, or is there still some air left to let out?

LVMH is experiencing its worst drawdown since the GFC. At about 53% in the chart above and roughly 55% at €378, it is now approaching the depth of the 2008–2009 decline.

The last five years have been rough for shareholders, with a five-year price CAGR of about minus 9% and a three-year CAGR of about minus 18%. The ten-year CAGR is still close to 10%, though, which again shows how strong the run before the decline was.

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On valuation, LVMH trades at 2.8x EV to trailing sales in the chart, roughly 18% below its long-term mean of 3.4x, and lower still at today’s price. That is cheap relative to its own history, although far from the sub-2x multiples the stock traded at during the GFC.

Volume tells a more ambiguous story than I first thought. There have been several spikes over the past two years, including a cluster in recent weeks at more than twice the mean daily volume of roughly 470,000 shares, and plenty of holders have clearly headed for the exit. None of these spikes has looked like a true capitulation, though, and the largest one came about a year ago, after which the stock kept falling. That matches what I saw with Novo, where volume spikes repeatedly failed to mark the bottom.

I would want to see heavy volume coincide with a low that actually holds before concluding that the sellers are exhausted.

Which new insights change how I think about LVMH?

• Few large companies in Europe carry as much negative sentiment right now as LVMH. Just like Novo Nordisk, LVMH was once the biggest company by market cap in Europe, and it might as well follow Novo in its track of losing its “top 10” status.

  

• And the list of worries keeps growing. The debate used to center on the cyclical slowdown in luxury demand. It now spans legal exposure, currencies, China, brand fatigue, and the structure of the group itself. Some of these risks are well understood and probably priced in. Others have only surfaced recently, and those are the ones I find more interesting to think through.

• I encourage everyone to follow @internpierre on X and read some of his boots-on-the-ground research threads on the luxury sector (such as this one). They are highly insightful and at the same time very entertaining. Keep in mind that he is short LVMH and possibly some other names. Based on the perspectives he shares, there may in fact be more downside.

  

• The newest risk vector comes from an investigation into the missing Hermès stake of Nicolas Puech, the founding-family heir who says he was stripped of his 6% holding through schemes involving his late wealth manager, Eric Freymond (who died by suicide in 2025 at the age of 67). In a June court filing, LVMH firmly denied ever trying to buy Puech’s shares. According to documents Reuters reviewed, however, LVMH signed a 2002 agreement to buy those shares in a deal crafted with Freymond, and LVMH and the Arnault family holding paid Freymond’s firm at least $20 million in commissions and fees between 2001 and 2009 while he helped LVMH quietly build its Hermès position. LVMH maintains the agreement was never executed and says the document was destroyed in 2010, the year it revealed its Hermès stake. Puech is seeking €14bn in damages, and LVMH and Bernard Arnault are named as defendants. The market may well have been aware of this case all along, and nobody knows yet how it ends. Still, a worst-case outcome could be worth something in the order of a full year of LVMH’s free cash flow, and the reputational side of a criminal probe that keeps circling the company’s past dealmaking is harder to model.

The chart above shows that LVMH generated €14.3bn of free cash flow over the last twelve months. Note how much of that resilience comes from capital expenditure falling from roughly €7bn to €4.4bn, which fits the picture of a group that overexpanded its store network during the boom years and is now pulling back (I encourage you to think through what this means for expected margins going forward 😉).

• At the same time, the Arnault family has announced a plan to simplify its control structure. Financière Agache would be absorbed by Agache, Agache by Christian Dior, and Christian Dior would then become a limited partnership with shares (SCA) under the name Agache. The resulting Agache SCA would be the single listed vehicle holding the bulk of the family’s LVMH interest, with 49.76% of the capital and 65.55% of the voting rights. Minority shareholders in Christian Dior can tender into a withdrawal offer at 95% of revalued net asset value – an illustrative €469.05 per share as of September 23, which is a 27.3% premium to the prior close – or stay on as shareholders of the new holding. For LVMH shareholders, I read this mainly as a further cementing of family control, since an SCA structure makes the controlling shareholder essentially unremovable. That has worked out well under Bernard Arnault. It also means whatever discount the market applies to LVMH for governance and succession is unlikely to close anytime soon – at least I certainly wouldn’t model it –, and anyone considering the new Agache SCA will have to think carefully about the discount at which a holding company like this trades to its net asset value. The shareholder votes are scheduled for December 2026, and the tender offer is expected in the first quarter of 2027, with no squeeze-out planned.

• A risk I think is underappreciated is currency. Luxury goods benefited from dramatic currency weakness in Asia until various points this year, around June for the Korean won and the Japanese yen. Moves of that size tend to pull spending forward, because consumers arbitrage temporarily lower prices, so organic growth during such periods is not always a true signal of underlying demand. Asia has been weak for several years, but it had shown signs of recovery in recent quarters, and my suspicion is that the weak currencies propped up a good part of that. Since June, those currencies have been reversing.

• China deserves its own discussion. In the 2010s, European luxury brands were strongly associated with status, wealth, quality, and modernity, and a logo or a heritage story carried significant value on its own. Since 2020, sentiment has become more rational. Economic uncertainty, repeated price increases, and weaker perceived value have reduced the willingness to pay purely for a foreign label. The rise of Guochao, for instance – a cultural and consumer phenomenon in modern China characterized by a surge in pride and the embrace of domestic brands incorporating traditional Chinese aesthetics – has made Chinese heritage, design, and local identity desirable, particularly among younger consumers, and Chinese brands have moved from being seen as cheap imitations to credible alternatives with good quality, cultural relevance, and often much better value. I would be careful not to overstate this, though. European luxury has kept its moat, you cannot just replicate a century+ brand history, and few Chinese brands have reached anything close to global luxury status. The real threat, as I see it, is that Chinese consumers – representing a massive growth market for LVMH – no longer grant an enormous brand premium automatically, which forces Western houses to earn it through desirability, craftsmanship, design, and exclusivity.

• Louis Vuitton has just shown how fragile that goodwill can be. It won a trademark case against the Chinese tea chain Molly Tea over a four-petal flower logo and was awarded a mere 10.3 million yuan (roughly $1.5 million) in damages, and the win triggered a patriotic backlash online, with critics arguing the motif resembles a traditional Tang dynasty pattern. That matters a great deal for LVMH, because Louis Vuitton accounts for roughly a quarter of group sales and around 60% of EBIT by UBS’s estimates. The damage shows up in the numbers. According to estimates by JL Warren Capital reported by Bloomberg, Louis Vuitton’s sales in China fell about 30% in July, 20% to 25% in August, and around 13% in September. The “improvement” is encouraging, but it also shows how quickly a single court case can turn into a brand problem.

• We can also point to a deeper tension in the business model. If a luxury brand gets too popular, its own success becomes its downfall, because scarcity is the product. Louis Vuitton has been dealing with quality complaints for at least two years, and as far as I can tell, they had not been fully resolved last year, which is part of the reason it lost so much ground in China. The group likely overexpanded its store network during the boom years, and I would expect a reasonable number of closures over the coming years, which may impact profitability. I’d encourage management to play the long game here, though, and accept short-term growth headwinds to rebuild desirability; it’s LVMH’s greatest asset.

• There also seems to be a growing preference among high-end consumers for bespoke and custom-made goods over big brands, whether in handbags, shoes, suits, or ties. That is probably not a big hit to Hermès yet, but if you can get a bespoke bag for a third of the price or less, it could become a headwind for the more accessible end of LVMH’s portfolio. What tempers this risk somewhat is that LVMH and Hermès have often locked down the manufacturers themselves, either by owning them outright or through exclusive deals with the tanneries and workshops that supply them. A bespoke maker still needs access to the best materials such as finest hides and to artisans who have trained for years, and a meaningful share of that capacity already sits inside or closely alongside the two groups. In my view, this craftsmanship moat is not very well understood and is often overlooked, since most discussions of luxury stop at brand power and rarely reach the supply of skill and materials underneath it.

• The portfolio itself is another source of skepticism. One of our community members would, in fact, like to see LVMH spin off the drinks business, which I thought was an interesting angle. He argues there are no real synergies with fashion and leather goods, and the spirits market has continued to suffer. I do not expect a spin-off to happen, and that is part of the conglomerate discount you have to accept.

• The group owns some excellent smaller brands, but most are too small to move the needle (see Louis Vuitton’s contribution I mentioned above), and their successes are about as likely to be offset by underperformers elsewhere.

• LVMH was also slow to push any of its houses into the ultra-luxury segment to compete with Hermès; we discussed this above.

• Sephora is the clear bright spot and might be the asset of LVMH I’d be most bullish on going forward – you can see how well it works every time you walk past a store, or simply talk to some female friends in your social circle about it.

Welcome to Compound with René. You can find an overview of the companies I shared a deep dive on in the visualization below.

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Final Verdict:

Chart-wise, there is no clear sideways base or V-shaped recovery yet, and the stock keeps making lower lows, most recently below €400.

None of the aspects discussed above make LVMH uninvestable in my view. LVMH has multiple issues which have contributed to the share price performance. It remains however one of the best-run groups in the sector, and the question that matters for me is how much of this is already reflected in the price. Currency headwinds, a China reset, store rationalization, and a legal overhang are all visible today. If we are closer to the bottom than the top, the setup could turn out to be more interesting than the current sentiment suggests, especially if the Asian currency effect proves temporary and Louis Vuitton regains its footing in China. I would want to see evidence of both before getting more constructive.

So, pulling the threads together, the price is telling me to be patient. Both long-term uptrends are broken, the stock trades well below two intact downtrends, and none of the volume spikes so far has marked a low that held. Sentiment is clearly poor, and the valuation sits below its historical average. Compared with past crises, however, the multiple is still far from distressed, and the list of risks keeps getting longer.

What would change my mind is a combination of price and business evidence. On the chart side, I would want to see a sideways base form, ideally on fading volume, followed by a break above the January 2026 downtrend line that holds on a retest from above.

On the business side, I would want to see the Asian currency effect prove temporary and Louis Vuitton’s sales in China stabilize. If both show up together, LVMH could turn into the kind of setup in which a bombed-out price requires only modest business success.

Beyond the chart, I would encourage readers to think carefully about two things:

How much LVMH can grow from here and what steady-state, normalized margins look like.

If you believe an EBIT margin of around 20% reflects LVMH’s normalized profitability, then on roughly €80 billion in revenue and a market capitalization of about €187 billion, you are paying around 11.7 times normalized EBIT.

That looks undemanding – unthinkable only a few years ago – for a business of this quality.

It is, however, also worth thinking about the special surtax France imposed on its largest companies. Remember that EBIT stands for earnings before interest and taxes, so an EBIT multiple tells you nothing about how much of that profit the state claims before it reaches shareholders. For most companies that gap is fairly stable and easy to ignore, but a structural change in the tax rate widens it, and with it the distance between the headline multiple and the multiple you are actually paying on owner earnings.

The surtax was presented as an exceptional, temporary measure, yet I am inclined to think it will prove more permanent than initially announced. France, like many of its European peers, is running persistent budget deficits and struggles to legislate true structural reforms; instead, milking large and profitable cash-cow companies are a politically convenient source of revenue, and taxes introduced as temporary have a long history of quietly outliving their original deadlines. If that turns out to be the case, LVMH’s effective tax rate is structurally higher than it was before, and any valuation built on pre-tax profitability flatters the stock.

The tax burden is high, and once you look at the earnings that actually reach owners after taxes, the picture becomes less flattering. At a net margin of around 14%, net income comes to roughly €11.2 billion, which puts the stock at close to 17 times earnings. That is still reasonable if growth can eventually be reignited, though a fair bit further from bargain territory than the EBIT multiple suggests.

I raise all of this because I am a value investor at heart, and if the stock gets cheap enough on a fundamental basis, I will probably not be able to help myself and will buy it regardless of what the chart is doing.

Disclaimer

As of the date of publication the author owns no shares in the company; but that may change. My wife and my parents portfolio, which I oversee, have LVMH in it though and I may thus be biased. The analysis presented in this blog may be flawed and/or critical information may have been overlooked. The content provided should be considered an educational resource and should not be construed as individualized investment advice, nor as a recommendation to buy or sell specific securities. I may own some of the securities discussed. The stocks, funds, and assets discussed are examples only and may not be appropriate for your individual circumstances. It is the responsibility of the reader to do their own due diligence before investing in any index fund, ETF, asset, or stock mentioned or before making any sell decisions. Also double-check if the comments made are accurate. You should always consult with a financial advisor before purchasing a specific stock and making decisions regarding your portfolio.

In the first part of this series (find it here), I walked through Grab, the first of seven ideas I am lining up as potential homes for the capital that would be freed up if the Ember proposal for Ashtead Technology materializes or if the gap to the offer closes.

Idea number two is a very different animal. It is a former market darling that has lost almost three-quarters of its value in just over two years, and a stock I have passed on for as long as I have been writing about it.

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All my prior Novo Nordisk write-ups:

• 2025-04: Novo Nordisk ($NVO)

• 2025-05: From Reported to Real: The Hidden Economics of Novo Nordisk’s Cash Flow

• 2025-08: Revisiting Novo Nordisk ($NVO) - ($)

• 2025-08: Revisiting Novo Nordisk ($NVO) - ($)

• 2026-02: Revisiting Novo Nordisk ($NVO) - ($)

Idea #2: Novo Nordisk

What is the price trying to tell us?

Novo has been in a downtrend since June 2024. The stock is down 72.6% over roughly 2.2 years, which works out to a CAGR of about minus 44%. That is pretty bad, and yet the most important line on this chart is the black one. For almost two decades, Novo respected a long-term uptrend that started in the mid-2000s, and in 2025 it broke that line decisively.

In Part 3 of my framework series, I wrote that the longer and steeper the uptrend, the more violent the reversion when it finally breaks. Novo is a textbook case, right next to Constellation Software and Diageo (and many other recent ones come to mind such as Rollins or Intuitive Surgical). Of the two downtrend lines, the light red one probably carries the stronger signal. It covers a shorter period than the dark red one, but it has five touchpoints compared with just two, and neither line has been broken.

Clear support is hard to find. The only meaningful reference point on the downside is the March 2026 low at $34.85, roughly 10% below the current share price, and it may well get tested soon.

As I explained in Part 3 of my framework series:

Applied to Novo, the picture is sobering. The stock has traded in heavy volume throughout 2025 and 2026, with daily turnover regularly at several times its long-term average of about 7.5 million shares and multiple clear spikes along the way. More than once, a spike looked like the capitulation that marks a bottom, and more than once Novo went on to make new lows. Investing is tough and technical analysis is just one tool in your toolkit that you need to couple with many other ones and even then you might not perfectly time the lows – but does this mean you shouldn’t try?

Volume has eased somewhat from its early-2026 peaks, but it remains far above pre-selloff levels, and the latest spike in September came on the way down. That tells me the transition in ownership I described in Part 3 of my perception change analysis series (I cannot even pinpoint from whom to whom … long-term owners to those concluding that the embedded expectations at this price make up for the many mistakes of the past?) is not finished yet.

Novo has also been incredibly volatile. Since August 2025, the stock has gone through two full bull and bear cycles, rallying 42% and 46% within a few months each time and then giving back 44% and 25% even faster. Bulls take the stairs, bears ride the elevator, and Novo illustrates the saying almost perfectly.

Interestingly, the stock trades only about 11% below its August 2025 low of $43.54, and for more than a year it has been stuck in a range between roughly $35 and $62.

In the language of my framework, that looks like the early shape of a sideways base, although an unusually wild one.

Is sentiment bombed out, or is there still some air left to let out?

My hunch is that sentiment is pretty bombed out. Novo has delivered three down years in a row, the drawdown stands at about 72%, the three-year CAGR at roughly minus 25%, and even the five-year CAGR has turned negative. No one seems to want to touch the business. The one exception is the ten-year CAGR, which is still positive at around 5%, so the longest-standing holders are still in the green and have not necessarily capitulated yet.

Which new insights change how I think about Novo?

• Investors do not seem to trust the new management team, and I struggle to argue with them. Mike Doustdar strikes me as more of a hired-gun-type CEO (even though he rose through the ranks of Novo), and his countless public interviews – seemingly an attempt to restore confidence while the business keeps underdelivering – just don’t quite sit well with me. This is just a gut feeling and highly subjective, of course, but sometimes you need to trust your gut (Rob Vinall argues it’s a great filter with strong signal value), and there are plenty of other companies out there.

• The Capital Markets Day on September 21 added an embarrassing moment on top. During a break in the livestream, members of the management team left their microphones on while they believed they were speaking in private, and listeners on the webcast clearly overheard one of them say: “We are going through a period right now where it is almost impossible to provide guidance.” It reminds me of how voters perceive politicians. Most people would rather hear an uncomfortable truth than a sugarcoated one. If visibility is really that poor, management is free to avoid guidance entirely, which is what almost every company did during Covid. That would serve shareholders far better than issuing guidance without any cushion, missing it, and burning through whatever investor confidence is left. The shares fell about 7% on the day, so the market seems to have drawn a similar conclusion.

• Management also wants to pursue more acquisitions and diversify the business. I covered the base rates of M&A in the first part of this series on Grab (link), and they apply to Novo just as much. The company’s dealmaking in obesity has taken a winding path lately. In mid-September, Novo terminated its 2024 collaboration with Ascendis on once-monthly TransCon Semaglutide, and only ten days later it announced a license and collaboration agreement with Nanexa worth up to EUR 1.165bn (roughly $1.3bn), including EUR 615m in upfront payment and development and regulatory milestones plus low single-digit royalties, for as many as five development programs with dosing intervals ranging from once monthly to once quarterly. Novo had previously run an evaluation deal with Nanexa before choosing Ascendis as its primary partner, so it is now returning to a partner it had passed on, which is something we rarely see. Nanexa already has preclinical semaglutide data supporting dosing as infrequent as once a quarter. The press release does not name the molecules, although I would be surprised if semaglutide and amycretin were not among the five, and cagrilintide may well be one of them.

• At the same time, you always have to ask what is priced in. I keep saying that the biggest mistake I see investors make is the inability to distinguish between the business outlook and the expectations embedded in the current price. The mistake shows up on the upside whenever embedded expectations become very unlikely to be realized. It is just as common near the bottom, when a share price reaches a level that requires only minimal business success from here. Novo’s stock trades at its cheapest sales multiple since 2015 (3.6x EV to trailing sales) and at 9.3x trailing earnings. I would take that last number with a grain of salt, since the forward multiple is higher – a sign that the market expects earnings to fall from here – and how low earnings can go is one of the key questions here given the many headwinds, pricing pressure and strong competition above all.

  

• Still, Novo has a few things going for it, including a very strong Wegovy pill launch in the US, and this may turn out to be a classic time arbitrage opportunity. In previous write-ups I shared how five factors drive a drug’s success: Efficacy, Safety/Risk, Tolerance, Convenience, Pricing. Applied to the Wegovy pill, convenience is the most obvious win, since many patients would rather take a daily tablet than inject themselves, and Novo reported more than 3 million prescriptions by the ADA meeting in June. Longer term, I’m optimistic that the pill will be the preferred form factor.

• Jan (@janthecurious1) shared some good thoughts on X after buying the stock following the Capital Markets Day. He does not pretend the problems have disappeared and acknowledges intense competition from Lilly, real US pricing pressure, and the burden of proving that the pipeline and new launches can return Novo to growth. His argument is that the market is underestimating how much was actually presented at the Capital Markets Day. Management laid out more than DKK 150bn in risk-adjusted annual sales potential from the current pipeline by 2035, more than five new multi-blockbusters launched by 2030, at least ten new Phase 3 programmes, and over 60 million patients reached globally by 2030.

“When you look at this slide, what I’d like you to remember from it is the headline. That’s our ambition. We will have the plan to launch at least 5 multi-blockbusters by 2030, pretty much every year and deliver a combined sales of more than DKK 150 billion in value in less than 10 years from today. This ambition is risk-adjusted, which means it allows for development risks. This is what you should remember.“

• Five oral obesity candidates are in development, a major expansion of manufacturing capacity for oral GLP-1s is underway, CagriSema (an investigational, once-weekly injectable combination medication) is moving toward a potential US approval, and zenagamtide/amycretin is being developed as both an oral and an injectable treatment. Then there is the Wegovy pill, which Jan considers one of the most important parts of the case. Novo has captured the large majority of new oral obesity prescriptions in the US, and management is preparing for a market in which oral treatments play a much bigger role than they do today. To be fair to the bears, the CagriSema story has its own blemish. In a head-to-head Phase 3 trial, it failed to show non-inferiority against Lilly’s tirzepatide, with weight loss of about 23% versus 25.5%.

Final Verdict:

There is so much more to unpack, and I have discussed Novo at length in many previous write-ups (see links above), and many of those points still hold, so I encourage you to continue your reading sessions there. I have always passed on Novo so far, partly because it sits a little outside my circle of competence and I respect those borders.

We might, however, now be in territory where I can exploit a behavioral edge, a setup that does not rely on superior analysis, which I do not think I could bring to a business like this one.

You’d think the sentiment regarding Novo can’t get much worse from here. In the past, investors thought so too, and then it did.

So of course it might happen again, but there is some strong fundamental support in the single-digit earnings multiple territory and my hunch is that the perception of Novo cannot get much worse. The stock has been about flat for around a year, so bears struggled to push the stock significantly lower.

At the same time, Novo is incredibly concentrated product-wise given the size of the company, which is also something I struggle with getting comfortable with. Semaglutide (the active ingredient in Novo's blockbuster drugs Ozempic, Wegovy, and Rybelsus) alone accounts for roughly three-quarters of 2026 sales, and the clock on it is already running – generics launched in Canada, India and China this year, Medicare's negotiated price cuts US pricing by 71% from 2027, and the key patents expire in Europe in 2031 and the US at the end of that year.

Pulling the threads together, I think a bottom may be nearing. A two-decade uptrend broke hard, but both downtrend lines are still intact, volume spikes have repeatedly failed to mark the bottom, and the stock is drifting back toward its March low. Compared with Grab, there is no confirmed stabilization to lean on and the fundamental outlook looks more challenging. What I can see is a valuation that already requires little (if margins can stay above a certain level) business success and a wide sideways range that could, in time, turn into a proper base.

Two signals would change my read. A successful retest of the $34.85 low, ideally on fading volume and followed by a higher low, would suggest that the marginal seller is finally stepping back. A break above the light red downtrend line, currently somewhere in the mid-$40s, that holds on a retest from above would confirm that the balance of power has shifted toward buyers.

A decisive break below $34.85 on heavy volume, on the other hand, would tell me the selling pressure is not exhausted yet.

Disclaimer:

As of the date of publication the author owns no shares in the company; but that may change. The analysis presented in this blog may be flawed and/or critical information may have been overlooked. The content provided should be considered an educational resource and should not be construed as individualized investment advice, nor as a recommendation to buy or sell specific securities. I may own some of the securities discussed. The stocks, funds, and assets discussed are examples only and may not be appropriate for your individual circumstances. It is the responsibility of the reader to do their own due diligence before investing in any index fund, ETF, asset, or stock mentioned or before making any sell decisions. Also double-check if the comments made are accurate. You should always consult with a financial advisor before purchasing a specific stock and making decisions regarding your portfolio.

On July 13, I published my deep dive on Dino Polska. The stock is up 27% since. That is pleasant to see. My estimated 5-year CAGR was in the range of 11-26%, with a weighted average of 16-17%, so it seems like that estimate is, as of today, well on track.

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Despite the recent rally, if you zoom out a little, over five years, the stock is still pretty much flat.

And of course, eleven weeks of price action could just as quickly reverse and tell me almost nothing about the intricacies of the business and the customer experience.

My research from a few weeks ago was also built from annual reports, store counts, demographic tables, expert interviews, and management commentary.

What it lacked was the view from inside the store. I have never stood at a Dino meat counter in a village of 2,000 people. I have never had to decide whether to walk to the nearest shop for a pack of butter or drive twenty minutes to a Lidl. My thesis leaned heavily on assumptions about how rural Poles shop, what they value and whether any of that is shifting, and I had no way of testing those assumptions from my desk in Düsseldorf.

For companies that operate in a region where you don’t live, that “understanding gap” is enormous. I have come to believe that understanding customers, what they need, what they appreciate and what slowly wears on their patience, should be a core pillar of every investment framework.

FICO is perhaps the freshest reminder. A business that looked like it had untouchable pricing power has lost almost three-quarters of its value, but it seems like it flexxed that pricing power muscle too much. Cracks in a thesis very often show up first among customers and the people (or regulators in this case) closest to a company’s products.

By the time they reach the income statement, the market has usually moved on.

Tiho Brkan shared a chart the other day on X, and privately, that has stuck with me and came to mind when writing this intro (see below).

His commentary on it is worth quoting in full:

“Fundamentals are forward-looking expectations. They project what might happen in the future, and the wisest of investors have several case scenarios (rookies anchor to one plausible future only). Here, it is all about the future, and when discussing fundamentals, we are reasoning with foresight. What is the key takeaway? Financials are what everyone gravitates to, as their difficulty is manageable. However, they have very little value and are often already discounted or baked into the price. Fundamentals are what everyone shies away from (or probably cannot even distinguish from financials), as they are extremely complex. However, that is where all of the value sits, as they are not discounted or baked into the price.”

Again, I bring up Tiho's take because it gets at why this follow-up arrived in your inbox today. In July I did the backward-looking work, and I also laid out where I think Dino is heading: the store rollout, the reinvestment runway, margin durability and the risks that could derail all of it. That is the foresight Tiho describes, the part of the chart where the value is. Foresight rests on assumptions, though, and mine were built from filings, industry data and demographic tables that I studied at my desk in Düsseldorf. They assume rural Poles will keep choosing proximity and a good meat counter over everything else, that the labor pool will hold up and that the competitive landscape looks the way the reports describe it. If any of those assumptions starts to crack, customers, employees and locals will notice long before it appears in a quarterly report, just as FICO's customers, lenders and regulators did. I wanted to hear from those people directly, to find out whether the future I sketched matches what they see on the ground.

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Thus, this brief follow-up to me deep dive is my attempt to understand Dino a little better, so I sent a list of questions to three people with boots on the ground or local roots or connections. Many of you will know:

• Michael from our community, where he is one of the most active voices, and he also writes Personal Finance Without Borders on Substack. He passed my questions to his partner, who grew up in Kielce and still has family in the Polish countryside, so those answers come straight from someone who knows these villages firsthand.

• Mathijs is one third of The Dutch Investors. He has owned Dino for two years and has visited five of its stores across two separate trips. I owe the connection to his fellow Dutch Investor Siem, who I joined on his podcast recently and was supposed to sit down with me again tomorrow, a conversation we had to push back because of the events I shared in my email yesterday.

• Jakub (Marlowe on X) needs little introduction for regular readers. He is a Polish independent analyst who studied at Jagiellonian University, started investing in the middle of the 2006 construction bubble and still talks to Dino staff when he is back home. He was spot-on about InPost, and I will never forget that our bullish podcast episode on the company went live one day before the acquisition offer was announced. You can’t plan timing like that. If you don’t follow his work yet, you can find him on X (link above).

Their answers confirmed parts of my thesis, complicated others, and raised a few risks I hadn’t even thought to worry about. You will learn why every shopper seems to bring up the meat counter unprompted, why one employee described working at Dino as “hard, hard bread,” who Dino is actually taking market share from (hint: it’s mostly not Biedronka), and why a demographic detail about who leaves rural Poland might matter more than any store count.

This is also the first post in a format I plan to repeat. Whenever I publish a deep dive, I might go back to people with firsthand expertise and run a short follow-up interview that pressure-tests what I wrote. Feel free to message me if you think a follow-up interview would fit to one of my prior (or future) deep dives. The next one is already lined up with Joe from Goldman Won’t Cover This on Intuitive Surgical.

Let’s start with the people who actually shop there.

Disclaimer: As of the date of publication the author owns shares in the company; but that may change. The interview guest may hold positions in the companies discussed. The analysis presented in this blog may be flawed and/or critical information may have been overlooked. The content provided should be considered an educational resource and should not be construed as individualized investment advice, nor as a recommendation to buy or sell specific securities. I may own some of the securities discussed. The stocks, funds, and assets discussed are examples only and may not be appropriate for your individual circumstances. It is the responsibility of the reader to do their own due diligence before investing in any index fund, ETF, asset, or stock mentioned or before making any sell decisions. Also double-check if the comments made are accurate. You should always consult with a financial advisor before purchasing a specific stock and making decisions regarding your portfolio.

Intro

Mathijs: My name is Mathijs, co-founder and analyst at The Dutch Investors. Generally, I’m looking for companies with a strong market position, that structurally outperform competition, that generate high returns on capital and where management’s incentives are well aligned with shareholders. Dino Polska has been on my radar for around two and a half years now and I took my first stake two years ago. In the past two years, I have visited five Dino Polska stores in two different time periods to do research for myself and as part of research for The Dutch Investors.

Michael: Responses from my partner who grew up in Kielce (eastern Poland)

Jakub: Thanks for having me, René. I’m an independent equity analyst and investor, and I’ve published research since 2021. I’m Polish, I studied at Jagiellonian University, and I’ve been based in the UK since 2014, so I know Poland from the inside, though I now follow it from a bit of a distance.

I started investing in 2006, right in the middle of the Polish construction bubble. I remember watching pizza companies turn into construction companies, which tells you everything about where that cycle was. I sold about half my portfolio in August 2007, then watched the rest fall, with some stocks down 90%. I bought again in early 2009 and doubled my money, helped a lot by how cheap the market was. After that I spent about five years running my own businesses rather than following the market.

I came back to investing properly in 2019 with a quality-focused approach: high returns on capital, low debt, owner-operators. Since then, I’ve kept refining the strategy and the analysis, and the InPost work is where it showed up most clearly.

That history shapes how I look at Dino. I’ve seen what a boom in Poland looks like when balance sheets are weak, and Dino is the opposite of that. And the timing is interesting. At around 35 PLN a share, Dino has a market cap of roughly 35 billion PLN, about where it was in 2020. Since then, the business has grown a lot in stores, revenue and earnings, and the market has paid essentially nothing for that growth. That gap is what I want to talk about.

On the actual shopping experience

Mathijs: So, I’m not from Poland myself. However, the company I work for does have a large production location in Poland, so I also spoke to some colleagues from there. The main reason is location, which probably connects to the habit reason you’re referring to. From what I heard and saw, consumers shop there for daily groceries. So yes, meat, vegetables. Need toilet paper on Tuesday? Rush to Dino. Of course, the location-reason only applies to people living in rural areas. In cities, you will find more Zabka’s and Biedronka’s.

Michael: The main reason for choosing one over another is most likely the proximity, and then how well stocked they are. But for the basic day-to-day shopping, you get to choose from Dino, Lidl, Biedronka, Kaufland, Auchan, Tesco. I think these are the main supermarkets, and then sometimes also Netto. But yeah, for day-to-day stuff, usually you would just go to the one that is the closest because honestly, the price differences are not so much on the day-to-day products. And then if you are doing a bigger shop, or you need something specific, then this is where you would go to any of the supermarkets that would have it. I think for some of the young people who are now into the healthy lifestyle and eating fit, high-protein diet, then this is where they may prioritize Lidl and Biedronka because these discount shops have a lot of products that are basically their brand. And they have, yeah, they are those fit products for a very good price.

Jakub: Honestly, the biggest single factor is proximity, not price. There are two different shopping modes going on in a small Polish town. There’s the actual weekly shop, where you take the car and load up at Lidl, Aldi, Biedronka, Kaufland or Dino, and there’s the top-up trip: you ran out of cigarettes, or beer, or cream, or your kid wants crisps, and you just walk to whichever shop is closest. A lot of small local chains, the Globi’s, Zabka’s and Groszek’s of this world, live almost entirely off that second kind of trip. I’ve done it myself, popped into a Globi for pierogi because Dino was too far from where I was staying, even though I’d normally choose Dino given the option.

Mathijs: I don’t think so. If I had to choose, I would think Lidl and Biedronka offer more perceived quality of their products. Shops look nicer and are more modern.

Michael: Dino is known for having high-quality meat counter items. But everything else are products that are available in other shops.

Jakub: Where Dino does win on something other than proximity is the meat and dairy counter. Every person I’ve spoken to who shops there volunteers the same thing unprompted: the meat is good, it’s Polish, and the cheeses are good. That’s not marketing language, it’s what people actually say. And it’s backed by something real: Dino carries around 5,000 SKUs per store, roughly double what Biedronka or Lidl carry. So it doesn’t feel like a discounter to shoppers, it feels like a proper one-stop supermarket that happens to be priced competitively. That’s a real structural difference from the hard-discount model, not just a perception thing.

Mathijs: Again, I’m not from Poland. However, I do think Dino is less vulnerable to a shift to online grocery shopping, because people go there multiple times a week and do weekly shopping at Lidl or Biedronka (wider assortment, larger space).

Michael: From a perspective of someone who lives in a big city and has parents and siblings in the countryside, I think that there is a big divide between how younger people in the city versus younger people in the countryside shop. I think the city is very much bought into the crave of this healthy lifestyle, and maybe not healthy lifestyle, but just high protein and fit and so on and so forth. While in the countryside, in order to get these products, you would have to get out of your way. So I think that younger people in the countryside shop like their parents, just because of the infrastructure, the shopping infrastructure that is available in the countryside. The majority of them would not be using any e-commerce or online delivery apps, because the cost of that service in the countryside is more expensive, and so that often will be perceived as a waste of money to pay for the delivery as opposed to go and shop, unless you are in a certain social group that doesn’t really care about the cost of the food.

Jakub: On generational shift, I’ll be honest, I don’t have a real insight there. I can tell you how the two shopping modes work, but I don’t have evidence either way on whether younger rural Poles behave differently from their parents. I’d rather say that plainly than guess at a trend I haven’t actually seen.

Leave a comment

On local reputation and brand perception

Mathijs: I don’t know to be honest.

Michael: Don’t know

Jakub: On the labour dispute specifically, I did some digging myself, I spoke to staff at three different Dino stores in one town. Nobody brought up the dispute unprompted, and when I nudged the conversation toward working conditions, the answers were mixed but not alarmed. It’s physically hard work, long shifts, constant restocking, cross-trained across meat, bakery and till, and there’s essentially no benefits package beyond base pay. What makes it bearable, by their own account, is the local team and manager, not anything the company provides structurally. One phrase has stuck with me: one worker called it ‘hard, hard bread,’ and said the only reason she liked her store was that she liked her colleagues, not because of how Dino treats them as a policy matter. So it’s not glowing, but it’s also not the picture of crisis you’d get from the strike headlines. My read is that this is as much a sector-wide rural labour shortage as a Dino-specific failure. In the same conversations I heard that Lidl locally is so desperate for staff it reversed a rejection and accommodated a candidate’s preferred shift two months later.

Mathijs: I definitely don’t think that’s a factor in Poland.

Michael: They are all reasonably cheap. Dino isn’t perceived as a budget option. It really is about proximity.

Jakub: On stigma, I haven’t seen any. Nobody treats shopping at Dino, or at any of these discount-adjacent chains, as something to be embarrassed about. People shop wherever’s closest without a second thought, and that includes people who could clearly afford to shop elsewhere.

Mathijs: Don’t think so. I remember one media appearance when he allegedly crashed his Ferrari. So, that might have given him some (unwanted) attention.

Michael: The answer was who is Tomasz Biernacki? :D He is very low profile.

Jakub: On Biernacki, he’s genuinely invisible. Most Poles outside investing or retail circles wouldn’t recognize his name, let alone his face. He does no politics, no media, no personal branding. I actually find that refreshing, especially coming from following InPost, where Brzoska is constantly in the press and occasionally wading into political territory. It removes a lot of headline risk. The tradeoff is that it also means very little visibility into his intentions long-term, but as a day-to-day matter, he’s a non-factor in public life.

On competitive dynamics I can’t see from outside

Mathijs: Apart from Biedronka, Lidl, Dino and Zabka, I noticed a supermarket chain called Eurocash. They seem to be struggling and not keeping up with growth.

Michael: There are others: Stokrotka, Netto, Lewiatan. Then also larger scale ones like Auchan and Kaufland. On the smaller scale you have Zabkla (more in cities) and ABC (in countryside).

Biedronka and Lidl focus on towns while Dino can be in the middle of nowhere. Lewiatan is the real direct competitor in rural areas although this may differ in other parts of the country.

Some small towns also have one-off family-run supermarkets.

In many countries, the population is concentrated in towns or villages or cities, while Poland has this specific type of a village or a human settlement, whereby the population is not concentrated in one geographic area, but it may be concentrated along the road-front, which basically gives you long spread-out human settlements that may be far from the nearest village or the nearest town, but still needs to go and shop somewhere. This is very characteristic for Poland.

Jakub: The ‘just Biedronka and Lidl’ framing misses a whole layer. In my own small town alone there’s also Aldi, Lidl, Kaufland, Żabka, and then a long tail of smaller names: Lewiatan, Delikatesy Centrum, Groszek, PSS Społem, Wizan, Globi, Netto, Euro Market, Delfin. But I’d draw a sharp line between the first group and the second. The small local chains aren’t really competing with Dino in the way Biedronka is, they’re the ones getting displaced by it. Most of them are franchise networks or old cooperative structures with weak central buying power and aging stores, and Dino’s standardized, owned-real-estate format is eating their volume year after year. That’s a big part of where Dino’s growth actually comes from, not stealing share from Biedronka, but absorbing what used to go to a Społem or a small Lewiatan franchisee.

Mathijs: No. And I don’t think these companies can ever be profitable in rural Poland. The distances are too long and population is too spread. Similar companies even went bankrupt in major cities like Amsterdam and Rotterdam. Different country, but still.

Michael: No – haven’t noticed this for shopping.

Jakub: On quick-commerce, I’ve seen zero evidence of Glovo or Bolt Food or anything like that making any inroad into rural Poland. That’s a big-city phenomenon. The population density and income levels in these small towns don’t support a delivery-rider business model, so I don’t see it as a threat to Dino’s proximity advantage any time soon.

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On demographics and regional nuance

Mathijs: Or turn it around, Dino’s are profitable in villages with just 2,000 inhabitants. Lidl and Biedronka are not. So, if villages become too small to them and they leave, this will offer more potential customers for Dino?

Michael: Better to use data for this as it would just be anecdotal.

Jakub: On depopulation, I don’t have strong ground-level insight into east versus west specifically, but I’d flag something that complicates the simple ‘young people leave for the cities’ story. There’s been noticeable return migration of Poles who’d been working in the UK, and Ukrainian settlement reaching even small towns, not just the big cities. So whatever outflow exists is being offset, at least partially, by two different inflows. I wouldn’t assume net population in these towns is falling as cleanly as a simple depopulation model suggests.

Mathijs: To be honest, I didn’t notice any difference. Have been to Krakow and surrounding villages, between Krakow and Auschwitz. Not that different compared to the ones around Leszno in the West.

Michael: Eastern Poland is different from Western Poland. Eastern Poland historically has been poorer and more underdeveloped. And even though there has been some progress, it still remains like that, specifically at the eastern border, and now also with the Ukrainian conflict. These areas are depopulating faster. So that may impact whether shops can actually sustain themselves.

Mathijs: I don’t dare to answer this question. Really have no clue. My thesis is fully based on expansion in Poland.

Michael: No idea

Jakub: On adjacent-country expansion, I’ll be honest about where I stand: I haven’t seen any real signal from management that they’re planning to move into Lithuania, the Czech Republic or Slovakia. The whole model depends on owned real estate built specifically for this format, and a captive meat and logistics supply chain built around Agro-Rydzyna, which is very Poland-specific. That’s a harder thing to export than just replicating a store layout. My honest hope for this stock is much less exciting than international expansion, it’s that they keep doing exactly what they’ve been doing in Poland for another decade, the way Lidl and Aldi have done across their home markets, and that I get to just hold it. If, however, they decide to expand to other markets, I will gladly watch it unfold and hold through it. The alternatives are buybacks or dividends, each can be good ten years from now. I would hope for international expansion eventually though.

On regulation and local politics

Mathijs: I think these are well enforced and respected. Just like in Germany in my experience.

Michael: They do apply but Some shops like Lewiathan and Jablka have a way around it due to their model whereas Dino and other big companies are closed on Sundays.

It comes down to this: by law, company-owned shops cannot open on Sundays and “owner-operated” shops can. Because of their franchise model most leviathan shops are owned by independent entrepreneurs – these can open on Sunday. I think some Lewiatans are owned by companies (who own several franchised stores) and these ones can’t open on Sunday.

In theory, under the “owner-operated” exemption, the owner must personally work in the store on that Sunday. In practice that doesn’t happen for Lewiatan and Jablka (the same normal employees work on Sundays as other days)

Jakub: Sunday trading is properly enforced, not a paper rule with workarounds. Some Sundays are legally designated as trading days and the stores are open, others are closed, and Dino doesn’t have any way around that given its size. The only shops that can open on a closed Sunday are genuinely small, owner-operated ones where the owner is physically working the till themselves.

Mathijs: Don’t know

Michael: No idea

Jakub: On land and zoning friction, I haven’t come across anything, no disputes, no resistance from local shop owners showing up in local coverage. That’s a non-finding rather than a confirmed clean bill of health, since I haven’t gone looking specifically, but nothing has surfaced.

Closer

Mathijs: I’m a foreign investor myself :)

Michael: Depopulation/rural to urban migration is the main worry and it is happening everywhere.

It seems that more women have left rural areas for cities than men so you have a mismatch with more young single men than young single women in rural areas. If it continues like this, then depopulation could be even more of a problem.

Jakub: I’d push back on the framing a little. I’ve never needed Dino to be dominant. My thesis isn’t that they’ll own the Polish grocery market, it’s that they can keep opening owned-real-estate stores at a high return on capital in a fragmented space full of weak legacy competitors, for a long time. So the question I ask myself isn’t what threatens their dominance, it’s what breaks that reinvestment machine.

A few things would genuinely worry me. First, labour. Rural Poland’s labour pool is tighter than people assume, I’ve heard first-hand that Lidl is having to bend over backwards to staff a small-town store. If wage inflation keeps climbing there, that shows up in margin before it shows up in any headline.

Second, Biernacki himself. He’s completely invisible, no media, no politics, nobody in Poland even knows what he looks like. I actually like that, it removes a lot of the key-man drama you get with someone like Brzoska at InPost. But it cuts both ways: nobody outside the company has any real visibility into his succession plans or long-term intentions for a 51% stake.

Third, simple saturation. The easy small-town white space won’t last forever. Once it’s gone, growth capex either slows or moves into harder, more marginal locations, and that’s the point where you’d see whether the returns hold up. Who knows, maybe we’re there now?

If I had to name what would break the thesis rather than make me nervous for a headline or two, it’s one of those three.

Outro

A big thank you to Mathijs, Michael and Jakub, and to Michael's partner, for taking the time to answer my questions so openly and honestly. I have read their answers several times now, and each round left me with a sharper picture of Dino.

Several of them were comfortable saying "I don't know" when they didn't, and I value that just as much as the insights. If you enjoyed their perspectives, please support their work. You can find Michael at Personal Finance Without Borders, Mathijs and his partners at The Dutch Investors, and Jakub on X (I linked their respective online presences in the intro). I am looking forward to the next edition of this format with Joe on Intuitive Surgical, and if you have firsthand expertise on a company I have covered and would like to take part, my inbox is always open.

Ember Infrastructure Management's 615p proposal for Ashtead Technology has put one of my positions in a new light.

For now, the market is treating the approach with caution. The shares still trade at a noticeable discount to the indicated level, which tells me investors see the odds of a completed deal as moderate at best and expect any timeline to stretch well beyond twelve months.

I believe Ashtead's intrinsic value is higher than 615p, so I have not made up my mind yet on what to do exactly. Should the gap narrow, though, decreasing the expected forward return, opportunity cost starts to matter more and more, and selling could become the rational move, especially because I have some interesting-looking ideas on my radar.

In that case, a meaningful chunk of capital would need a new home, and I could also see myself diversifying the new funds across multiple ideas (Ashtead is now >20% of the portfolio).

As an investor, you always have to be ready. Opportunity rarely sends a calendar invite.

So I have started mapping out capital allocation scenarios. Seven companies currently rank highest on my watchlist, and in this new series I will walk through each of them using my perception change framework.

My Perception Change Framework:

• 2026-01: My “Perception Change” Framework – Technical Analysis (Part 3) - ($)

• 2026-01: My “Perception Change” Framework – Qualitative Instruments (Part 2) - ($)

• 2026-01: Playing a Different Game: When Fundamentals Aren’t Enough Anymore! (Part 1)

Every idea gets the same set of questions:

• Could now be an opportune moment to buy?

• Is sentiment bombed out, or is there still some air left to let out?

• What is the price trying to tell us?

• And beyond the supply and demand dynamics of the stock, which new qualitative insights have I picked up that change how I think about the business?

My original plan was to cram all seven into a single post. The further I got, the clearer it became that this would turn into a monster few people would ever actually finish. I sometimes wonder how many people actually read my 10,000-word+ deep dives. If you look at the cold, hard data of the number of 10-Ks that are actually downloaded by all investors globally (spoiler: it’s shockingly low), the actual number of readers of my deep dives may be disappointing.

Fun fact: Using the SEC's own server logs, Loughran and McDonald found that the average publicly traded company had its annual report requested only around 28 times by investors right after filing.

Anyway. Each idea now gets its own piece, short enough to read in one sitting over your morning coffee or on the train to work.

Two and a half of them are already written, so the rest of the series should land over the next seven to ten days.

Idea number one is a company where the CEO just put roughly $30 million of his own money on the line, and where I added to my own position only a few days ago.

Disclaimer:

As of the date of publication the author owns shares in the company; but that may change. The analysis presented in this blog may be flawed and/or critical information may have been overlooked. The content provided should be considered an educational resource and should not be construed as individualized investment advice, nor as a recommendation to buy or sell specific securities. I may own some of the securities discussed. The stocks, funds, and assets discussed are examples only and may not be appropriate for your individual circumstances. It is the responsibility of the reader to do their own due diligence before investing in any index fund, ETF, asset, or stock mentioned or before making any sell decisions. Also double-check if the comments made are accurate. You should always consult with a financial advisor before purchasing a specific stock and making decisions regarding your portfolio.

Idea #1: Grab Holdings

What is the price trying to tell us?

Grab lacks a clean multi-year trend to lean on. After collapsing from its post-SPAC highs in 2021 and 2022, the stock built a slow uptrend off the late-2022 low of around $2.30, which eventually carried it to roughly $6.40 by September 2025. Nearly all of that advance has since been handed back.

The downtrend that started in September 2025 is the more useful line. It has multiple touchpoints, and it has not been broken, let alone tested and confirmed.

Even after the mid-teens rebound from last week’s low, the share price would need to climb roughly another 10% just to reach it.

What catches my eye is where the selling stopped. At $2.74 this months, Grab traded at its lowest level since May 2023.

Grab has punished its shareholders for a long time. The stock sits more than 80% below its all-time high, the five-year annualized return stands at roughly minus 21%, and even the three-year CAGR is negative.

The current down year, roughly minus 36%, followed three positive years, however, which makes the damage look less one-sided than the drawdown alone suggests.

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Anyone who bought Grab during 2023 or 2024 was still sitting on a gain as recently as last fall.

That is why sentiment in 2026 strikes me as rather bad, though not completely bombed out.

Volume is the more encouraging signal. September brought the heaviest trading of the past twelve months, with several sessions well above 100 million shares against a one-year average of roughly 50 million, and the spike clustered around the low.

As I argued in my perception change series, high volume near a trough is what capitulation tends to look like, so this might signal a bottom in the making. One heavy week does not confirm a reversal, though.

Short interest supports the negative sentiment read. At about 6.4%, it has more than tripled since mid-2024 and peaked at close to 8% this summer, which is notably high for Grab, although not extreme in absolute terms.

Should perception turn, that positioning could become fuel for the move.

All my prior analyses of Grab:

• 2026-05: Valuing Grab Holdings Post Foodpanda and Stash Integration - ($)

• 2026-05: Grab’s Q1 Paradox – Record Profits Meet the Indonesian Regulatory Wall - ($)

• 2026-05: Grab Holdings Ltd ($GRAB) – Master Piece - ($)

• 2026-04: Grab Holdings Ltd ($GRAB) – Part 4 - ($)

• 2026-04: Grab Holdings Ltd ($GRAB) – Part 3 - ($)

• 2026-04: Grab Holdings Ltd ($GRAB) – Part 2 - ($)

• 2026-04: Grab Holdings Ltd ($GRAB) – Part 1 - ($)

Which new insights change how I think about Grab qualitatively?

The full analysis starts here!

Become a paying subscriber to read the rest of this post (and access the next six ideas too), and get access to all of my other deep dives, my global watchlist, the WhatsApp community, the digital conferences, and more!

Read more

Eight pillars, eight “BAMs,” each with its own attempt to invert the argument, the company history that starts with DARPA-funded battlefield research, a competitive landscape that shifted twice this summer, a management review, and a valuation model with margin assumptions and a granular breakdown of the drivers of topline growth.

Not everyone has an evening to spare for that.

So I condensed the whole analysis into a 19-slide companion deck. It follows the same logic as the written series. It opens with the hypothesis and the four developments that would prove it wrong, walks through how the company got here, how the business makes money, gives each of the eight pillars its own slide, and then covers competitive positioning, the customer, growth drivers, and valuation.

Here's one slide to give you a sense of how the argument gets compressed:

A quick note on my latest process: This is the first deck I built with Claude Design as opposed to building it with the regular Claude model (I should test 5.5 next, I guess), and the difference for me was the ease of editing. Instead of regenerating the whole thing every time something was off, I could make fine-tuned changes to the first draft slide by slide, adjusting a chart here, fixing overlapping items there, and tightening a headline until each slide looked like what I wanted it to.

I’m still unsure which model’s output I like better, though.

To get a feel for the quality of these decks, check out the companion deck I shared along with my Amadeus deep dive (you can find it here).

As a remnder, from now on every deep dive now comes with a companion slide deck. The whole hypothesis in compressed form – the thesis, the business, the competitive position, the valuation, and the case against – for the days when you don't have an hour to spare but still want a quick glance at it. Paid subscribers get both, always: the long written analyses and the decks, for every deep dive.

Download the Deck:

Read more

Was the market repricing a temporary slowdown, or correctly recognizing that the monopoly years are over?

Answering that required going deeper into the underlying engine itself, so part two starts in 1995 with a prototype named after Leonardo da Vinci and ends with a valuation model tying everything else together.

A few things surprised me along the way too. The most consequential product in Intuitive’s history probably isn’t da Vinci 5, and the most consequential decision wasn’t a product at all.

The metric I worry about most has declined in four of the last five years, and it happens to be the one thing management’s long-term pay doesn’t depend on.

Here’s what part two covers (another 10,000-word analysis):

• Business History

  • The DARPA-funded battlefield research that became a business

  • Lenny, Leonardo, Mona, and a $314.5 million IPO before FDA clearance

  • The patent war that ended in a merger, and why I call it the most important decision in company history

  • Five generations of the same idea, and which machine I’d argue mattered most

  • The ten-year gap that explains today’s upgrade cycle

• How Intuitive turned third-party staplers into a billion-dollar business

• The key KPIs to track, and the flywheel connecting them

  • Plus: The one metric you have to calculate yourself, because Intuitive won’t hand it to you

• Whether 40% operating margins are a feature of the industry or of a monopoly inside it

• The Getty test: what’s certain about 2046 and what isn’t

• China, where domestic makers took half of 2025 procurement

• Dave Rosa’s thirty-year path to CEO

• What management is paid to deliver, and the gap I spotted in the incentive plan

• Insider ownership

• Identifying key growth drivers and assigning a revenue growth contribution range to each

• Where margins settle, and why management has capped its own upside on purpose

• Stock-based compensation, and what free cash flow looks like after it

• Base rates from Mauboussin, anchoring the inside view to the outside view

• My full valuation model, with a download link so you can change my assumptions

• Closing thoughts

One note before you start: If you haven’t read part one, the eight pillars of the hypothesis and the falsification tests attached to each can be found there (linked below), and I refer back to them throughout.

Part two works on its own, though you’ll get more out of it with part one in mind.

Read part 1 here:

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Laparoscopic surgery, the keyhole approach that spared patients from long incisions, was a gift to patients and a physical ordeal for the people performing it.

A surgeon would hold an 18-inch rigid steel tool inserted through a dime-sized opening. Because that opening acted as a pivot, moving the hand left sent the instrument tip right, and lifting the hand pushed the tip down – though twisting the handle along its axis stayed one-to-one. Surgeons call this the fulcrum effect, and learning to work against it took years, all while standing hunched over an operating table for six, eight, sometimes ten hours a day.

Chronic neck, back, and shoulder injuries ended careers early.

In 1995, Frederic Moll, John Freund, and Robert Younge founded a company to fix that.

They licensed DARPA-funded research originally meant to let surgeons operate on wounded soldiers from a distance, and built a prototype they named “Lenny,” after Leonardo da Vinci.

The goal was to eliminate the fulcrum effect by matching a surgeon’s hand movements one-to-one inside the body. When the da Vinci system received FDA clearance in 2000, it restored natural hand-eye alignment, added 3D high-definition vision, and introduced wristed instruments more dexterous than the human hand.

Surgeons stopped standing and started sitting, working from a console like pilots.

The company’s name says exactly what it set out to do: make complex minimally invasive surgery feel intuitive to the human mind and hand.

It worked. More than 20 million patients have now been treated on Intuitive’s systems, the installed base exceeds 11,000 da Vinci robots across more than 70 countries, and the stock is a 320-bagger since its IPO (and is now a $100 billion+ market cap company).

When the Best Business in Medtech Goes on Sale

Over the past five years, revenue and EBIT have both compounded at about 16.4% a year (almost a double), with net income, free cash flow, and EPS all growing around 14%.

Recurring revenue reached 84% of the total in 2025. Non-GAAP operating margins touched 42.1% in the second quarter of 2026.

There aren’t many businesses like this anywhere, let alone in healthcare.

And the stock is down roughly 40% from its peak.

Shares recently traded near $350, barely above a 52-week low of around $330 and far below last year’s high of above $600.

The forward P/E has fallen from 80+x in early 2025 at its most expensive to about 33x today, against a five-year mean closer to 50x, and EV/EBIT sits at 25.6x versus a historical mean of 43.2x.

On an earnings yield basis, this is the cheapest Intuitive has looked since 2016, while still growing 15% to 20%. The stock is practically flat over five years – half a lost decade.

So what happened? Three things, mostly. U.S. procedure growth slowed to 12% in the second quarter, which management blamed partly on patients deferring care after ACA subsidies expired.

Management then declined to raise full-year guidance despite a clean beat, and the stock fell 14% the next day.

A few days later, days after that, the FDA cleared Johnson & Johnson’s Ottava for ten general surgery procedures, the first credible challenger on da Vinci’s home turf in two decades.

“The system received marketing authorization for multiple procedures in general surgery, including Roux-en-Y gastric bypass, gastrectomy, cholecystectomy, splenectomy, gastric sleeve, small bowel resection, appendectomy, lysis of adhesions, fundoplication, and hiatal hernia repair. “We are pioneering a new category of surgical robotics with OTTAVA,” said Tim Schmid, Executive Vice President, Worldwide Chairman, MedTech, Johnson & Johnson. ‘This is the start of the next era in surgery as we deliver not just a new surgical robotics system, but a catalyst for fundamentally better surgical care that is informed by technology, guided by clinical insight, and delivered with care by Johnson & Johnson.’“ - J&A

Medtronic’s Hugo had already been cleared for urology in late 2025. After twenty years without a serious rival, Intuitive now has two.

And China adds another front, since in 2025, Chinese-made laparoscopic robots outsold imported ones in public tenders for the first time. Out of 90 laparoscopic surgical robots procured by Chinese public hospitals in 2025, domestic Chinese brands secured 47 units (approx. 52% of awarded volume), officially surpassing imported systems.

That’s the setup, and this deep dive is my attempt to work out which version of it is true:

• Is this a temporary repricing of a business whose economics and long-term growth runway are intact, …

• … or the market correctly recognizing that the “monopoly years” are over and the margins as well as the growth that came with them can’t last?

I’ll walk through eight reasons the business might be worth owning, and spend a good portion of the post trying to knock them down.

What this deep dive series covers (this is part 1):

We cover the key thesis structure along key pillars of my analytical framework:

• The 90-second eight-part bull case (”Bam Bam Bam Bam Bam Bam Bam Bam”)

• The business itself

• Unit economics analysis

• Beyond Miller’s 90-second pitch: A granular breakdown of each of the pillars (the core of the analysis)

• What went wrong

• Investment Slide Deck – the deep dive in a highly compressed + visualized form

  • Every deep dive now comes with a companion slide deck. It’s the whole argument in compressed form – the hypothesis, the business, the competitive position, the valuation, and the case against – for the days when you don’t have an hour to spare but still want the shape of the thing. Paid subscribers get both, the long piece and the deck, on every deep dive from here on.

• The origin story

• The customer

• The moat

• Is it a good business in a good industry

• Management and governance

• Growth drivers and forecasting

• Margins outlook

• Valuation (including a downloadable model)

• Other interesting findings

Disclaimer

As of the date of publication the author owns no shares in the company; but that may change. The analysis presented in this blog may be flawed and/or critical information may have been overlooked. The content provided should be considered an educational resource and should not be construed as individualized investment advice, nor as a recommendation to buy or sell specific securities. I may own some of the securities discussed. The stocks, funds, and assets discussed are examples only and may not be appropriate for your individual circumstances. It is the responsibility of the reader to do their own due diligence before investing in any index fund, ETF, asset, or stock mentioned or before making any sell decisions. Also double-check if the comments made are accurate. You should always consult with a financial advisor before purchasing a specific stock and making decisions regarding your portfolio.

The Bill Miller-Style “Bam Bam Bam Bam Bam”-90 Second-Hypothesis

Every deep dive on this blog starts with a story Bill Miller once told about how to pitch a stock. I recently noticed that even Joel Greenblatt referred to this framework during his Special Situations class way back in the day. It’s the best antidote I know to the 40-page research report nobody finishes, which I will put together anyway, in a second step, for those who like the initial hypothesis and are interested in a more thorough analysis of the setup (in total 25,000 words).

Welcome to Compound with René. You can find an overview of the companies I shared a deep dive on in the visualization below.

If you haven’t subscribed, you can join 5,000 readers who enjoy the quality of the deep dives, the process-oriented pieces, the analytical insight, and the valuation discipline, here:

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Here’s how the former Legg Mason manager put it:

“I want to emphasize in your presentations that if you go into investing, you will realize that portfolio managers have ultra-short attention spans. And there is basically no successful portfolio manager of my acquaintance who has ever wanted to hear a story longer than 90 seconds. Peter Lynch, when an analyst came in to pitch him a stock, would turn on an egg timer for 90 seconds. The analyst had to complete the presentation within 90 seconds and be out of there. […] If you speak to a portfolio manager, the best thing to say is, ‘I want to talk to you about Homestore. It is at $2.25. The 52-week range is $2 to $4 and the all-time high was $100 in 2000. I think it is a buy for the following five reasons: 1. Bam 2. Bam 3. Bam 4. Bam 5. Bam. The stock is trading at $2 and change. I think it is worth $6 or $8 or whatever. Here is why I think it is worth that. Here are the risks.’”

I love that format because it forces discipline. If I can’t explain why a company is worth owning before Lynch’s egg timer rings, I probably don’t understand it well enough to put money behind it.

So here is my version for Intuitive Surgical (ISRG). The company that turned robotic surgery from a novelty into the standard of care is in the middle of its most important product cycle in a decade, with da Vinci 5 rolling into an installed base of more than 12,000 systems across its various systems (multiport, singleport & Ion).

At the same time, the first serious competitors are finally arriving with platforms of their own, and investors are asking whether a stock that almost never looks cheap has already priced in the good years. Remember that all investors should care about are the years ahead!

That tension is exactly why the stock and business deserve a fresh look now.

A quick word on vocabulary before the bams. You’ll notice I call what follows an investment hypothesis, and as my regular readers know, I do that on purpose in these deep dives. As a reminder, a thesis is a statement of belief, and once you’ve written one down, your brain starts hunting for evidence that you were right all along. Calling it a hypothesis keeps me more open-minded. It’s a claim that hasn’t been verified yet, and my job over the next sections is also to try to falsify it and present the counterarguments.

Here is the hypothesis in plain terms. The market tends to model a gradual fade in Intuitive’s procedure growth as its core markets mature and competitors show up. What I think it underweights is how much runway da Vinci 5, the push into benign general surgery, and the tiered XiR fleet add to that growth, and how long Intuitive’s lead can hold while every one of those extra procedures pulls high-margin recurring revenue through the installed base.

If that’s right, the fade comes later and slower than the price implies. It is one of my core beliefs that markets tend to misprice the durability of superior ROIIC and earnings growth rather frequently. That’s the bulls’ thesis here.

If the bulls are wrong, and growth slows sooner than later, the stock might still be expensive despite the large drawdown.

Have you tried listening to my write-ups in the Substack app? I think it’s a great experience, especially for my longer analyses. Get to know a business while taking a walk, doing sports, or lying on your sofa with your eyes closed 😉.

Miller Asked for Five Bams. For Intuitive Surgical, I Have Eight…

Here’s my 90-second pitch on why Intuitive is worth your attention right now (we will discuss each of these BAMs more thoroughly again further below):

• Bam #1 – A high-margin razor-and-blade model with ~80% recurring revenue: Intuitive has a massive global installed base of more than 12,000 systems, and each one works like a toll booth. Surgeons can’t operate without the instruments and accessories, hospitals sign service contracts to keep the robots running, and a growing share of systems sit on operating leases. Put together, more recently more than 80% of revenue is recurring (lots of charts follow further below; see teaser screenshot from X below), and switching costs climb every year a system stays in the medical facility, the staff gets trained on it, and OR workflows get built around it.

  

  • One caveat I’ll flag right away here is that the magnitude of recurring revenue depends on the period, and more importantly, on how you define recurring, and while leases lower the hurdle for hospitals, they also move capital risk onto Intuitive’s own books.

  

• Bam #2 – The da Vinci 5 inflection and a 10,000x compute flywheel: The new da Vinci 5 packs 10,000 times the computing power of prior generations, adds Force Feedback so surgeons can sense the pressure they’re applying to tissue, and improves ergonomics for the person hunched over the console for hours. The bull case is this widens Intuitive’s technological lead over late-arriving competitive platforms by five to ten years.

  • I want to be careful here, however. Computing power is an input, and hospitals pay for outcomes. The flywheel only turns if all that compute translates into better data, better instruments, better patient outcomes, and eventually results that surgeons can feel and administrators can measure. A 5–10 year lead is also the type of company claim you want to treat carefully, given that Medtronic and Johnson & Johnson, and Chinese players too, have plenty of money to throw at the opportunity.

  

• Bam #3 – TAM expansion and line-of-sight growth from 7M to 9M+ procedures: Intuitive’s addressable da Vinci procedure pipeline has grown from roughly 7 million to more than 9 million. Much of that comes from benign general surgery (gallbladder removals, hernia repairs, appendectomies), plus acute care and newer indications like cardiac procedures and nipple-sparing mastectomy. This is where the long runway comes from. Beyond the company-defined “line of sight”-TAM, there’s a global soft-tissue surgical market of around 23 million procedures, spanning open surgery and conventional laparoscopy, and Intuitive argues that roughly 20 million of those can and should be performed with a minimally invasive approach.

  • General surgery cases come in high volumes but at lower acuity, and reimbursement rarely rises just because a robot was used. That puts pressure on the hospital’s cost per case and, over time, on what Intuitive can charge per procedure. And generally, a TAM figure published by a company in an IR deck always deserves a haircut.

• Bam #4 – A tiered fleet strategy (XiR) that opens up ASCs and emerging markets: Refurbished Xi systems, branded XiR, give cost-sensitive buyers an economic way in. Plenty of Ambulatory Surgery Centers and international hospitals can’t justify a brand-new flagship, but they can justify a refurbished one that then also brings in high-margin recurring revenue. Think of it as a certified pre-owned car at a car dealership that has passed a strict multi-point inspection and comes with a factory-backed warranty. It widens the customer acquisition funnel and brings new surgeons onto the platform, and the idea is that it does so without diluting premium dV5 pricing.

  • At the same time, bears would argue that if U.S. hospitals that would otherwise have bought a dV5 start choosing XiR because it’s “good enough,” the tiered strategy could turn into a cannibalization dynamic to some extent.

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Across all the letters, I pulled together 126 distinct ideas complete with business breakdowns, investment theses, and key charts.

• Part 1 (explains the general idea of the approach and why it is valuable)

• Part 2

• Part 3

• Shameless Cloning 2.0: Pabrai’s Idea, Upgraded for 2026

After releasing the series, a community member reached out with a great suggestion:

Which of these high-conviction ideas have dropped even further since these managers bought in?

While each individual stock overview included a performance chart, hunting through 126 separate breakdowns across three parts to find the biggest laggards takes time.

To make things simple, I exported all 126 stocks as a CSV file and then imported it as a custom watchlist on Koyfin to be able to filter the list by performance and see which names have taken the biggest hits – and might be sitting at even more attractive valuations today.

1. Worst Performers: Quarter-to-Date (QTD)

2. Worst Performers: 3-Month Window

3. Worst Performers: 6-Month Window

When market or industry momentum, certain fund flows, or shorter term sentiment pulls down quality businesses, or more broadly, interestingly priced stocks, alongside broader (industry) noise, it often creates a better entry point than the one the original fund managers got.

Let me know in the comments which of these dips you think are genuine bargains versus value traps.

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I will attach the biggest laggards over each time frame as a screenshot below:

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On September 8, Wise CFO Emmanuel Thomassin joined Goldman Sachs analyst Mohammed Moawalla on stage at the Communacopia + Technology Conference in San Francisco.

Most conference fireside chats are reruns of the last earnings call. This one had more meat on it than usual. I listened to it two days ago, and I went through the transcript again line by line this morning, and pulled out ten points that were either new to me or that management had never said this openly before.

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Wise wasn’t the only company I’m tracking appearing at the conference. Reddit’s Steve Huffman held his own fireside chat a couple of hours earlier the same day, and if I find anything in that session or others that adds to what I’ve already written in my Reddit deep dive, I’ll summarize it in a separate post.

And without further ado, let me unpack the new insights. Here’s a list of some of the things we will cover:

• Why Wise’s CFO thinks one of its best-known rivals could end up as a customer

• A new date for the Belgian remediation, and what’s next for Wise in the U.S.

• What Wise’s 50% margin target actually refers to

• When operating leverage will finally show up

• Whether a $170 million marketing budget is enough, and a telling word from the CFO

• A fresh mid-term target for Wise Platform

• The asset Wise has spent years building that you won’t find on its balance sheet

• Wise’s stance on stablecoins, and a Windows 95 anecdote

• Whether Wise is about to become an acquirer

• A bank that tried to build what Wise has, and gave up

Tip: If you access “The Library” and hit ctrl+F you can easily access all the previous write-ups on Wise I have published.

Disclaimer:

As of the date of publication the author owns shares in the company; but that may change. The analysis presented in this blog may be flawed and/or critical information may have been overlooked. The content provided should be considered an educational resource and should not be construed as individualized investment advice, nor as a recommendation to buy or sell specific securities. I may own some of the securities discussed. The stocks, funds, and assets discussed are examples only and may not be appropriate for your individual circumstances. It is the responsibility of the reader to do their own due diligence before investing in any index fund, ETF, asset, or stock mentioned or before making any sell decisions. Also double-check if the comments made are accurate. You should always consult with a financial advisor before purchasing a specific stock and making decisions regarding your portfolio.

1. Will Revolut be a Wise Platform customer by 2031?

The most quotable line came at the very end of the session. Asked about the competitive landscape, Thomassin said Wise sees “no reason in our mind that Revolut should not use us in 5 years from now” as a Wise Platform partner.

“Well, I think like -- first I start with Revolut, I mean there is no reason in our mind that Revolut should not use us in 5 years from now. I mean, we’re completely agnostic and we don’t ask for exclusivity. We don’t dictate the price, they can charge whatever they want. And we -- the big advantage that we have is that we continue to build this infrastructure. And I’d like to talk about the kind of equation.

He described Wise as an agnostic infrastructure provider that asks partners for no exclusivity and doesn’t dictate their pricing, so they can charge their own customers whatever they like.

In his framing, Revolut isn’t even a direct competitor, since the two companies focus on different things. Wise wants to provide payment infrastructure to every bank, and fintechs like Revolut are part of that ambition.

§So that’s why in terms of competitions, we don’t look at Revolut as competitors because we are not focusing on the same thing. We are focusing on infrastructure that we want to offer to every bank, include fintech companies like Revolut.“

Wise has spent 15 years building proprietary infrastructure and direct connections into domestic payment systems, and Japan alone took four years to secure. A competitor wanting the same network would need massive amounts of capital and time, and it would have to subsidize losses along the way to match Wise on price. At some point, renting Wise’s rails becomes the rational choice, even for a rival as well-funded as Revolut.

I’ve been pointing this out myself on X for a while now, and it’s nice to see that Wise’s CFO apparently thinks so too. It’s also one more reason why I find the constant Wise-versus-Revolut comparisons unhelpful. Revolut is fighting for the customer’s home screen, and Wise would be perfectly happy to power the transfers behind it, for a fee.

2. Is the compliance overhang smaller than the headlines made it look?

I grouped the Brussels and U.S. compliance discussion and the U.S. update into one insight.

When Moawalla brought up the compliance concerns the OCC cited in denying Wise’s U.S. national trust bank charter (I covered the denial in detail here), Thomassin argued that Wise’s regulatory scrutiny isn’t unique. A fintech growing this fast will naturally attract more regulatory focus, other European fintechs are hitting the same wall as they scale, and remediation is, in his words, almost part of the industry.

Wise has been investing heavily in KYC and KYB for many years. Growth keeps raising the bar anyway.

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Thomassin also put a date on Belgium. The remediation Wise is working through there will be delivered by the end of the year, after which the regulators will come back and assess it.

“So for us, the remediation that we are facing, for example, in Belgium, the way the press is something that we will deliver by the end of the year and then the regulators will come back to us after observing the remediation. I mean, we can see that other fintech companies in Europe are facing the same kind of wall as they grow.“

As far as I can tell, Wise hasn’t communicated the year-end timeline for Belgium this explicitly before.

On the U.S. side, Wise has resolved all remediation items stemming from its prior consent order and is now waiting for state confirmation that everything has been remediated.

“The OCC applications happened a year ago. And since then, we've been doing a lot in terms of the business mature a lot, the compliance departments have been also like maturing. Looking back in some -- with some insight, I think like we would have reconsidered the application that we made because we were also like facing a consent order almost at the same time in the U.S. So we resolved all the remediation from the consent order, and then we're waiting for the confirmation of the state that everything have been remediated.“

My first reaction was that this makes the drama surrounding the Brussels investigation leak in June much less dramatic than it initially seemed. I still lean that way, but I want to be careful, because two separate tracks are running in Belgium. The remediation Thomassin referred to most likely relates to the supervisory plan the National Bank of Belgium put Wise into back in 2024, after it found missing proof of address for hundreds of thousands of customers.

The Brussels prosecutor’s probe is a different animal. It concerns roughly €500 million in suspicious transactions, and in June prosecutors said the investigation was nearing completion, that they were finalizing a direct summons before the criminal court, and that they would pass their findings on to the National Bank. A year-end delivery on the supervisory side is reassuring. It tells us little about how the criminal track ends or whether the prosecutor’s findings will flow back into the National Bank’s assessment, so I’d call the supervisory side on schedule and leave the criminal side as an open question.

The U.S. commentary was more candid than I expected. Thomassin reminded the audience that the U.S. is Wise’s largest single market opportunity, which is why the Austin office has grown to around 900 employees, why there’s a smaller office in New York, and why Wise listed on Nasdaq for visibility.

He also admitted that, with hindsight, Wise would have reconsidered its OCC application, since it was facing a consent order at almost the same time. For context, Wise’s U.S. entity paid a $4.2 million penalty last year after six state regulators found Bank Secrecy Act and AML violations.

Since the application, the business and its compliance department have matured a lot, and the U.S. regulatory setup has shifted as well. Wise originally wanted access to U.S. payment schemes through a federal account.

Following the denial, the OCC has given Wise the green light to reapply. There’s no firm timeline yet, but the next application will be filed under the GENIUS Act framework, incorporating the recent regulatory shifts around stablecoins.

This is where it gets interesting

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And they might in fact be getting tired of me bringing it up again. So I’ll keep this one short. And even if you are not interested in the business of Tiger, the post may still reveal how I think about downside protection.

Check out my recent summary of Seth Klarman’s book “Margin of Safety” in which he discussed the concept of downside protection at length:

As I’ve said before, my view is that the downside here – especially at these price levels – is unusually well protected, while the upside is wide open. If Hong Kong keeps functioning, if the CCP doesn’t suddenly decide to step in in some shape or form over the next ten years (which I think is pretty unlikely), this is one of the most asymmetric setups in my portfolio. If Beijing eventually decides otherwise, most of what I’m about to lay out will turn out to be misinformed. Well, at least to some extent. Because even in that worst-case scenario, though, Tiger is less exposed to HK than its peer, Futu Holdings, and at the current price, Tiger might “earn back its current EV” over a relatively short period of time.

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Before looking at the new angle on the limited downside, a quick nod to the old ones I have discussed – I’ve valued this company in many ways in the past: First, simple multiples. Then, a more careful version adjusting for all the weird items that make a broker’s reported earnings look misleading, the recent comments on normalized tax rates, etc, etc. I’ve of course conducted some multi-scenario valuation analyses.

And the ones I actually enjoyed doing most were the creative approaches. I tried to figure out the replacement value of their customer network using customer acquisition costs (CAC) – essentially asking what it would take in dollars and years to rebuild what Tiger has already built. And CAC in this industry and the region Tiger operates in only ever seems to move in one direction: up.

Access my latest update on Tiger’s Q2 here

Then I flipped the telescope around and valued that same network forward, discounting a range of lifetime value assumptions across customer cohorts.

Different methods, different assumptions, but they all pointed to a similar conclusion: Tiger is too cheap.

Disclaimer:

As of the date of publication the author owns shares in the company; but that may change. The analysis presented in this blog may be flawed and/or critical information may have been overlooked. The content provided should be considered an educational resource and should not be construed as individualized investment advice, nor as a recommendation to buy or sell specific securities. I may own some of the securities discussed. The stocks, funds, and assets discussed are examples only and may not be appropriate for your individual circumstances. It is the responsibility of the reader to do their own due diligence before investing in any index fund, ETF, asset, or stock mentioned or before making any sell decisions. Also double-check if the comments made are accurate. You should always consult with a financial advisor before purchasing a specific stock and making decisions regarding your portfolio.

Three cents in Bangkok, one cent in Singapore?

That brings us to what actually prompted this post. Webull closed its acquisition of Pi Securities in Thailand at the end of August, paying around $100 million for roughly 99.36 percent of the company. Pi has somewhere around $3.1 billion in client assets, according to what Webull Thailand’s CEO told the local press at the closing briefing.

That means the buyer paid about three cents for every dollar of client assets they took on. Put differently, Webull paid about 3 percent of acquired client assets.

That’s real cash, an actual arm’s-length price agreed on by two motivated parties, not some random number I plugged into a spreadsheet.

Now hold that up against Tiger. Based on my estimate of Tiger’s enterprise value – roughly $600 million – the market is valuing its $60.7 billion in client assets at under one cent on the dollar. This means, if you could acquire all of Tiger’s shares outstanding without moving the stock price, you could acquire the current asset base for 1% of the asset value.

Spread across 1.32 million funded accounts, you’re basically being asked to pay about $455 per funded account for the entire business.

Meanwhile, Webull went shopping in Bangkok and “paid up” precisely because decent-quality accounts are expensive to acquire and take forever to pile up (that build-up time has a real cost too). Management basically admitted as much on their Q2 call, describing the deal as a way to grab active funded accounts at a fraction of the organic acquisition cost, compressing years of building into a single move.

“We recently announced the acquisition of Pi Securities in Thailand, which is expected to close at the end of August. This acquisition will increase our AUM in the region significantly and positions us for further growth in Thailand as we combine Pi’s expertise in the local market with our best-in-class technology platform. […]

And I think we’re still only in the early innings of that. In terms of the Pi Security acquisition, that is a strategic opportunity that we saw in Thailand. We do have a small but aggressively growing business organically in Thailand. And looking at this opportunity with Pi Securities, not only is it immediately accretive for us in terms of growing our APAC AUM, but it also introduces us to a significant amount of high-quality active trading funded accounts for a very low customer acquisition cost that we normally would have to pay a high price for that quality of account, and it would take a very long time to organically grow that over time. So it’s like a little boost of, I guess, I’m of the age. So a little testosterone replacement therapy for us in, I guess, in a casual way to say it.”

It’s the exact same argument I was making to myself a few weeks ago with my CAC work – except this time, someone actually wrote the check.

To be fair, the comparison isn’t totally apples-to-apples. Webull wasn’t just buying assets under custody. They got member seat number three on the Stock Exchange of Thailand, a top-five spot in TFEX volume, depositary receipt issuance capabilities, over 300 investment consultants, and a licensed platform that saved them years of waiting on greenfield approvals.

Control transactions always carry a premium. Plus, Pi’s assets sit inside an advisor-led wealth model with fatter take rates per dollar. So yeah, in theory, three cents for every dollar of AUC isn’t a magic ratio I can slap onto every broker out there.

But then again, I built the overview below with the help of Claude to get a feel for where other brokerage businesses actually trade on this metric. And a) the spread is very wide and b) the 3% is toward the lower end of the spectrum.

A caveat is that these are not the same asset pools. Robinhood’s total platform assets include crypto held on acquired platforms like Bitstamp and WonderFi, but exclude TradePMR’s advisory assets – which Robinhood non-custodially reports separately and does not count toward its core retail asset total. Schwab’s trillions are largely RIA custody and workplace plans, which is a custody utility rather than a trading platform. Nordnet’s savings capital includes pensions and funds. So comparing Tiger to IBKR and Futu is fair game. Comparing Tiger to Schwab is not.

The row I find hardest to look away from is Webull’s own. The market capitalizes Webull at roughly 16 percent of its customer assets while Webull turned around and paid 3 percent for someone else’s.

Tiger sits at the bottom of the table regardless, a third of where flatexDEGIRO trades and roughly a sixth of Futu, which is the closest structural comparison in the whole group given the shared Hong Kong exposure and the shared regulatory scar tissue.

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That brings me to the second cut, because a dollar of custody is not a dollar of custody. A dollar attached to a $200,000 account, on average, churns less, brings in more revenue, is more likely to buy wealth products, and stays put through drawdowns. A dollar sitting in a $2,000 account does none of that reliably. So here is the same universe measured by assets per funded account.

By far the best metric to measure how valuable the asset base is, is arguably the brokerage firms’ revenue yield on AUC.

Look at those middle two rows. Tiger’s average funded account carries roughly $46,000, which lands within a rounding error of Futu’s $46,700, and Futu trades at six times the multiple of client assets.

Whatever discount Tiger deserves, it is not a discount for hauling around a lighter, junkier account base. Robinhood, for context, runs at a quarter of that per account and gets valued at multiple times the ratio.

Also, ask yourself which asset a strategic buyer would rather own: Pi or Tiger? Tiger is roughly twenty times larger by client assets. It operates across Singapore, Hong Kong, Australia, New Zealand, and the United States rather than just one domestic market, and over 70 percent of last quarter’s new funded accounts came from Singapore and Hong Kong – not exactly low-value postcodes.

“Hong Kong, Singapore, they are pretty much the largest markets in APAC across the board.“ - Webull Q2 call

A significant portion of its tech stack (self-clearing capabilities, Tiger AI, etc.) has been built completely in-house for years, which is another thing money can’t buy off the shelf.

Admittedly, I don’t have as much visibility into the exact quality of Pi’s customer base, and their advisor-served clients are probably wealthier on average than a typical retail app user. But Tiger has been pretty vocal about chasing quality over quantity, noting that new high-quality users were bringing in over $25,000 each in net inflows early in Q3 and average AUC per account sits north of $40,000.

Tiger is also very focused on wealth management products and has built a significant, highly sticky “other revenue” line including offerings like its corporate Employee Stock Ownership Plan (ESOP).

So if anything, I believe Tiger deserves a higher ratio than Pi.

Final Thoughts

Here is why I keep coming back to the asymmetry. Two completely independent yardsticks are pointing in the exact same direction. On earnings, if you annualize (which one should always be careful with, fair!) the $42.8 million in non-GAAP net income Tiger pulled in during Q2, that same enterprise value drops to under four times earnings. On assets, the market is currently pricing Tiger at a third of what a strategic buyer just paid for a smaller franchise in a single, smaller, and less attractive market. Add in the fact that Tiger is profitable, growing client assets by 16.7 percent year-over-year, and pulling in record revenue, and the downside case starts to feel less like a gloomy forecast and more like common-sense math.

I’m primarily just documenting my thinking here. I’ve been wrong on Tiger before, but when the pop-up of the Webull transition popped up on my phone, I immediately thought I needed to apply that logic to Tiger and other brokerage business. Another thought exercise.

Disclosure: I own shares in UP Fintech (TIGR). This is not investment advice.

The format is the same as in the previous parts:

• Fund Name – Quarter/Year of Letter

• Company Name

• Transaction Type: New Position / Increased Position

• Brief Business Overview

• Thesis Summary: What is the underlying fundamental logic, valuation argument, or catalyst described by the manager?

• Risks or Moat Mentioned: (if any)

• Key Metrics Visualized in Charts

You can access part 1 and 2, as well as the foundational “cloning” write-up, here:

• Part 1 (explains the general idea of the approach and why it is valuable)

• Part 2

• Shameless Cloning 2.0: Pabrai’s Idea, Upgraded for 2026

Let’s get back into it:

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As outlined in part 1, the goal of this briefing is simple: save you dozens of hours of research – from hand-picking the right funds to track and hunting down their latest publications, to digging through tedious SEC filings just to spot new bets that could be interesting. In a single, quick read, you get an immediate look at where some of the sharpest, unconstrained minds in the market - importantly, those not showing up on Dataroma - are allocating capital right now.

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If you want to review the full background or methodology of what we are doing in this series – or simply missed part 1 and don’t want to miss the ideas shared in it –, check out part 1 of the series here.

Let me just summarize again what we are attempting to do here.

In a Nutshell:

• Summarizing newly initiated and significantly expanded stock positions from smaller institutional fund managers and their respective letters and filings across Q1 and Q2.

• Providing a brief business overview, manager thesis, key risks/moats, and key charts (multi-year growth CAGRs, margins (LTM and 5-year mean), ROIC, price action, market cap, valuation snapshot) for every single stock covered.

And with that, let’s jump straight back into the idea overviews without any more fluff.

This is where it gets interesting:

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I used to fall into the classic retail trap of opening Dataroma every quarter, pulling up 13Fs for dozens of famous managers, and pretending that monitoring an ocean of multi-billion-dollar portfolios was a good use of my time.

It was not.

Most individual investors misunderstand the entire premise of cloning. It was never meant to be about mindlessly mirroring someone else’s portfolio. Intelligent cloning is an exercise in discernment – knowing who to study, understanding how they analyze businesses, and recognizing when their framework simply does not apply to your own constraints.

Over time, I realized that tracking the traditional market giants offers diminishing returns. When a fund manages $10 billion, its universe shrinks drastically. It cannot buy a promising $400 million business, regardless of how attractive the economics are. In fact, they might not even be able to initiate a properly weighted position in a $5 billion market cap company.

Liquidity constraints force those managers into mega-cap stocks where the market is ruthlessly efficient most of the time and mispricings are rarer.

What you end up seeing are the exact same crowded ideas recycled across dozens of quarterly filings.

As private investors, we enjoy a massive structural advantage:

Unlimited flexibility.

We have no minimum market-cap requirements, no mandate constraints, no geographic constraints, and no institutional benchmark pressure (time arbitrage).

To truly leverage that edge, I realized I needed to stop monitoring managers who are constrained by their own success and focus on a different class of capital allocators entirely.

Tracking 30 More Agile Managers

So last year, as outlined in the article I mentioned above, I overhauled my coverage universe. I built a refined list of 20 hand-picked fund managers who run leaner, more agile pools of capital. This week I added ten new funds to the list based on recommendations by peers who I respect a lot, bringing the total to around 30.

Many (but not all) of these managers operate one-person shops, invest a substantial portion of their own net worth alongside their LPs, and write directly as business owners rather than corporate PR departments. Because they often operate below the radar of Wall Street’s massive institutional capital – some of them are not even crossing the $100 million 13-F threshold – they routinely uncover exceptional opportunities in under-researched corners of the market.

To bring this update to life, I combed through the latest quarterly letters and regulatory disclosures from all 30 funds. Finding the signal inside that mountain of text was a massive effort. I used NotebookLM to streamline the process, synthesizing the raw commentary to isolate every single newly initiated position and notable addition across their portfolios.

Overall, the required effort was much bigger than I anticipated, to be fully honest (adding business summaries, formatting everything properly, adding charts). In total, 158 position entries representing 126 unique individual companies were discovered.

To make all of this more manageable, I decided to split this into three parts. This is part 1.

The goal of this briefing is simple: save you dozens of hours of research (picking the right funds to track, finding the latest publications, going through all filings to discover new bets, etc.) while giving you an immediate look at where some of the sharpest, unconstrained minds in the market are allocating capital right now.

If you enjoy these kinds of summaries, please let me know in the comments, and I will try to do so once every quarter or once every half a year.

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For every position where a manager provided meaningful commentary, you will find a very brief overview of the thesis, comments on competitive moats, the valuation rationale, and primary risk factors (all of that only if available, of course). I added a brief one-paragraph business overview to each of the stocks.

To make your initial screening process as efficient as possible, I also included distinct visual charts for each business spotlighted:

• Price Action: A visual snapshot of the stock’s historical price movement and recent trajectory to get a feel for the current market perception and sentiment. Moreover, the market cap is displayed as well.

• Valuation, ROIC & Margins: Key metrics tracking profitability trends alongside current multiple expansions or contractions.

• Growth: A clear view of historical top-line and bottom-line 5-year CAGRs.

You will also find direct links to each fund’s website and their public letter archives in the write-up that I will link once again below, allowing you to easily review the original source material whenever an idea catches your eye.

And with that, let’s take a look at the transactions and see where these 30 managers are placing their bets.

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• More Content: Company updates; AI tools I built (like my AI superforecaster); powerful valuation spreadsheets, frameworks, and processes; regular portfolio updates (insights into my investing decisions); market commentary; etc.

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That is what tends to happen when a story breaks: the stocks fell hard when Chinese regulators showed up in May, and the crowd went looking for something with better momentum.

I understand the impulse. Attention is finite, and there are easier places to put it than a Chinese-adjacent broker halfway through a compliance overhaul.

I still own the stock. It is the biggest loser in my portfolio this year, down 52% year to date even after the recent bounce, and there is no version of this piece where I pretend otherwise.

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What I want to avoid is the error where a bad chart does your thinking for you, where the price action clouds your judgment, and you selectively look for data points confirming the price movements.

Price drives narrative for too many investors.

I’m still bullish on the business though (even though my timing was outright terrible in hindsight). I may be one of the few left.

The share price is information about what the market in aggregate believes right now. And sometimes the market is focused on very different things (and operating on a different timeline) than a long-term investor.

It is also worth noting that the market has started to reconsider. After the bombshell news of May 22, Tiger bottomed somewhere in the $3 range pre-market. After Futu reported last week, which gave TIGR another boost, the stock has now ran up roughly 20% from its more recent lows in a matter of days, which suggests investors were pricing in something considerably worse than what the sector actually delivered.

So here is how I'll approach the quarter. I'm going to work through …

• three lowlights,

• three mixed signals, and

• five highlights

… that I think the market is underweighting right now.

My aim is to be as skeptical of the good news as I am of the bad.

What’s covered:

• Capital Allocation Decisions: An examination of board-authorized share repurchases, execution pacing, and liquidity vs. reinvestment dynamics.

• User Growth Velocity: Account acquisition trends across key target markets relative to full-year guidance targets and industry peer performance.

• Margin & Take Rate Mechanics: Structural product mix shifts, commission-free volume impacts, and share price pricing dynamics influencing equity transaction yields.

• Geographic Diversification & Risk Transition: The trajectory of international client expansion and asset inflow patterns as legacy market exposure winds down.

• Acquisition Efficiency & Opex Trends: Analysis of marketing strategies, branding initiatives, and customer acquisition metrics relative to asset accumulation.

• Near-Term Forward Indicators: Management commentary regarding third-quarter asset inflows, account capitalization, and trading activity normalization.

• Structural Diversification: The growth footprint of non-transactional revenue streams, mutual funds, and corporate ESOP conversion funnels.

• Earnings Quality & One-Off Adjustments: Unpacking temporary non-cash tax distortions and non-recurring regulatory items to gauge core earnings power.

• Valuation & Multiples Analysis: Assessing Enterprise Value and market cap metrics against Q1 earnings, adjusted Q1 earnings, annualized figures, and other adjusted/normalized earnings scenarios.

Disclaimer:

As of the date of publication the author owns shares in the company; but that may change. The analysis presented in this blog may be flawed and/or critical information may have been overlooked. The content provided should be considered an educational resource and should not be construed as individualized investment advice, nor as a recommendation to buy or sell specific securities. I may own some of the securities discussed. The stocks, funds, and assets discussed are examples only and may not be appropriate for your individual circumstances. It is the responsibility of the reader to do their own due diligence before investing in any index fund, ETF, asset, or stock mentioned or before making any sell decisions. Also double-check if the comments made are accurate. You should always consult with a financial advisor before purchasing a specific stock and making decisions regarding your portfolio.

1) Lowlights

Lowlight #1: A Toothless Buyback Program?

As of the second quarter of 2026 reporting, UP Fintech has executed approximately US$5 million of its share repurchase program. This represents a mere 10% of the total US$50 million buyback program authorized by the board for a 12-month period starting June 1, 2026.

During the Q2 2026 earnings call on August 26, 2026, CFO John Zeng highlighted this progress, noting:

“As of the close of the U.S. market yesterday, we have cumulatively repurchased approximately USD 5 million worth of ADS under our buyback plan announced on June 2, 2026. We may continue to execute repurchase from time to time under the $50 million share repurchase program on June 2, 2026.”

The company also noted in its official press release that these purchases are being funded entirely out of its existing cash balance, and that they will continue to dynamically assess market conditions to execute further buybacks from time to time under the remaining US$45 million authorization.

Liquidity certainly isn’t the bottleneck here – Yahoo Finance reports an average daily trading volume of nearly 2.9 million shares, so market depth gives them plenty of room to operate.

Given the depressed valuation Tiger currently trades at, this sluggish pace is deeply disappointing.

It leads me to believe that management remains entirely fixated on growth, making this $50 million program feel almost purely symbolic. They clearly prefer reinvesting capital directly back into the core business, and I wouldn’t be surprised if the remaining authorization is never fully deployed.

You could argue they are right to chase internal growth if those reinvestment returns outpace the return from share repurchases, but I find that hard to swallow. When a stock is this cheap, the hurdle rate and visibility that buying back your own shares offers are difficult to beat.

Lowlight #2: Target Out of Reach? The User Growth Dilemma

Management set a full-year target of 150,000 new funded accounts at the end of the last fiscal year, but getting there looks like an uphill battle.

The first quarter provided the initial red flag, bringing in just 28,900 new funded accounts – roughly 19.2% of the annual goal.

Despite that weak start, leadership project optimism during the Q1 earnings call, stating:

“We are confident about our full year guidance and our global expansion. Market volatility has affected investor sentiment so far this year. We are optimistic that easing geopolitical tensions and improved inflation expectations in the second half will drive stronger user growth.”

The second quarter failed to turn that optimism into reality. It didn’t catch me completely off guard, though. A recent Seeking Alpha piece noted that during a conference appearance, Tiger’s CFO guided for a “flat QoQ” expansion in 2Q2026 paying accounts during Citi’s forum, which made me skeptical about their full-year ambitions.

Sure, you could look at the second-quarter addition of 32,600 new funded accounts – up 12.8% sequentially – and claim acquisition velocity is picking back up. Yet when you factor in aggressive marketing spend, the trajectory remains sluggish.

Compare that to Futu, which added a staggering 250,000 accounts in a single quarter, and the gap becomes glaring.

To be fair, pitting Tiger against Futu isn’t entirely apples-to-apples. Futu trades at roughly 18 times Tiger’s market capitalization, operates across a broader geographic footprint, and benefits from vastly stronger brand recognition.

Looking under the hood of where these users actually originate reveals consistent geographic drivers. Singapore and Hong Kong continue to serve as the core engine. In Q1, the two markets split the share almost evenly to account for over 75% of new funded accounts, maintaining that momentum in Q2 by driving over 70% of the cohort. Meanwhile, Australia and New Zealand are pulling more weight, growing their contribution from around 20% in Q1 to nearly 25% in Q2.

I could have also categorized this point in my “mixed signal” bucket to be fair. You have the account growth reacceleration, markets outside of HK and Singapore growing rapidly, and another silver lining here lies in asset quality (vs. a sole focus on raw volume). We may be far removed from the hyper-growth account surges of 2021, but account capitalization has hit record territory.

Tiger logged its first-ever quarterly retail net asset inflow exceeding US$2 billion in Q1, followed by overseas retail users adding another US$1.5 billion in net asset inflows during Q2. More on this, along with a beautiful chart, in the highlights section. Overall, the platform is pulling in higher-net-worth capital, but if top-line user acquisition keeps lagging, reliance on asset inflows alone might not keep the growth story intact for long.

Lowlight #3: The Compression Conundrum: Understanding Take Rate Pressures

For starters, a brokerage’s take rate is a measure of monetization efficiency.

And specifically, cash equity take rate measures how much revenue a broker generates from standard stock and ETF trades relative to the total dollar value of those trades processed on its platform. It is typically expressed in basis points (bps), where $1 = 0.01 bps = $1 revenue per $10,000 traded.

Tiger’s cash equity take rate has faced significant sequential pressure over recent quarters, dropping steadily from 7.1 bps in Q3 2025 to 6.4 bps in Q4 2025, 5.0 bps in Q1 2026, and down to 3.6 bps in Q2 2026.

During the Q1 and Q2 2026 earnings calls, CFO John Zeng detailed the primary a) structural and b) market-driven forces behind this compression.

Structural Factors

The main structural headwind stems from dilution caused by “zero-commission” volume expansion. Tiger’s fastest-growing trading hubs operate under zero-commission pricing models, which heavily dilutes the blended take rate when trading volumes surge. In the U.S., Tiger’s subsidiary onboarded highly active local traders, causing a sequential volume uptick of roughly $10 billion in Q1 2026 and an additional $15 billion in Q2 2026. Under local market practices, Tiger offers zero commission to local U.S. users – meaning this massive surge in volume generated zero commission revenue, directly pulling down the overall cash equity take rate.

Similarly, in Q1 2026, Hong Kong stock trading volume comprised a larger portion of overall stock trading. Because Tiger offers zero commission to HK clients trading HK stocks – which operates at a take rate roughly 2 bps lower than U.S. stock trading – this shift in geographic mix further compressed the blended equity take rate.

Market Factors

Beyond structural volume shifts, market-driven “per-share” pricing mechanics played a major role. Because Tiger charges U.S. stock commissions on a per-share basis rather than as a percentage of total order value, market movements directly compress the basis-point take rate. In Q2 2026, high-demand technology and semiconductor stocks traded at exceptionally high share prices. For highly priced stocks, a per-share fee translates to a take rate of well below 1 bps on total dollar volume, dragging down the overall U.S. average. Add in the NASDAQ index surge of over 20% in Q2 2026, which inflated average share prices across the board, and clients were naturally buying fewer physical shares for the same capital outlay – causing the basis-point take rate to fall sharply.

Management expects this dynamic to bounce back when share prices pull back, which historically drives users back into lower-priced or “penny” stocks where the per-share fee structure yields a much higher take rate, just as it did in Q3 2025 when the rate hit 7.1 bps.

Finally, derivative mix and notional volumes distort the optics of the blended rate. In Q1 2026, futures trading rose to 8% of the mix (up from 6% in Q4 2025). Because futures volume is calculated on a very large notional value basis, an uptick in futures volume visually drags down the blended take rate. Interestingly, in Q2 2026, the overall blended take rate actually remained relatively stable sequentially, even though the cash equity rate dropped to 3.6 bps. This stabilization happened because the proportion of futures trading declined while option and stock trading volume increased.

2) Mixed Signals

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The note usually keeps growing at a faster pace than I can get to look at the ideas, and thus, it currently holds around thirty-five companies. I am not going to write thorough deep dives on thirty-five companies – not anytime soon anyway.

So I am doing the next best thing and putting some of them out as “quick pitches,” with a short overview of each. That’s the idea as I write this, at least (chances are I might run out of steam (way) before I get to idea #35). This first stock analysis also ended up much longer than I initially had in mind (as I reread it one final time, the article is about 5,000 words).

Pat Dorsey’s Two-Stage Process

The format borrows from something Pat Dorsey described on a podcast recently – it resonated with my own approach. At his fund, idea generation runs through two stages.

The first is a quick screen built on three questions:

• what does the business do,

• what is the moat, and

• what could the opportunity be.

That is a filter, and it is meant to be easy to apply, because most ideas should die there. That’s the intention most investors should pursue anyway: “kill your ideas” as quickly as possible.

If a name survives this first test, and that’s the second step, someone on the team writes a memo, and the memo covers harder ground:

• the vector of the moat; i.e., whether it is widening or shrinking,

• the key debate around the stock,

• identifying any area where the team might hold a variant perception,

• the runway for growth,

• whether there is a red flag on management, and

• valuation napkin math

The two stages do different jobs in a way. The first one asks whether a business is worth an afternoon. The second asks whether it is worth capital and a third round of even more thorough research (trying to “destroy the idea” one more time!).

What follows in this series is a hybrid of the two, yet it sits closer to the first stage than the second. For each company, I plan to cover four things:

• what the business does,

• what the moat is and whether one exists at all,

• the runway for growth, and

• a glance at the valuation setup

I left out the memo-stage pillars deliberately. Key debate, variant perception, and the vector of the moat all require work I have not done on most of these names. Claiming a variant perception on a company I have spent not all that much time on would be dishonest, and you should be suspicious of anyone who does it casually. The intention of this series is to surface ideas that you can research further if they pique your interest, and ideally, provide a good starting point.

The runway for growth made it in because you cannot say anything useful about a business’s valuation without some view on what the business could look like in five years, and the valuation segment made it in because a good business at a bad price is still a bad idea.

But again, what follows are starting points. If a name here interests you, the honest next step is the one I have not taken: read the last five annual reports, work out what the company actually earns on incremental capital, go through all the recent call transcripts, pull up the proxy statement, and find out who is on the other side of the trade and why.

I will try to be critical throughout this series. Where I think the moat is thin or imaginary, I will point you to it. Where the growth story rests on an assumption that strikes me as unlikely, I will flag it. Etc., etc.

And with all of that said, it’s time to get started.

Idea #1 – Japan’s Most Boring Subscription Business Trading at 4-6x Operating Profit

This is where it gets interesting.

Become a paying subscriber to read the rest of this post and get access to all of my other research, including valuation spreadsheets, deep dives (e.g. well-known mid- and large caps such as LVMH, Duolingo, Meta, Edenred as well as more hidden gems such as Digital Ocean, Ashtead Technologies, InPost, Timee, and MANY more), and powerful investing frameworks.

As a member, you get:

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• The WhatsApp Community: Real-time discussion and networking with like-minded investors.

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There are certain kinds of companies that everyone has heard of, that everyone has an opinion about, yet almost no one has actually studied them in depth. Reddit might be the most recent, purest example of this.

Say the name at a dinner party, and you’ll get a knowing smirk, a GameStop joke, maybe a comment about the weird corners of the internet. Say it to a value investor and watch them wince at “high price.” Say it to a growth investor and they’ll mutter something about Google killing the traffic.

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Everybody knows Reddit. Almost nobody has bothered to actually look under the hood, because the reputation does the thinking for them, and the reputation says meme stock, too expensive, too strange, move along.

Psychologists call this the availability heuristic – in investing, a mental shortcut where people judge a business based on whatever vivid stories, recent headlines, or cultural stereotypes easily come to mind, rather than doing the hard work of analyzing the actual data and qualitative insights.

It takes deliberate cognitive effort to look past the noisy, available anecdotes and evaluate a company on its cold, hard fundamentals, so most people simply take the path of least resistance and let the popular consensus do the thinking for them.

I was, at first, shrugging off Reddit too. Then I looked, and what I found was so far from the caricature that I plan to share my fingins and thoughts in a deep dive series on this fascinating company.

Let me show you what changed my mind, starting with the most recent quarter, because it captures the whole paradox in a single afternoon of trading.

Reddit reported earnings on July 30, 2026, and here’s what happened. Revenue grew 61% year over year to $805 million (beating the $730 million estimate), the eighth straight quarter above 60%.

Earnings per share came in at $1.25 against expectations closer to $0.95. Next quarter’s guidance sailed past what analysts were modeling. Net income more than doubled. Free cash flow landed at $261 million. By almost any measure, it was a blowout, the kind of print a growth investor daydreams about.

The stock fell 21%.

A company beat on revenue, beat on earnings, beat on guidance, doubled its profit, and the market took a fifth of its value off in a session.

What spooked everyone wasn’t the money. It was a single sequential number: U.S. daily active users ticked down from 53.5 million to 53.2 million, and management described its search referral traffic as choppy and hard to forecast, particularly late in the quarter.

That’s it.

A rounding-error dip in domestic users, blamed on volatility in how Google and AI Overviews funnel people to the site, was enough to erase a quarter that was otherwise close to flawless.

Pull back and the pattern is even starker. As I write this, Reddit sits more than 44% below its peak, and the drawdown chart looks less like a stock and more like a seismograph.

This is a name that has fallen 50-plus percent from a high, recovered, and done it again, more than once, inside two years of being public.

Again, as alluded to above, my honest starting point, and I suspect it’s yours too, was a shrug.

Reddit? The GameStop forum? The meme-stock poster child trading at some absurd multiple?

I’m a value-leaning investor by temperament, no great Reddit user myself, and every reflex I’ve built over the years told me to file this in the “too hard, too hot, too expensive” drawer and move on.

Die-hard value types laugh at the premium multiple. Growth investors have half-convinced themselves that Google has quietly put a lid on the whole story. It seems neither camp seems to actually want the stock.

And that, more than anything, is what made me look closer.

When a genuinely high-quality business gets orphaned by both tribes at once, and then hands you a 44% drawdown on top, my curiosity tends to override my reflexes.

Moreover, Advertising businesses, and digital ones especially, are supposed to be right up my alley. I owed it a proper look before dismissing it.

What I found is a business that is far, far better than its reputation, and a valuation story that is a lot more subtle than the headline multiples suggest.

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Because here’s the thing the “it trades at 35x earnings” crowd misses: Reddit only just switched the monetization on.

This is a 20-year-old platform that spent almost its entire life not really trying to make money, turned profitable for the first time in late 2024, and is now sitting on levers it has barely touched. It runs a 91% gross margin business.

91%!

It’s the seventh most visited website on earth, built almost entirely on content its users generate for free and moderated for free by tens of thousands of volunteers, which is the same reason its economics resemble YouTube’s more than any traditional media company’s.

Out of 300-plus public tech companies, it’s arguably the only one combining 60%-plus revenue growth, 90%-plus gross margins, and real free cash flow with essentially no capital intensity. Reddit itself hence refers to it as a one of a kind model.

Trailing multiples on a business whose earnings power is still mostly ahead of it will lie to you.

That’s one of the central puzzles this series is going to work through.

There’s another reason I got interested … Reddit has in a way become the internet’s repository of ground truth. Siyu Li, an investor I respect for his analytical rigor and the kind of names he gravitates toward, put it better than I could (see tweet below), and he too seems to have taken an interest around this drawdown. He described being at Lollapalooza in Chicago and wanting to know which sets people actually loved. Where do you go for that? Reddit!

Not a magazine, not an AI summary, not a Google blue link. A thread of real humans saying what they really thought, in real time. As Siyu put it, Reddit often holds the ground truth to people’s real-time opinion on sports, music, restaurants, everything, and increasingly everywhere globally, and there isn’t even a close second competitor.

He floated an analogy too: that this unique position could earn Reddit serious bargaining power, something like Airbnb’s relationship to Google, or WeChat’s to Apple. People predict the future by pattern-matching to the past, he noted, and in this case Reddit might just be the exception. That’s roughly where I’ve landed too. As the open web fills with synthetic AI slop, the one thing a language model can’t fake is what it’s actually like to have done the thing, and Reddit is where that lived experience is shared, expressed, and discussed.

It’s now the single most-cited domain by AI models across the entire internet.

“In fact, 80% of users in a recent survey [said] that they believe some questions can only be answered by humans as opposed to AI-generated summaries. For LLM and AI search engines, these conversations and the knowledge they create are essential for training. Platforms like Reddit where people discuss every aspect of life from the trivial to the transformative of a backbone of building AI that actually works. That’s why Reddit is the #1 most cited domain for AI across all models per data collected by Profound. In an automated world that depends on human knowledge, we view Reddit as one of the most important and differentiated data sources.“ - Call Transcript

Management likes to say there’s no artificial intelligence without actual intelligence, and however self-serving that sounds, no major LLM has been built without training heavily on Reddit’s 26 billion posts and comments.

Every month, its communities generate the equivalent of all of Wikipedia in new material.

Enough for the intro. I will presumably split this analysis into four parts.

• First, the heart of the bull case, the five pillars of the investment hypothesis, delivered in the “Bam Bam Bam Bam Bam” style I borrow from Bill Miller (I’m aiming for about 5,000-8,000 words; call me out in the comments below this post if I failed; update: this piece ended up with 15,000 words of valuable insights (sorry 😉)).

• Second, a comprehensive walk-through of the business, how Reddit actually works and makes money, unit economics, etc., etc.

• Third, valuation, where I’ll try to make sense of those multiples and put a number on it.

• Fourth, the entire analysis distilled into a visual slide deck for those who’d rather see it than read it.

Let’s get into it; this will be fun, I promise.

What this deep dive series covers:

• The five-part bull case (”Bam Bam Bam Bam Bam”)

• What went wrong

• Investment Slide Deck – the deep dive in a highly compressed + visualized form

  • Every deep dive now comes with a companion slide deck. It’s the whole argument in compressed form – the hypothesis, the business, the competitive position, the valuation, and the case against – for the days when you don’t have an hour to spare but still want the shape of the thing. Paid subscribers get both, the long piece and the deck, on every deep dive from here on.

• The origin story

• The business itself

• Unit economics analysis

• The customer

• Legal structure, cyclicality, and operating leverage

• The moat

• Is it a good business in a good industry

• Management and governance

• Growth drivers and forecasting

• Margins outlook

• Valuation (including a downloadable model)

• Other interesting findings

Disclaimer:

As of the date of publication the author owns no shares in the company; but that may change. The analysis presented in this blog may be flawed and/or critical information may have been overlooked. The content provided should be considered an educational resource and should not be construed as individualized investment advice, nor as a recommendation to buy or sell specific securities. I may own some of the securities discussed. The stocks, funds, and assets discussed are examples only and may not be appropriate for your individual circumstances. It is the responsibility of the reader to do their own due diligence before investing in any index fund, ETF, asset, or stock mentioned or before making any sell decisions. Also double-check if the comments made are accurate. You should always consult with a financial advisor before purchasing a specific stock and making decisions regarding your portfolio.

The Bill Miller-Style “Bam Bam Bam Bam Bam”-Hypothesis

As always, I will start with Bill Miller who once made a point about pitching stocks that has stuck with me ever since I first heard it, and it shapes how I approach every write-up on this blog. Portfolio managers, he explained, have ultra-short attention spans. Miller’s advice for what to say in that window was refreshingly blunt. You walk in and you say something like, “I want to talk to you about Homestore. It’s at $2.25. The 52-week range is $2 to $4 and the all-time high was $100 back in 2000. I think it’s a buy for five reasons: one, bam; two, bam; three, bam; four, bam; five, bam. The stock trades at $2 and change. I think it’s worth $6 or $8. Here’s why. And here are the risks.”

That’s the spirit I want to bring to Reddit.

For Reddit (Ticker: ), the pitch centers on a company that has spent 20 years building a singular “city” of human knowledge and is now, for the first time, turning on the monetization engines. Reddit sits at a historic inflection point in its business model, where two decades of accumulated human data is finally meeting a sophisticated ad-tech stack and a high-margin licensing market. You should care because Reddit is a “one-of-one” business. It pairs 60%-plus revenue growth with 90%-plus gross margins and inflecting free cash flow, and yet the market stays skeptical about whether its user base growth is durable over the long haul.

Right now the market treats Reddit as a risky social media play, or as a platform dangerously hooked on Google traffic that AI will eventually cannibalize. What that view misses is that Reddit is a utility for human perspective, and it becomes more scarce and more valuable precisely as the rest of the web fills up with synthetic AI slop.

If Reddit can fold its conversational data into its own search product while continuing to close the ARPU gap with its peers, it graduates from meme-stock territory into something closer to a foundational internet utility with defensive, recurring cash flows.

Also, I’m deliberately calling this an investment hypothesis rather than a thesis. As my regular readers will know, a thesis tends to be a statement of belief, and belief has a way of nudging investors toward information that validates the view they already hold. A hypothesis is different in that it’s more of a proposition you actively try to falsify. That’s the attitude I want to adopt throughout this piece.

Bam #1: Data is “oil” of the AI era & Reddit is sitting on the ultimate AI oil well

If you want to understand why Reddit may be interesting right now, start with what it actually owns: The company sits on the internet’s largest archive of authentic, human-to-human conversation, and that archive has become foundational raw material for training nearly every major large language model on earth.

Where most social platforms live off high-velocity scrolling (aka doomscrolling with the compulsive consumption of often negative or emotionally charged content) and interruptive ads – the precise ad load on Instagram of course varies by individual user, but across the main placements (Feed, Stories, and Reels) the average user sees one ad for every 3 to 5 organic posts (god, I hate this experience) –, Reddit spent two decades accumulating something different: a structured record of human experience that AI developers now can’t build without (“Reddit’s content is in demand, and it’s not commodity content“ - call comment).

And for the first time, Reddit is charging for access.

Let me start with scale, because the numbers here are genuinely hard to wrap your head around:

• As of early 2026, Reddit’s corpus runs to more than 26 billion posts and comments.

• Every month, Reddit’s 100,000+ active communities generate the equivalent of Wikipedia’s entire content library in new, human-written information.

That’s not a static dataset gathering dust. It’s a constantly regenerating feed of how people actually talk, argue, recommend, and reconsider.

LLM developers reach for that data at every layer of the AI stack.

• They use it in pre-training to build the initial world model.

• They use it in post-training to teach models how to speak like an ordinary human rather than a corporate press release.

• They use it for grounding, so that answers reflect what real people think and experience rather than what a model hallucinates.

• And they use it as a live search index, pulling up-to-the-minute information on sports, news, and fast-moving trends.

Four distinct jobs, one source.

“And so Reddit is used in pretraining, right, create the whole model. It’s used in post-training, like teach the model how to speak like a normal person. It’s used in grounding, like what do people actually think. And then on top of that, these models are running on a live search index of like what’s going on, on Reddit. So it’s essential for the entire stack.“ - Call Transcript

This is where management’s favorite line comes in, and I think it’s more than a slogan:

“There is no artificial intelligence without actual intelligence”

…, they argue, and the actual intelligence is sourced from Reddit.

The logic holds up when you look at where the open web is heading. As more of it fills with sanitized, synthesized, bot-generated filler – the stuff people have started calling “AI slop” – authentic human perspective grows more scarce and, by simple economics, more valuable.

Reddit is currently the single most cited domain on the entire internet across all AI models.

Think about that for a second! When an AI hands you a recommendation or a summary, it’s more likely to be drawing from a Reddit thread than from any other source on the web.

“I think one of the dynamics we’re seeing in the modern Internet is the more it becomes sanitized and summarized and optimized for attention by AI, the more that people crave the human, the human information that’s both AI that crave it and also the Internet consumer or people in general that crave it. And that’s our business … those human connection and conversations.“ - Call Transcript

There’s a reason for that. For a whole category of questions – which bike helmet should I buy, how do I deal with a difficult kid, is this movie worth watching in cinema – there is no clean objective answer. People want the messy, contradictory, honest spread of viewpoints, shared by actual humans, that you only get from a real discussion, and so, increasingly, do the models trained to answer on their behalf.

“So both AIs and Internet consumers love Reddit content. This is because that basically human verification of what AI is telling people is really important. At the end of the day, you can get a surface level answer from AI, but you need the context. For many questions, there isn’t an answer. There are multiple perspectives describing that answer and multiple reasons why different parts of that answer might be relevant to you or not. For example, take a simple question. What movie should I watch tonight?“ - Call Transcript

Recently, Reddit has flipped this asset from a free public API into a high-margin, recurring revenue business (contributing around 5-6% of revenue in recent quarters), reported inside the “other revenue” line. That line grew from $15.2 million in 2023 to $140 million in 2025 ($153.5 million over the LTM).

“Other Revenue: In our content licensing arrangements, we provide customers with the right to access content from our platform over the contractual period. The transaction price in content licensing arrangements is generally a fixed fee or usage-based fee. We recognize content licensing revenue as our content partners consume and benefit from their use of the licensed content, which is generally ratably over the license period. Revenue from products sold directly to users, including Reddit Premium and Reddit Gold, was not material for the periods presented.“ - 10-K

For context on the underlying scale, the licensed archive exceeds two billion posts and 22 billion comments, and importantly, it also refreshes constantly rather than aging out. The anchor partnerships are with Google and OpenAI, structured as deep, multi-year deals spanning model training, post-training, and search grounding.

Context on the deals:

• In February 2024, Reddit signed an AI licensing deal with Google worth approximately $60 million annually. The agreement grants Google real-time access to Reddit’s Data API, allowing it to train its Gemini AI models on vast streams of human-generated conversational data. Beyond AI training, the deal deepened their cloud infrastructure collaboration via Google’s Vertex AI and improved how Reddit content is organized and displayed directly within Google Search results.

• In May 2024, OpenAI struck a similar licensing and technology deal with Reddit, giving ChatGPT real-time access to Reddit posts and discussions via the Data API. This allows OpenAI to incorporate fresh user conversations into its models and directly showcase Reddit content to ChatGPT users. In return, OpenAI became a Reddit advertising partner and provided Reddit with access to its AI models to build enhanced user and moderator tools, such as automated thread summarization and moderation assistance.

Beyond the marquee names, Reddit has pushed into verticals. In 2024, it partnered with Intercontinental Exchange to build data products for the financial industry, mining real-time sentiment from communities like r/WallStreetBets to feed insights to traders.

It also runs agreements with social-listening and enterprise firms like Meltwater, Cision, and Sprinklr. The marketplace is broadening, not narrowing.

“We continue to address the data licensing opportunity and are in contact with potential partners In Q3, we entered into a new partnership with Meltwater, a media and social intelligence company Meltwater accesses Reddit’s content through our data API, which allows their customers to uncover brand insights, monitor industry trends, and tap into the discussions happening on the platform“ - 2024 Q3 letter to shareholders

What makes this a genuinely attractive business, rather than just a novel one, is the economics. The data already exists on the platform. Reddit isn’t manufacturing anything incremental to license it, so the marginal margin is close to pristine, and this line is a meaningful contributor to the company’s 90%-plus gross margins.

Then there’s the pricing, which is where it gets a little wild. According to expert-network interviews (I’ve read about this second-hand so best to treat this data point with some caution), standard API data might run around $0.24 per 1,000 calls, while Reddit’s licensing deals reportedly command a 50x to 500x markup. That premium isn’t really about the raw bytes. The argument is that Reddit isn’t only selling data – it’s selling legal immunity, an exclusive and litigation-friendly path to the world’s largest public archive of human conversation, organized and delivered through a clean API.

In a world where scraping is increasingly contested in court, a signed license has real value on its own.

The pricing model itself looks poised to evolve, and this is worth watching closely. Early deals leaned on flat fees (see added context on the OpenAI and Google deal above). Reddit is now signaling a shift toward usage-based, metered pricing, which would tie revenue to how much data models actually draw and add a variable kicker linked to how often Reddit content gets synthesized into products like Google’s AI Overviews.

• Google Deal: Reached its initial expiration/renegotiation window in mid-2026. Discussions around renewing or extending the terms are currently ongoing, with reports indicating Reddit executives are pushing for usage-based pricing models rather than flat annual fees.

• OpenAI Deal: Reaches its initial renewal window later in 2026. Because it was signed shortly after Google’s deal, renegotiations for its next multi-year phase follow a similar timeline.

If that transition materializes, revenue stops being a fixed high-margin annual check and starts scaling with the actual usage of Reddit’s intelligence across the AI ecosystem. Broadly speaking, that’s a better place to be in.

None of this comes without a fight, and the value of the asset is exactly what invites the trouble. Reddit has had to lean hard into what you might call API defense, blocking crawlers and search engines that won’t be transparent about how they use platform content, and it has commenced litigation against entities that built LLMs on Reddit data without a license.

“In terms of third-party search, the ecosystem is evolving with search, summarization, and training blending. We are seeking the right balance between openness and protecting our users and platform. Our partnerships with Google and OpenAI illustrate how commercial agreements aligned with our content policies can be mutually beneficial. They help people discover communities on Reddit while safeguarding our users’ information. We’ve restricted access where transparency is lacking in how Reddit content is utilized. The internet and search benefit from Reddit’s content, and we are open to finding solutions that serve our users, Reddit, and the broader internet community.“ - 2024 Q2 letter

There’s a regulatory dimension too. In March 2024, the FTC opened a non-public inquiry into Reddit’s sale and licensing of user-generated content for AI training – a reminder that this business operates on genuinely new legal terrain, where the rules are still being written.

“In addition, we are in the early stages of our content licensing efforts and are exploring content licensing opportunities where we believe the opportunity does not conflict with our values and the rights of Redditors. These programs may subject us to evolving approaches to the regulation of this data and implicate complex and developing data privacy and data protection, misappropriation, and intellectual property laws, rules, and regulations. Given the novel nature of these technologies and commercial arrangements, we have received and expect to continue to receive inquiries regarding our content licensing efforts from regulators. For example, in March 2024, we received a letter from the FTC advising us that the FTC’s staff is conducting a non-public inquiry focused on our sale, licensing, or sharing of user-generated content with third parties to train AI models. The Dutch data protection authority, the Autoriteit Persoonsgegevens, has also inquired about our content licensing efforts. Given the novel nature of these technologies and commercial arrangements, we are not surprised that regulators have expressed interest in this area. We do not believe that we have engaged in any unfair or deceptive trade practice, we expect to receive continued regulatory interest in our plans, and any regulatory engagement can be lengthy, unpredictable and may cause us to incur substantial costs. It is possible for any regulatory engagement to result in reputational harm or fines, cause us to discontinue or modify our products, services, features, or functionalities, require us to change our policies or practices, divert management and other resources from our business, or otherwise adversely impact our business, results of operations, financial condition, and prospects.“ - 2025 Q3 Results

Management, for its part, frames the partnerships as a flywheel rather than a pure cash grab, using partner resources and infrastructure to sharpen its own machine translation and search capabilities.

“And second, on data licensing, things other than dollars. But, obviously, it’s citations, it’s mind share. It’s just general partnership. Like these companies have the data centers, the foundational models. And so our partnerships with all of these companies are multifaceted.

And so there’s a lot we can do in terms of beyond just the dollars. It’s how can these relationships help Reddit achieve its mission. So bringing in new users, advancing our own AI technology. So things like the machine translation, the LLM powered onboarding, all of the safety things, all of these things are kind of part of what we get through these relationships, which is why they’re so meaningful to us beyond just the core dev relationship or the business relationship.“ - Call Transcript

So the same deals that generate revenue are meant to upgrade the product.

We’ll test that claim later.

How big could this line of business get?

Naturally, I was wondering how big this revenue stream could realistically get?

Start with what’s contracted, because the base is smaller and less mysterious than the headlines imply. In January 2024 Reddit signed licensing deals worth an aggregate $203 million over two-to-three-year terms, and as of June 30, 2026 it still carried $92.1 million in remaining performance obligations, roughly $62 million of which lands in the back half of 2026. Strip away the “other revenue” fog and essentially the entire AI licensing business is two contracts – Google at around $60 million a year and OpenAI near $70 million – with Premium subscriptions and a fragmented long tail of social-listening buyers like Meltwater and Cision making up the residual. That last group is small and unglamorous, but it’s recurring and far less counterparty-concentrated than the marquee AI deals, and I’d treat it as the more durable part of the line.

Now the upside, which is where it could get genuinely large, but admittedly also genuinely uncertain. The bull case rests on a pricing model change rather than more customers: Reddit is pushing to move off flat annual fees toward usage-based metered pricing, tied to API volume plus a variable kicker for how often its content gets synthesized into AI answers like Google’s Overviews. If that shift lands, insider chatter has a renewed Google deal alone reaching $150–200 million a year, and a fully renegotiated book – Google, OpenAI, plus settlements with the likes of Anthropic and Perplexity – reaching $400–600 million annually, with Wells Fargo publicly modeling roughly $550 million on renegotiation.

I’d hold those numbers loosely, because they ask you to believe two Reddit contracts will dwarf the entire disclosed publisher-licensing market several times over (OpenAI’s News Corp deal, the largest on record, runs about $50 million a year).

The way I’d actually frame the ceiling is as a share of AI-lab economics rather than a count of deals: labs pay essentially zero for content today while Spotify pays labels around 70% of revenue, and the whole question is whether that equilibrium settles nearer 0.5% or 3%. On a $200 billion lab-revenue pool by 2030, a 1% content take is $2 billion, of which the single most-cited source on the internet might capture 15–25%, so $300–500 million; at 3% the math runs past a billion.

Such a wide range is maybe the most honest forecast I can make here, and I want to be upfront that it’s a legal and negotiating outcome, not something more diligence on Reddit itself will narrow.

What I can say with more confidence is the direction. This is a line that could plausibly grow multifold on renewal. It may still remain a rounding error on Reddit’s total revenue, or become a defensive, high-margin annuity worth as much as a mid-sized ad business – and which of those it becomes will be decided in negotiating rooms over the next four quarters, not on a date you can pencil into a model.

PS: Besides the size and mechanisms of the new deals, Siyu flags another interesting set of considerations below:

Inversion

Now to the caveat I’d put front and center: How recurring is this revenue, actually going to prove to be? The current major deals are short- to medium-term, roughly two to three years, and a fair question is whether the fees endure or fade once the models move past the data-hungry training phase. If the industry’s center of gravity shifts from training toward inference – running models rather than building them – you could imagine a world where an LLM has already learned what it needs from Reddit’s back catalog and no longer pays up for another pass. That’s the bear case on the durability of this revenue stream, and I don’t want to wave it away.

“Also playing chicken re: a new data licensing agreement is probably not a great idea if that’s what management is doing. The second LLMs become less dependent on Reddit they lose all leverage. And they are likely at peak leverage right now. Dependence on Reddit for training is declining rapidly while synthetic data and transfer learning is reducing the importance of Reddit’s content even more.” - Adam Wilk on X

But I’d push back on it, at least partway, from my own experience as a user. The thing that reliably frustrates me about LLMs is stale knowledge. You ask a question, you get a confident answer, and you can feel that the training data stopped a couple of months before you sat down to type. The model doesn’t know what happened last week, and sometimes it doesn’t know what happened last quarter. That staleness is precisely the gap Reddit fills. Its archive isn’t a frozen textbook you learn once and set aside. It’s closer to a live feed of the most current human read on almost anything – which phone actually has battery problems, which policy just broke, which trend is real and which is hype. As long as the world keeps changing and users keep wanting up-to-date, ground-truth human perspective, there’s a structural reason for models to keep coming back rather than coasting on a two-year-old snapshot. So the training-to-inference shift is a genuine risk to the flat-fee version of this business, and it’s also the strongest argument for why usage-based pricing on live data could turn out to be the more durable model.

One more concern belongs here: Licensing Reddit’s data into AI Overviews may cannibalize Reddit’s own traffic. If users get their answer straight from the AI summary, they have less reason to click through to the thread itself. So the same deals that light up the “other revenue” line could, at the margin, erode the engagement that feeds the advertising business. That’s not a footnote. It’s a real strategic tension inside the company’s own strategy, and it should be considered when reading about my projections for how big this line of business could become.

This is where it gets interesting!

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Ashtead Technology has not been the investment I hoped it would be when I first covered it in June of last year. My cost basis is 393p. The stock closed the week at 347p. That leaves me around 12% underwater, which is uncomfortable but hardly unfamiliar territory, because the shares dipped below 300p in late 2025 before staging a recovery that took them above 530p by May of this year.

From there it has been all downhill. The bulk of the damage arrived on Thursday this week, when the company issued a profit warning that knocked more than 16% off the share price in a single session, with another 3% coming off on Friday for good measure.

If you owned this at the May highs, you have watched roughly a third of the position evaporate in three months.

And yet I am completely at peace with this one.

That may sound like the kind of thing an investor says when he cannot bring himself to admit a mistake, so let me be clear about what I mean. Being at peace does not mean being unbothered by the numbers. The warning contained information that matters, and some of it cuts against assumptions I made explicitly in the original write-up.

It means I have looked at what changed, weighed it against what I thought I was buying, and concluded that the long-term case is intact.

Whether you agree with that after reading this comprehensive analysis (around 7,500 words) is up to you.

And of course, I always welcome pushback!

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What follows is a full update. I will walk you through what the profit warning actually said and, more importantly, what it did not say. I will revisit the thesis piece by piece and mark which pillars are still standing and which ones need revising. Then a fresh look at valuation, the new developments worth knowing about, and a few ideas I have been chewing on since Thursday morning.

In this update, I’ll walk through:

• What the profit warning actually said, and why a 5% cut to revenue translates into a 15% cut to profit

• Why the Middle East is the headline rather than the cause, and what the delays in Europe and the Americas tell us about how this business behaves under macro stress

• Why management reaffirmed guidance five weeks before withdrawing it, what that costs them in credibility, and how much weight I still place on their words

• The two reminders every investor needs when a holding drops 19% in two days, including where FY26 earnings actually land against the last seven years

• What the arrival of Sunbelt Rentals in US 13-F filings reveals about how serious money views scaled rental platforms, and why Ashtead being too small for those funds is an edge rather than a drawback

• Who has been building positions on the register since the Main Market uplisting, and what I’ll be watching over the coming weeks

• A full valuation rebuild from enterprise value down to a true economic earnings multiple, on guided figures, on audited FY25, and on the trailing twelve months + a reverse DCF

• The three ways my valuation could be wrong, including the one bear argument I take seriously enough that it could break the thesis

• What the current price actually requires me to believe, and the base rates for a business like this delivering it

A Profit Alert that Spooked the Market

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Here's the thing about 13-F season. You open the filings hoping for a surprise, and mostly you get a roll call. Mastercard, Visa, Moody's, Alphabet, ASML, TSMC, over and over, across fund after fund. Wonderful businesses, all of them, which is precisely why half the quality-investing world already owns them and why seeing one show up in yet another portfolio tells you nothing.

So you scroll. And occasionally something stops you, either because you've never heard of it or because you cannot work out what it's doing in that particular portfolio at that particular size.

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Today’s company, Pinduoduo, stopped me for the second reason, and then I hesitated, because it comes with a set of problems long enough that most Western investors gave up on it years ago. Regulators on two continents. Margins going the wrong way. A management team that has stopped answering the questions analysts ask. I nearly filed it under too hard and moved on.

What kept me here is that three of the most concentrated value investors I follow are all in it, and one of them just sold three of the finest compounders on earth to buy more.

Part 1 of this series covered Ashland, if you missed it:

Just like in my analysis of Ashland, I was trying to keep this post deliberately light, more of a rapid-fire pitch than a full 20,000-word teardown: a brief description of the business, a look at what's beating the stock down at the moment, and a high-level hypothesis for why it might be interesting from here.

But again, that was the idea, anyway… I ended up putting together 10,000 words.

Let's get into the analysis!

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Disclaimer: As of the date of publication, the author owns no shares in the company discussed; but that may change. The analysis presented in this blog may be flawed and/or critical information may have been overlooked. The content provided should be considered an educational resource and should not be construed as individualized investment advice, nor as a recommendation to buy or sell specific securities. I may own some of the securities discussed. The stocks, funds, and assets discussed are examples only and may not be appropriate for your individual circumstances. It is the responsibility of the reader to do their own due diligence before investing in any index fund, ETF, asset, or stock mentioned or before making any sell decisions. Also double-check if the comments made are accurate. You should always consult with a financial advisor before purchasing a specific stock and making decisions regarding your portfolio.

Li Lu Sold Moody’s, MSCI and S&P Global to Buy More of This

The first thing worth noticing about Himalaya Capital’s second-quarter filing is what left, not what arrived. Li Lu closed out six positions entirely and increased only two:

• PDD Holdings, by roughly 134%, and

• Berkshire Hathaway, by about 23%.

The names he exited were Bank of America, Moody’s, S&P Global, MSCI, Occidental, and H&R Block.

Read that list again. Three of those are exactly the compounders that show up in almost every “guru quality investor’s” portfolio, quarter after quarter, and he funded a doubling of a Chinese e-commerce position by selling them.

He now holds about 10.8 million ADS worth roughly $821 million, or 22% of his disclosed U.S. portfolio behind only Alphabet, which he holds across both share classes (close to 50% of the U.S. portfolio).

One caveat before you get too excited: a 13-F captures US-listed long positions and nothing else, and Himalaya has historically run a multiple of the $3.7 billion this filing shows, much of it in Asian markets that never appear in an SEC filing (his actual overall portfolio is estimated to be around $15-20 billion).

So this is a window into Li Lu’s bets, but not the whole book.

It’s still an incredibly interesting quarter for him. Li Lu is the investor Charlie Munger trusted with his family’s capital, and he has always been arguing that Chinese businesses get mispriced by Western investors who never do the work to understand them.

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He has also owned this particular stock before. He first bought PDD in the fourth quarter of 2020, sold the position out completely in Q4 of 2021, and came back in the second quarter of 2025 (he’s still underwater on this purchase). And now he is doubling down.

And one more thing before we get to the business. Li Lu is not alone here! Duan Yongping's H&H International added 26.71% to its PDD position in the same quarter (and as I will highlight in my conclusion, this might even be the more relevant signal), and at roughly 25 million shares worth about $1.9 billion, his stake is more than twice the size of Li Lu's in dollar terms.

Norbert Lou's Punch Card Management has held it throughout, at over 12% of his book.

That's three concentrated value managers, all of whom trace their approach back to Buffett and Munger, sitting in the same unloved Chinese marketplace.

Interesting.

Duan may even be the most interesting of the three. He built Subor and then BBK, the electronics group behind OPPO and vivo, and in 2006 he became the first Chinese investor to win the Buffett charity lunch auction, paying $620,100 for it. He brought a 26-year-old along as his guest.

That guest was Colin Huang, who founded Pinduoduo nine years later and has since described Duan as the most important mentor of his life.

“Duan Yongping's philosophy in business and life is summed up in his saying, 'Fast is slow, slow is fast.' Doing things with a calm mind is better, but it's hard for most people to achieve that. Duan Yongping is a person who is always learning and progressing.“

“He also taught me common business sense—that prices will always fluctuate, but as long as you keep raising your value, the final price will be close to your value.” - Pinduoduo and Temu founder: my life lessons and reflections (Part 2 of 2)

Duan also backed the company early, on the condition that he would match whatever Huang put in himself. So when Duan adds to PDD, you're watching a mentor buy more of the business his protégé built, which cuts both ways. He may understand this company better than any outside investor alive. He is also about as far from a detached observer as it gets.

The superstar investors buying PDD are the ones who know the country, speak the language, and, in Duan's case, have personal history with the founder. The Western gurus have largely stayed away, and the coverage you read in English tends to treat the disclosure gaps (to be discussed below) as disqualifying rather than as a puzzle worth solving.

There are two potential readings of that: Either proximity is producing an informational edge that Western investors can't replicate (which strikes me as more likely), or it's producing familiarity bias in people who are too close to the story to price the risk properly.

Business Overview

• Market Cap: ~$120 billion

• Enterprise Value: ~$58 billion

• Revenue: ~$64 billion

• Sales 5Y CAGR: 42.5%

• Employees: ~25,000

• Year Founded: 2015

Colin Huang founded Pinduoduo in 2015, into what looked like a closed market (he later stepped down as CEO of Pinduoduo in 2020, handing the role to co-founder Chen Lei – Huang later resigned as chairman in March 2021 to pursue research in food and life sciences). Alibaba and JD had spent a decade building the Chinese internet’s shopping infrastructure and were generating hundreds of billions of dollars in combined merchandise volume.

Huang’s insight was demographic rather than technological. WeChat was approaching a billion users while only around half of them had ever bought anything online, and the missing half lived in lower-tier cities and rural counties, shopped on tight budgets, and organized their social lives inside WeChat groups.

Alibaba’s penetration in some of those cities ran as low as 1%. So Pinduoduo went where the incumbents weren’t, opened in fruit and vegetables because they were cheap and bought often, and built a mechanic that turned every buyer into a distribution channel.

Team purchase gave each item two prices, one for buying alone and a lower one for buying as a group, with a 24-hour window to assemble that group. Users forwarded deals into family and neighborhood WeChat groups to hit the threshold. A recommendation from your cousin in a village chat carries weight that a banner ad never will, and in markets where most retail was informal and trust was scarce, that solved a problem Alibaba’s search box couldn’t.

It worked absurdly fast.

Alibaba needed roughly fifteen years to reach 500 million active buyers. Pinduoduo did it in four, and became the fastest company in history to cross a $100 billion market capitalization, growing GMV at a rate rarely seen before. Goldman Sachs estimates Temu's global Gross Merchandise Value (GMV) will exceed $100 billion in 2026.

PDD went public in 2018, trading on the Nasdaq. A few years later, PDD turned profitable in 2021 and has been consistently profitable since.

Today, three businesses sit inside PDD Holdings:

A) Pinduoduo Marketplace

The Pinduoduo marketplace is the profit engine, and as most of my readers are domiciled in the “West,” please note that it works nothing like a Western e-commerce site.

There is no meaningful search function driving traffic; PDD deliberately buried search and pushed an algorithmic feed to the top, so users browse without intent the way you’d wander a mall. There is no persistent shopping cart, which sounds like an oversight and is a design choice, since one item per order plus a countdown timer converts impulse into checkout before hesitation arrives.

Around that sits a layer of gamification that would look ridiculous on Amazon and prints engagement here: daily check-ins that accumulate redeemable credit, a price-chopping feature where sharing a link with enough friends brings an item to zero, loyalty and brand cards, and Duo Duo Orchard, a farming game that ships you an actual box of fruit when your virtual tree matures.

Yes, you read that right. In theory, Pinduoduo’s infamous Kan Yidao ("Bargain for Free") feature allowed users to receive products shipped straight to their doorstep for absolutely zero yuan, provided they could convince enough friends to click a shared link and chop the price down to zero within 24 hours.

In practice, however, it was a hyper-engineered growth hack designed to turn users into unpaid viral marketing agents. The algorithm initially slashed up to 99% of an item's cost in just a few taps to create an irresistible rush of progress, only to stall as users neared the finish line by shrinking subsequent discounts down to microscopic fractions of a cent.

“PDD’s unique business model design from Day One makes it difficult for Taobao or other competitors to emulate. There are two virtuous cycles, for both the consumer and the manufacturer:

On the consumer side, it’s the unique combination of social commerce, algorithm-feeds & gamification. This promote browsing habit, aggregates demand quickly, and creates social graph data. The high frequency that users purchase on the platform and average daily user time at 20 mins show that users are highly engaged on the platform.” 2025 PDD VIC writeup

As the excerpt from the VIC analysis above jsut brought up the term “social commerce,” I figured it’s worth pausing for a second and understanding how commerce changed in China over the years, from traditional e-commerce (as most people in the West still know it) to social commerce, content commerce (more on this below) and potentially AI-driven commerce next.

If you compare the Pinduoduo experience again to your Amazon user experience, the two couldn’t be more different. Amazon is a utilitarian warehouse search engine where efficiency is king, whereas Pinduoduo functions like a high-dopamine digital night market where social pressure, gamification, and bargain hunting turn shopping into a multiplayer arcade game.

Again, open Amazon and you are executing a task. You search, you compare, you add to cart, you come back later and check out. Pinduoduo is built to prevent exactly that sequence. There is no persistent shopping cart, which reads as an omission until you understand the intent: one item per order, a countdown clock, a limited-time coupon, and the purchase completes before hesitation gets a chance to intervene. Cart abandonment is a problem PDD solved by not having a cart.

Around that sits a layer of mechanics that would look absurd on a Western retail site:

• Daily check-ins that pay you a few fractions of a yuan for opening the app, accumulating toward a voucher you can only claim above a threshold.

• The discussed price chop, where a countdown starts and every friend who clicks your link cuts the price further, with each additional referral worth less than the last, so the difficulty scales the way levels do in a video game.

• Loyalty cards earned by leaving reviews.

• And Duo Duo Orchard, where you water a virtual tree until it fruits and PDD ships an actual box of produce to your door. That last one alone had more than 11 million daily users at one point.

None of it looks like commerce. All of it exists because time spent converts, and a user who opens the app out of habit is a user who buys without intending to.

The supply side is the other half, and the mechanism is more specific than “just” cutting out the middleman. Selling on Taobao is a craft. You need a storefront, product photography, keyword bidding, search optimization, and increasingly livestream operations, which is why a layer of professional resellers grew up between China's industrial belts and the customer.

Those merchants run the shop and source from OEMs in the villages. What PDD's feed did was make the craft unnecessary. Traffic gets allocated algorithmically to individual products rather than earned by merchandising a store, so a factory with no e-commerce competence can put a single item in front of millions of buyers immediately, roughly the way TikTok lets an unknown creator find an audience without first building a following. That is what pulled manufacturers onto the platform rather than their distributors, and once they were there the volume did the rest: enough aggregated demand on one item to justify a dedicated production run, at a price no distributor could match.

“On the supply side, it’s the focus on OEM factories, C2M, high frequency product categories and high operating leverage. This allows it to offer extremely low prices, fast product iteration and diversity in product offerings. This is similar to Shein’s powerful supply chain moat which uses a “small order quick response” system, where more than 2,000 designs from suppliers are launched every day, providing an enormous A-B testing, followed by sharing the data with suppliers through a linked IT system with the supplier’s backend.

As a result, the price savings to consumers go to the extent that if a product sells for RMB 29 on Taobao, it can be sold at RMB 9.9 on PDD. The cost savings go even further when compared to international e-commerce. A closely similar organizer bag can retail for 44 Euros on Amazon, 27 Euros on Shein, 20 Euros on Temu and only 3 Euros on PDD main app.” - 2025 PDD VIC writeup

PDD has never disclosed a factory or supplier count for Pinduoduo, and the merchant base it last quantified itself stood above eleven million as of 2021, with third-party estimates now in the mid-teens of millions. The formal C2M program is a much smaller thing than the marketplace around it, running in the low thousands of enrolled manufacturers against a stated ambition of ten thousand.

C2M stands for consumer-to-manufacturer model. PDD aggregates enough demand on a single item to guarantee a factory a production run, and in exchange gets a price no distributor could match. The factory fills idle capacity, sells volume with the order already committed, and receives demand data telling it what to make next. Product development cycles reportedly halved in some categories. Alibaba, JD and NetEase all tried versions of this and all of them stayed small. The reason is structural. Their programs ran top-down, curating a short list of large contract manufacturers who already served multinational brands, which meant limited spare capacity, misaligned incentives, and no scale on either side. JD’s group deals came out 10 to 20% below its individual prices, while PDD’s ran closer to 50%. I’ve read about a cosmetics factory that is earning roughly 26% EBIT margins selling on PDD, against about 1% in its OEM business, which is both the reason merchants show up and the reason there has historically been headroom for PDD to charge more.

B) Duoduo Grocery

Then there’s Duoduo Grocery, launched in 2020, which became the largest agricultural platform in China on roughly RMB 27 billion of capital expenditure (roughly $4 billion) and outlasted every competitor that entered the community group-buying war, with Alibaba, JD, Meituan and Didi all retreating or shutting the bulk of their operations.

Duoduo Grocery maybe deserves more explanation than it usually gets, because the mechanics are quite unique too. Orders are aggregated through community group buying: a local leader gathers demand from a neighborhood chat group, PDD consolidates it, and everything arrives next day at a single pickup point where buyers collect it themselves.

Anyone who has looked closely at parcel economics knows that last-mile delivery is where the money goes, which is why I spent so long on the pickup-locker model when I wrote about InPost. I did not expect some insights form that analysis to Pinduoduo. But here I am.

“InPost’s automated parcel machine (APM) infrastructure dramatically reduces last-mile costs (remember, 20-30%), increases delivery density, and shifts the consumer experience toward convenience and self-service.“ - from my InPost deep dive

Take the individual doorstep out of the equation and consolidate a hundred orders into one drop, and you change the cost structure fundamentally.

PDD then layered a couple of more things on top:

• Procurement runs through an algorithmic daily bidding system rather than human buyers, with suppliers competing on price and fulfillment capacity for each SKU.

• And the assortment stays deliberately narrow, in the range of a thousand to fifteen hundred items against Costco's four thousand and Walmart China's hundred thousand plus, which concentrates volume and improves terms. Again, PDD does not disclose the number of SKUs (they don’t disclose anything really, which can be quite frustrating). But the credible estimates I’ve come across are all rather narrow.

• Moreover, auppliers get paid the next day, against an industry norm of three to six months.

That combination built the largest agricultural platform in China on roughly RMB 27 billion of capital expenditure and left Alibaba, JD, Meituan and Didi retreating from the category with heavy losses.

C) Temu

And Temu, launched in September 2022, which took the same factory-direct playbook cross-border and now operates in what management describes as nearly 100 markets.

“Over the past few years, our global business has indeed achieved some progress, now serving nearly 100 markets and achieving meaningful scale.“ - Q4 Call

Temu became the most downloaded shopping app in the world within two years.

The recipe had four ingredients:

• First, the same factory-direct sourcing that powers the domestic app, which meant Temu could list goods 25 to 50% below Amazon and still leave merchants better off, because a seller marking up 200% on Amazon to cover its roughly 28% fulfillment take, 12% commission, and 12% advertising load only needs about 50% on Temu.

• Second, the gamified mechanics lifted wholesale from Pinduoduo, spinning wheels and countdown offers and referral discounts.

• Third, advertising at a scale nobody in commerce had attempted from a standing start, including Super Bowl spots in both 2023 and 2024 (the 2024 “Shop Like a Billionare” tagline is a genius marketing idea).

• And fourth, a category pivot that turned out to matter more than any of it. Temu started where Shein shines, in women's apparel, then moved into standardized household and personal care goods and consumer electronics accessories, which doubled the average order from roughly $20 to $40 and brought in male buyers. Bigger baskets fix cross-border unit economics in a way that discounting never can.

By 2025, the app had passed 400 million monthly active users and, by one estimate, roughly 24% of global cross-border e-commerce, which would put it within a point or two of Amazon in that specific segment.

Then Washington took the ladder away. The de minimis exemption that let sub-$800 parcels enter the United States duty-free was the structural condition Temu's original model assumed, and its removal in 2025 hit immediately. Reported US daily active users fell around 48% between March and May of that year. Temu pulled its Google Shopping advertising in April, and its App Store ranking dropped from third to fifty-eighth inside three days. That is about as violent a demand shock as a consumer platform can absorb, and it explains why so many investors wrote Temu off as a regulatory arbitrage that had run its course.

What happened next is worth paying attention to, though, because Europe is now carrying the business. By the third quarter of 2025, Europe had overtaken North America as Temu's largest revenue source, with the company running tens of thousands of ads across Meta's platforms there against almost none in the United States. Fulfillment moved with it. Temu has been building continental warehousing with the stated aim of serving the large majority of European orders locally, alongside a semi-managed model that lets sellers hold inventory in-market rather than shipping each parcel from Guangdong.

“Goldman Sachs has released a new report expressing optimism that Pinduoduo is entering a new growth phase. The report’s core thesis is that its cross-border e-commerce platform Temu has completed its transition to a “local-to-local” model in the US and Europe, with a profit inflection point (EBIT turning positive to 3.2 billion yuan) expected in 2027. Concurrently, growth in domestic transaction service revenue is accelerating. Coupled with the company’s launch of the “Xin Pin Mu” trillion-yuan (~$145 billion) investment plan to deepen its supply chain, these factors collectively drive growth.“ - BigGo

However, Europe then set its own de minimis change for July 2026, removing the €150 threshold, yet the early evidence is that demand kept climbing into it. Transaction data through May of this year showed European growth accelerating past 60%, with France near double that.

If that holds, it tells you something important: the loophole was an accelerant rather than the entire engine, and the factory-direct cost advantage survives duties that the original design was built to avoid.

Weigh that against what Europe is charging for the privilege. The Commission found Temu in preliminary breach of the Digital Services Act in July 2025, consumer testing found the overwhelming majority of sampled toys failing EU safety rules, and the €200 million fine landed in May.

This is where it gets interesting!

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Boring!

I get why. They’re wonderful businesses, and half the quality-investing world owns them, so seeing them show up in yet another fund’s holdings tells you approximately … nothing.

Nothing you didn’t already know.

Scrolling through the latest batch for Q2 2026, I found myself skipping past all of it, looking for the names that made me stop and think …

“Wait! What is that doing in there?” or “Wait! I have never heard of THIS company!“

So that’s what this series is about. I went digging through the latest 13-F filings for the ideas that felt genuinely unorthodox, the ones tucked into portfolios where they don’t obviously belong, or sized in a way that tells you the manager actually means it.

Not the consensus quality darlings guru investor added 2% too. No. The odd ones (probably the stock we cover today fits that profile). Maybe the truly hated ones (the second idea I will present fits into this category). Or the underfollowed ones. The stocks I’d actually want to pull the thread on and possibly move high up my own watchlist for a proper deep dive. I’m going to release them one at a time, one idea per post, so each gets a bit of room to breathe.

A quick note on format before we start. I’m keeping these deliberately light, more of a rapid-fire pitch than a full 20,000-word teardown: a brief description of the business, a look at what’s beating the stock down at the moment, and a high-level hypothesis for why it might be interesting from here.

That’s the idea, anyway…

In practice, I blew past my own word count goal on the very first one, and I did on the second one too, so take “quick pitch” as an aspiration rather than a promise.

Let’s get into it.

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Disclaimer: As of the date of publication, the author owns no shares in the company discussed; but that may change. The analysis presented in this blog may be flawed and/or critical information may have been overlooked. The content provided should be considered an educational resource and should not be construed as individualized investment advice, nor as a recommendation to buy or sell specific securities. I may own some of the securities discussed. The stocks, funds, and assets discussed are examples only and may not be appropriate for your individual circumstances. It is the responsibility of the reader to do their own due diligence before investing in any index fund, ETF, asset, or stock mentioned or before making any sell decisions. Also double-check if the comments made are accurate. You should always consult with a financial advisor before purchasing a specific stock and making decisions regarding your portfolio.

Ashland: The Stock Alex Roepers Sold and Then Bought Back at 17% of His Book

Alex Roepers runs Atlantic Investment Management, and he is one of the investors I follow somewhat closely while accepting that I will never clone him.

Why? He trades too much. Positions come and go inside of two or three quarters, which makes his 13-F a poor “shopping” list and an excellent idea generation list.

What I like about him is that his book looks nothing like everyone else’s. Twelve names, AUM of about $192 million, mid-cap industrials and materials that most “quality investors” have never looked into. No Visa. No ASML. No Meta. Nothing you have already read four hundred million X posts about.

His largest position as of June 30 is Ashland, 509,000 shares marked at $65.89, worth $33.5 million and 17.47 percent of the portfolio. It shows up as a new buy.

I never heard of that company.

That last detail – the size of the bet and the fact that it’s a new position – is the one that made me stop scrolling, because when I dug deeper, I noticed Roepers has owned this company on and off since at least 2012, when he held over two million shares, and the filings also suggest he was out of it entirely three months earlier. He sold it in Q1, trimmed it in prior quarters, then watched it apparently, and came back at the largest weight in the fund.

That is a different signal than a new idea weighted at 2%. It also signals that he knows the company very well.

Business Overview

• Market Cap: ~$3.4 billion

• Enterprise Value: ~$4.4 billion

• Revenue FY25: ~$1.8 billion

• Sales 5Y CAGR: 0.25%

• Employees: 2,900

• Year Founded: 1924

Ashland makes the ingredients that make other people’s products work. Roughly $1.85 billion of sales, 2,900 employees, and customers in more than a hundred countries.

A portfolio that has been cut down from a $9 billion conglomerate over fifteen years of divestitures. Valvoline went. Composites went. Adhesives went.

What remains is four segments. And two of them primarily carry the company.

Life Sciences

Life Sciences may be the best of the segments. The core of it is pharmaceutical excipients, the inactive ingredients that surround an active molecule and determine how it behaves once you swallow it (binders, disintegrants, coatings, and controlled-release polymers).

It is powder held together by a binder, usually Klucel hydroxypropyl cellulose in Ashland's case, so that it survives compression and shipping without crumbling in the bottle. If the tablet is supposed to act quickly, a painkiller or an antihistamine, it contains a superdisintegrant like Polyplasdone crospovidone, which swells on contact with water and breaks the tablet apart in seconds so the drug can dissolve. If it is supposed to act slowly, a twelve-hour metformin or an extended-release pain medication, it contains Benecel hypromellose, which forms a gel layer on the tablet surface and erodes at a controlled rate over the course of the day. The colored shell is a film coating system, sold fully formulated under the Aquarius name, and it does the unglamorous work of masking taste, keeping moisture out and making the tablet identifiable.

One of the most interesting products in the portfolio may be AquaSolve, a hypromellose acetate succinate used to hold poorly water-soluble molecules in an amorphous dispersion so the body can actually absorb them. A large share of the compounds coming out of discovery today fail on solubility, and this is one of the standard tools for rescuing them, which ties Ashland's growth to the direction the industry's chemistry is already moving.

Outside the oral tablet, there is Viatel, a platform of bioresorbable polymers used in long-acting injectables and medical devices, which the body absorbs over a defined period so nothing has to be surgically removed.

The customers are the drug manufacturers themselves. Ashland does not name them, which is standard for an ingredient supplier, but the manufacturing map tells you most of what you need. Wilmington and Calvert City for North America, Mullingar in Ireland for injectables, Cabreúva in Brazil, and Hyderabad and Nanjing sitting directly inside the Indian and Chinese generics industry. The buyer is as likely to be a large generics manufacturer or a contract development and manufacturing organization as a branded pharma company, which is great, because then generic volumes keep running long after the patent cliff has done its damage to the branded pharma company.

The excipient and its grade are written into the drug's regulatory filing, and changing either one is a formal change control that can require fresh stability data, sometimes a bioequivalence study, and depending on how material it is, a supplement the agency has to approve before the product can be sold again. No formulation scientist volunteers for that on a molecule that is already generating revenue, and the excipient is a rounding error in the cost of goods anyway, so there is nothing to be saved by trying. The competition happens once, at the formulation bench, years before the drug reaches the market. After that, the position is held for the life of the molecule.

Financially, Ashland posted third-quarter sales of $180 million in this segment at a 33 percent EBITDA margin, with pharma volumes up year over year for five consecutive quarters.

This is where it gets interesting.

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• Part 1 laid out the five pillars of the hypothesis.

• Part 2 walked through the business itself, how Reddit works, and where the money comes from.

Neither piece told you whether to buy the thing. That was on purpose, because a valuation built before you understand the machine producing the cash qualitatively, understanding it inside and out, is worthless.

The bulk of what follows is a granular decomposition of the growth engine, because with a business at this stage, almost everything rests on how fast revenue compounds going forward and what falls through to the bottom line. I’ll break the advertising model into its four component levers – users, engagement, ad load, and pricing – and think through each one separately rather than reaching for a blended growth rate that hides its own assumptions.

Some of those levers fight each other, which you might only notice when you start pulling them apart.

I’ll reverse-engineer what a Pinterest-style convergence in ARPU would actually require, take a view on where steady-state margins settle over the next five years, and then work out what exit multiple I’d be willing to underwrite for a business with these economics and this concentration. Meta turns out to be the instructive anchor there, I believe, though not in the direction you might expect. Licensing I’ll think about separately.

Around all of that the rest of the diligence a decision like this deserves: Management and whether the incentives are pointed the right way. Whether insiders have been buying with their own money. The balance sheet. A base-rate check to anchor my inside view against what usually happens to companies that look like this, because narrative can be seductive and history is not.

And then my model, assumptions exposed for you to disagree with, followed by a speculative thought I keep turning over about who might eventually want to own this business outright.

Valuation

1) Future Growth – What Growth Can I Underwrite?

I want to start by developing a defensible view of how fast revenue can grow over the next five years.

And I want to build that view from the bottom up rather than extrapolating the 61% Reddit recently printed, because I have naturally a very hard time underwriting such high growth rates for multiple years. That makes me miss some fantastic winners, but it also protects my downside, because underwriting such high growth that then never materializes usually ends up with you losing a lot of money. Effectively, you often end up with a double-whammy:

• The market punishes you because it assigns a lower multiple to the lower-growth stock than it did while the business posted stellar growth, and

• you end up with the disappointing growth.

Remember:

Total Return = Earnings Growth x Changes in Valuation x Impact of Buybacks + Dividend Yield

So let me decompose the advertising business into its constituent parts and rebuild it. Licensing I’ll handle separately at the end, since its trajectory depends on what happens in the corporate negotiating rooms rather than on any operating lever.

The framework I find most useful here, and which I shared in part 2, treats revenue as the product of four things. Call it ABCD.

• A is daily active users, or how many people show up.

• B is engagement, how much they do while they’re there, which determines how many impressions each user generates.

• C is ad load, the share of those impressions that carry an ad, currently running about one ad per six to eight posts.

• And D is CPM, what each impression clears at, which I estimate around $6.30 today.

A and B together produce impressions, C converts impressions into ad slots, and D prices them. The ARPU figure Reddit reports is simply B times C times D.

Break the business into those four pieces, and you can reason about each one independently, which is far more granular than picking a growth rate that “feels” right.

Starting with ARPU & and the Pinterest Gap

There’s a discrepancy worth flagging before we go further. Reddit’s reported U.S. ARPU (I repeat: that’s the U.S. figures only) for Q2 2026 is $11.85. BofA’s estimate for the same quarter was $10.00.

That’s a gap of more than 15%. I’m nonetheless going to use their figures as I want to understand what closing the gap to Pinteresting would do to the compounding rate.

My approach is to use company-reported figures when modeling Reddit itself, but to use BofA’s series when comparing Reddit to peers and thinking through what kind of compounding rate “closing the gap” would accomplish, because within the BofA table at least everything is measured the same way.

One thing leaps off that peer table and deserves a moment. Reddit has already passed Snap. Snap’s BofA estimated U.S. ARPU sits at $9.60 for Q2 2026 against Reddit’s $10.00, and Reddit is growing that line somewhere between 32% and 61% while Snap manages 10% to 14%. So the “massively under-monetized” story has already been half-answered against one benchmark, in a way.

The next question is whether catching up to Pinterest, sitting at roughly 2.4x Reddit’s level, is the next stop for Reddit. I think it very well might be.

If you work in marketing, I would love to hear your thoughts. What are you seeing on the ground? How durable is the ARPU trend Reddit has achieved?

Leave a comment

So if I take the Pinterest comparison seriously, what growth rate does it actually imply? On a trailing-twelve-month basis using BofA’s series, Reddit’s U.S. ARPU runs about $38.50 against Pinterest’s $96.60. Call it a 2.5x gap. Closing the gap would compound Reddit’s ARPU at 20.2% over five years.

The mistake I see people make here is treating that as a fixed target, when Pinterest’s own ARPU is compounding at something like 5 to 9% a year.

You’re chasing something that keeps moving. And it makes a difference! See for yourself.

Here is a clean comparison:

The spread between those two rows makes a difference as you can see. Twenty percent a year for five years gets Reddit to where Pinterest stands today, which is a genuine achievement but not “closing the gap” (if Pinterest keeps growings its ARPU) and might not be enough to justify today’s valuation (more on this below).

Actually converging, however, means sustaining something closer to 29%, and that requires Reddit to hold roughly half its current ARPU growth rate for half a decade. Not impossible when the levers are this untouched. I’d file it as the bull-ish case rather than the base case, though.

While I’m here, let me kill an idea I initially liked and then talked myself out of. My instinct was to take a convergence figure and add 3% for inflation on top. Don’t do this. It double-counts, twice over. Pinterest’s own 7% ARPU growth, which we assumed, already embeds ad-price inflation, so the “moving-target” number has it baked in. And more fundamentally, within the ABCD framework, inflation is the D lever – CPM growth is price growth (inflation + pricing power). Layering an inflation adjustment on top of a CPM assumption counts the same thing twice. Better to choose the CPM growth rate deliberately, note that it includes ambient ad-price inflation, and stop there.

Working through the four levers

Pricing

Starting with D, since we just talked about pricing. CPMs rose 40% year over year in Q2 2026, which is genuinely spectacular, which I however refuse to extrapolate.

“During the three months ended June 30, 2026, ARPU was $6.18, an increase of 36% compared to $4.53 for the prior year period, United States ARPU was $11.85, compared to $7.87 for the prior year period, and rest of world ARPU was $2.26, compared to $1.73 for the prior year period. The increase in global ARPU compared to the prior year period was due primarily to an increase in advertising revenue driven by an increase in pricing and an increase in ad impressions delivered. During the three months ended June 30, 2026, the price of ads increased by approximately 40% compared to the prior year period driven by improved performance across the full funnel of ad objectives and higher advertiser demand. During the three months ended June 30, 2026, ad impressions delivered increased by approximately 17% compared to the prior year period driven in part by ad load optimization and improvements, including new ad placements, and by increases in the number of users and user engagement.“ - Q2 10-Q

That figure is catch-up off a depressed base rather than a multi-year run-rate. What might sustain higher pricing over five years is the mix shift toward lower-funnel performance formats – e.g. financial services bidding up 25% a year against CPG’s 3% –, and eventually search being monetized.

What caps it eventually may the platform’s its pseudonymity. Reddit will never have the identity-level targeting precision that lets the largest platforms charge what they charge, and I think that’s a permanent structural ceiling rather than a temporary gap.

I’d underwrite 8 to 12% CPM growth over the next five years, call it 10%.

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