| ANNUALIZED SINCE INCEPTION | QUARTERLY | YTD |
|---|---|---|
| 9.47% | 0.23% | 0.23% |
Distillate Capital's Q1 2026 letter focuses on how market volatility creates opportunities through systematic rebalancing. Despite modest market declines, wide dispersion in individual stock returns allowed the firm to rotate from expensive to cheaper names, increasing underlying free cash flows. The core thesis is that fundamentals drive long-term returns, not valuation changes. Historical analysis shows that the cheapest quintile of stocks significantly outperformed due to superior fundamental growth, not multiple expansion. The firm's value strategies systematically seek to improve portfolio-level fundamentals by selling appreciated stocks and reinvesting in undervalued names with higher free cash yields. Current positioning shows their strategies trading at historically attractive valuations relative to benchmarks. Key risks include rich market valuations, technological uncertainty, geopolitical tensions, and high debt levels in private markets. The manager emphasizes selectivity, particularly in international and small-cap markets where quality differentiation is critical. They maintain confidence in their systematic approach of focusing on fundamentals while using market volatility to enhance underlying cash flows through disciplined rebalancing.
Fundamentals drive long-term returns, and systematic rebalancing from expensive to cheaper stocks can improve underlying free cash flows at the portfolio level, leading to superior performance over time.
The manager expects fundamentals to continue driving returns over the long term, despite short-term valuation swings. They plan to continue systematic rebalancing to improve underlying fundamentals and maintain focus on less expensive names with low debt levels and stable cash flows.
| Date | Letter | Tickers | Keywords | Pitches | Quick Takes |
|---|---|---|---|---|---|
| Apr 13 2026 | 2026 Q1 | CRM | free cash flow, fundamentals, international, Quality, rebalancing, value | - | Distillate Capital demonstrates how market volatility creates rebalancing opportunities to improve portfolio fundamentals. Their systematic value approach rotates from expensive to cheaper stocks, increasing underlying free cash flows. Historical analysis confirms fundamentals drive long-term returns. Current positioning shows strategies at historically attractive valuations despite market risks including rich valuations and geopolitical uncertainty. |
| Jan 18 2026 | 2025 Q4 | 005930.KS, 066570.KS, 1024.HK, 2319.HK, 2618.HK, 267270.KS, 601600.SS, 6594.T, 9618.HK, AEM, AUTO.L, BATS.L, CX, FMX, GIB.TO, MC.PA, RHHBY, RIO.AX | cash flow, fundamentals, international, Quality, valuation, value | - | Distillate's international strategy delivered 41.53% returns in 2025, significantly outperforming benchmarks as international stocks rebounded. The strategy's systematic focus on quality and value provides compelling opportunities outside expensive U.S. markets. Strong fundamental metrics and disciplined rebalancing position the portfolio well for sustainable returns driven by cash flow growth rather than valuation expansion. |
| Oct 16 2025 | 2025 Q3 | AAPL, ABBV, ACN, ADBE, ADP, ALGN, CMCSA, COST, CRM, EPAM, FIX, IT, JNJ, LRCX, MSFT, UNH, UNP, VST, VTRS, WMT | AI, Benchmarks, Concentration, Quality, valuation, value | CMCL LN | AI bubble drives S&P 500 to extreme valuations and concentration levels exceeding TMT bubble. Traditional value benchmarks fail due to antiquated book value metrics. Distillate's systematic rebalancing approach delivers superior free cash flow growth at half the valuation of benchmarks, positioning for long-term outperformance despite near-term underperformance during valuation expansion. |
| Jun 30 2025 | 2025 Q2 | AMGN, CRM, FERG, GMED, HCA, HII, ICLR, JBL, JNJ, KLAC, LRCX, MOS, PEP, REGN, STRL, TMUS, TPG, UNH, VST, VTRS | free cash flow, large cap, momentum, Quality, rebalancing, small caps, valuation, value | - | Distillate's value strategy lagged in H1 2025 as momentum-driven valuation expansion dominated markets. The S&P 500 trades at bubble-like valuations with significant forward return risks. The firm's systematic rebalancing approach has generated superior free cash flow growth and trades attractively relative to expensive benchmarks, positioning for potential valuation compression ahead. |
| Mar 31 2025 | 2025 Q1 | 000660.KS, 1898.HK, 4063.T, ABEV, BABA, GFI, HEI.DE, HMY, HO.PA, JD, JD.L, NOVN.SW, P911.DE, ROG.SW, TFII, TSM | AI, international, Quality, tariffs, uncertainty, valuation | - | Distillate Capital navigates unprecedented uncertainty from tariffs, AI doubts, and fiscal unsustainability by focusing on valuation discipline and quality measures rather than traditional risk metrics. Their International FSV strategy outperformed in Q1 with 8.39% returns, maintaining record valuation spreads while filtering for cash flow stability and low leverage, positioning for differentiated performance similar to post-2000 conditions. |
| Dec 31 2024 | 2024 Q4 | ABT, ADBE, AMGN, AVGO, BMY, CRM, CSCO, CVS, DKS, ELV, GDDY, HCA, HII, MO, NVDA, PG, QRVO, TMUS, UNH, WSM | AI, Concentration, Quality, risk management, small caps, valuation, value | - | Distillate maintains valuation discipline amid extreme market concentration and rich valuations. While 15 mega-cap stocks drive market gains at 83% premium to rest of market, Distillate's strategies offer superior free cash flow yields by focusing on quality companies at attractive prices, positioning for outperformance when fundamentals matter again. |
| Oct 20 2024 | 2024 Q3 | 000660.KS, 005930.KS, 6902.T, 9433.T, BABA, BTI, JD, PDD, RIO.L, TSM | Concentration, international, Quality, risk, valuation, value | - | Distillate Capital warns of significant valuation risk in U.S. markets, with concentration in expensive megacap stocks reminiscent of 2000. Their quality-focused approach avoids the most expensive names while finding opportunities in international markets and selective small/mid cap stocks. The firm believes current market bifurcation creates attractive opportunities for patient, fundamentally-driven investors. |
| Jul 25 2024 | 2024 Q2 | AAPL, AMZN, AVGO, BMY, COST, CVS, DKS, ETSY, GOOGL, HD, LLY, META, MSFT, NTAP, NVDA, ORCL, QCOM, TSLA, WMT, WSM | AI, Concentration, international, Quality, small caps, valuation, value | - | Distillate significantly underperformed in Q2 as AI-driven concentration dominated markets, with just 7 stocks driving two-thirds of S&P 500 gains. Despite frustration, the firm maintains strict valuation discipline, viewing current market concentration as reminiscent of the late 1990s bubble and positioning for eventual normalization when fundamentals matter again. |
| Apr 15 2024 | 2024 Q1 | 1024.HK, AAPL, AMAT, AMZN, BABA, BIDU, CSCO, DKS, FANG, GOOGL, JD, LI, META, MSFT, MSTR, NVDA, SMCI, STLA, TSM, WSM | AI, China, international, Quality, technology, valuation, value | - | Distillate Capital maintains disciplined value approach amid NVIDIA's dominance, finding opportunities in overlooked international markets. Their International FSV strategy significantly outperforms on valuation metrics while avoiding AI bubble risks. Key holdings include Stellantis with strong cash returns and Chinese e-commerce giants trading at deep discounts despite solid fundamentals. |
| Jan 24 2024 | 2023 Q4 | 6857.T, AAPL, AMGN, AMZN, AVGO, BABA, BMY, CNQ, CSCO, FMX, GOOGL, HRL, ITX.MC, JBL, LRCX, MC.PA, MSFT, NVDA, OC, PBR, PDD, PG, PNDORA.CO, QCOM, TSLA, V, WSM | Concentration, free cash flow, international, Mega-caps, Quality, value | - | Distillate Capital advocates fishing where the fish are by avoiding overvalued mega-caps that dominated 2023 returns. Their value-focused strategies achieve superior free cash flow yields through quality companies at attractive valuations. While market concentration creates risks for passive investors, it provides opportunities for selective active managers who can navigate valuation dispersion across geographies and market caps. |
| Nov 10 2023 | 2023 Q3 | 036570.KS, 6857.T, 9988.HK, AAP, AAPL, AMGN, AMP, AMZN, AN, AON, AVGO, AVY, BLDR, CF, CSX, CVS, DHR, ETSY, GOOGL, IPG, ITX.MC, JBL, LKQ, MC.PA, META, MPC, MSFT, NVDA, OC, OMC, PCAR, PRIO3.SA, PYPL, ROG.SW, SMCI, TEP.PA, TSLA, VSCO | free cash flow, international, Quality, risk management, selectivity, value | - | Distillate's International strategy outperformed by 4.25% through Q3 by focusing on quality value opportunities while avoiding debt-heavy small caps and expensive mega-caps. The portfolio achieves superior free cash flow yields through selective positioning in fundamentally stable, low-leverage companies across international markets, with strong performance from LVMH and Advantest offsetting weakness in NCsoft and Teleperformance. |
| Jul 13 2023 | 2023 Q2 | AAP, AAPL, ABBV, AMZN, AN, APA, AVGO, BLDR, CVS, FTNT, GOOGL, HIBB, JBL, META, MSFT, NVDA, OC, SMCI, TOL, TSLA, VSCO | AI, Concentration, large cap, Quality, risk management, technology, valuation, value | - | Distillate warns of extreme market concentration with mega-cap stocks at rich valuations driving S&P 500 gains. The firm avoids expensive large-cap names, focusing on quality companies with stable cash flows and attractive valuations. Despite AI enthusiasm, they emphasize discipline and capital preservation, achieving superior free cash flow yields through selective stock picking. |
| Apr 14 2023 | 2023 Q1 | 005930.KS, AAP, AAPL, ADBE, AKER.OL, AMX, AMZN, AN, APA, BABA, BLDR, BTI, CE, CI, CVS, FIS, FTNT, GOOGL, ITX.MC, JBL, JD.L, JNJ, MC.PA, META, MO, MSFT, NVDA, PHM, PM, PRG, ROG.SW, SMOORE, SWKS, TMUS, TSLA, UNH, V, WRK, WU | Banking, international, Leverage, Quality, rates, selectivity, value | - | Distillate's value strategies lagged in Q1 due to concentrated mega-cap tech outperformance while avoiding banking sector stress. The firm sees current market dislocations as creating attractive opportunities in high-quality, low-debt companies with strong free cash flow yields, maintaining optimism about the investment landscape despite macroeconomic uncertainties around inflation, rates, and potential recession. |
| Jan 30 2023 | 2022 Q4 | - | - | - | |
| Oct 10 2022 | 2022 Q3 | - | - | - | |
| Jul 30 2022 | 2022 Q2 | - | - | - | |
| Apr 30 2022 | 2022 Q1 | ADBE | - | - |
| QUARTER | THEMES | TAGS |
|---|---|---|
| 2026 Q1 |
ValueThe letter extensively discusses value investing through free cash flow-based strategies, emphasizing systematic rebalancing from expensive to cheaper stocks. The manager demonstrates how this approach has historically outperformed through better fundamental growth rather than valuation expansion. |
Free Cash Flow Valuation Rebalancing Fundamentals Quality |
QualityQuality is emphasized as a key selection criterion, particularly in international and small-cap markets where selectivity is critical. The strategy focuses on companies with low debt levels, stable cash flows, and strong fundamental characteristics. |
Cash Flow Stability Low Debt Selectivity Fundamental Stability Risk Management | |
| 2025 Q4 |
AIAI-related valuations experienced volatility during the quarter with concerns about elevated valuations and 'AI bubble' dynamics frequently dominating headlines. Despite some weakness in growth sectors including AI, the manager notes echoes of the late 1990s with the AI boom raising corporate earnings but valuations at levels last seen in the dotcom era. |
Artificial Intelligence Technology Valuations Growth |
GoldGold has been the fund's most profitable exposure over 2025, with the manager continuing to hold it as a hedge since initiating the position in July 2024. US political and policy worries have been fueling gold performance, and both gold and silver recorded their best year since 1979. |
Precious Metals Hedge Commodities | |
JapanJapan was one of the standout markets over 2025 and the fourth quarter, powered by technology stocks and boosted by yen weakness. The manager remained overweight Japan throughout the period, which added value. Sentiment was also boosted by election results with the new Prime Minister regarded as supportive to corporate reform. |
Japanese Equities Technology Currency | |
| 2025 Q3 |
ValueThe manager emphasizes that while the Russell 1000 Value benchmark is intended to offer a counter to valuation risk, it suffers from being demarcated on book value which inadequately measures valuation in today's economy. Their U.S. FSV strategy offers substantially better valuation at 6.1% free cash flow yield versus 3.9% for Russell 1000 Value and 3.1% for S&P 500. |
Free Cash Flow Valuation Book Value Russell 1000 Value Benchmarks |
AIThe AI bubble continues to inflate with equity benchmarks looking increasingly rich and risky. The S&P 500 is now more expensive than at any time other than during the TMT bubble and more concentrated than ever. AI-related stocks have led to crowding out of defensive sectors similar to the TMT bubble. |
Bubble Concentration TMT Valuation Technology | |
QualityThe manager focuses on stable businesses with systematic quarterly rebalancing where proceeds of more expensive stocks go into underlying cash flows of less expensive names. Their strategy has consistently grown underlying free cash flows at significantly faster rates than benchmarks through focus on quality measures and valuation discipline. |
Stability Cash Flow Rebalancing Fundamentals Discipline | |
| 2025 Q2 |
ValuationThe S&P 500 is richly valued with a trailing free cash flow yield of 2.9% well below the 4.3% long-term median, having only been more expensive during the tech bubble. Valuation expansion has contributed 4.6 percentage points to annualized returns since 2017, but this presents significant risk going forward as starting valuations historically predict future valuation headwinds. |
Free Cash Flow Yield Multiples Rich Expensive |
MomentumMomentum has been the dominant force in the market rally and the lone standout factor with surging relative performance. However, momentum generates the risk of disconnecting prices from fundamentals and has led to painful reversals in the past, warranting caution given current stretched valuations. |
Factor Performance Behavioral Reversal Disconnect | |
ValueThe firm believes now is a moment to lean into value, but emphasizes that proper definition of value is crucial. Their systematic rebalancing around value definitions has generated superior underlying free cash flow growth and protection against valuation risk compared to traditional value benchmarks. |
Systematic Rebalancing Definition Protection Growth | |
QualityQuality has been beneficial to returns over the long-term but has been a drag during speculative periods including the tech bubble, meme stock frenzy, and recently. The firm's focus on quality through eliminating negative free cash flow stocks and companies with significant leverage continues to be viewed as accretive longer-term. |
Cash Flow Leverage Stability Long-term Drag | |
Small CapsAttractive valuations in small/mid cap stocks offer an important opportunity to guard against valuation risk in the large cap market. However, selectivity is crucial as broader small cap benchmarks include many unprofitable companies and those with significant leverage that have been a drag on performance. |
Selectivity Unprofitable Leverage Opportunity Guard | |
| 2025 Q1 |
TariffsAnnounced tariffs of around 23% represent the largest trade shock in a century, potentially creating enormous inflationary pressures and economic uncertainty. The scale of potential tariff impact on GDP is unprecedented, with complex follow-on effects including potential retaliation, supply chain disruption, and business investment uncertainty. |
Trade Policy Inflation Economic Shock |
AIAI technology faces mounting uncertainty as progress slows despite enormous investments, with issues like hallucinations remaining endemic. Chinese company DeepSeek's low-cost model has challenged assumptions about capital intensity barriers, while profitability concerns grow as companies like OpenAI struggle with revenue models. |
Data Centers Cloud Semiconductors | |
ValuationCurrent market conditions mirror March 2000 with extreme valuation dispersion between largest and smallest stocks. The strategy achieves record valuation spread over benchmarks with 6.2% free cash yield, comparable to 2009 crisis levels, while maintaining quality filters for leverage and cash flow stability. |
Value Quality Small Caps | |
UncertaintyMarkets face unprecedented uncertainty from confluence of tariffs, AI technology questions, and government spending sustainability. Unlike quantifiable risk measures, uncertainty is unknowable and cannot be mathematized, requiring investment processes focused on leverage, cash flow stability, and valuation rather than price volatility metrics. |
Risk Appetite Volatility Quality | |
| 2024 Q4 |
ValuationLarge U.S. equities are up 43% since October 2023 while underlying free cash flows increased only 9.6%, creating significant valuation risk. The most expensive 15 mega-cap stocks trade at an 83% premium to the rest of the market and account for almost 40% of total market capitalization. Distillate's strategies offer attractive valuations with free cash flow yields well above market levels. |
Value Quality Risk Appetite Earnings |
ConcentrationMarket concentration has reached extreme levels with just 15 mega-cap stocks accounting for almost 40% of the S&P 500's total market capitalization. This concentration among expensive stocks creates considerable risk for the broader market. The disconnect between price appreciation and fundamental growth is most acute in this small group of the largest companies. |
Risk Appetite Large Cap Mega Cap | |
AINVIDIA experienced extraordinary growth driven by AI chip demand following ChatGPT's launch, contributing almost 6% of the market's 25% total return in 2024. However, the company faces sustainability concerns as record profits and margins attract competitors, including many of NVIDIA's own largest customers. The AI boom has created both opportunities and valuation risks. |
Semiconductors Data Centers Growth | |
Small CapsSmaller U.S. stocks rallied indiscriminately starting in July, with lower quality companies performing better than higher quality ones. Russell 2000 stocks with negative free cash yields had stronger returns than those with positive yields. Distillate's Small/Mid QV strategy emphasizes quality and valuation in this dispersed market segment. |
Small Caps Quality Value | |
| 2024 Q3 |
ValuationThe letter extensively discusses valuation risk in U.S. markets, comparing current conditions to the 2000 TMT bubble. The manager highlights that over 40% of the S&P 500 trades at NTM P/E ratios above 30x, while only 30% trades below 20x. International stocks now appear more attractive than U.S. stocks on a relative valuation basis after a long period of underperformance. |
Free Cash Flow P/E Ratios Enterprise Value Yield Premium |
QualityThe manager emphasizes their focus on quality companies with stable cash flows and low leverage. Their small/mid cap strategy specifically targets quality names while avoiding unprofitable and highly leveraged stocks that dominate small cap indexes. The process seeks to protect against fundamental shocks by focusing on each company's risk profile. |
Cash Flow Stability Leverage Profitability Risk Profile Fundamentals | |
ConcentrationThe letter discusses extreme market concentration, with just 15 megacap stocks accounting for almost 40% of S&P 500 market capitalization and trading at a 72% premium to the rest of the market. This concentration creates significant valuation risk similar to conditions in 2000. |
Megacap Market Cap Premium Risk Dispersion | |
| 2024 Q2 |
AIAI enthusiasm has driven extraordinary concentration in market returns, with just 7 stocks accounting for two-thirds of the S&P 500's gains. The manager draws parallels to the late 1990s internet bubble, noting that while AI could be transformational like the internet, business models must develop to support the capital deployed and share prices. |
Artificial Intelligence Technology Concentration Valuation Bubble |
ValueDistillate maintains strict valuation discipline despite significant underperformance, with their free cash flow yield now at a record high relative to the S&P 500. The manager emphasizes that valuation matters for long-term returns even though it provides little guidance for short-term outcomes. |
Free Cash Flow Valuation Discipline Long-term | |
QualityThe firm focuses on companies with stable cash flow generation and low leverage, particularly in small-cap and international strategies where debt burdens are typically higher. Quality metrics help differentiate their portfolios from benchmark indices. |
Cash Flow Stability Leverage Debt Fundamentals | |
| 2024 Q1 |
AINVIDIA has become the Magnificent 1 with market cap rising to $2.5 trillion from $350 billion, representing over 2% of global GDP. The AI boom has created extraordinary growth and pricing power for NVIDIA, with EBITDA margins rising from 33% to 55% and projected to reach 65%. |
NVIDIA Growth Semiconductors Technology Valuation |
ValueDistillate's strategies maintain attractive free cash flow yields significantly above benchmarks, with U.S. FSV at 6.6% vs S&P 500's 4.1%. The firm focuses on companies with low debt, stable cash generation, and attractive valuations while avoiding richly valued mega-cap tech stocks. |
Quality Cash Flow Valuation Margin of Safety | |
ChinaChinese stocks offer attractive valuations despite economic concerns. Holdings like Alibaba and JD.com trade at roughly 40% of market cap in projected free cash flows with large net cash positions, exposed to growing consumer segments rather than troubled construction and banking sectors. |
E-commerce Valuation Consumer Technology | |
| 2023 Q4 |
ConcentrationThe letter extensively discusses the extreme concentration in the S&P 500, where the largest five stocks now represent 24% of the index weight. This concentration creates significant risk for cap-weighted benchmarks and provides opportunities for active managers who can avoid overvalued mega-caps while finding value elsewhere in the market. |
Concentration Mega-caps Index Risk Valuation |
ValueThe manager emphasizes their value-oriented approach, highlighting how their strategies achieve superior free cash flow yields compared to benchmarks by avoiding richly valued stocks. They focus on finding attractive valuations in overlooked areas of the market while the largest stocks trade at stretched multiples. |
Value Free Cash Flow Yield Valuation Multiples | |
QualityQuality is a core component of the investment process, with emphasis on fundamental stability, low leverage, and stable cash generation profiles. The strategies avoid companies with debt problems and focus on businesses with durable characteristics and consistent cash flows. |
Quality Stability Leverage Cash Flow Fundamentals | |
| 2023 Q3 |
ValueManager emphasizes selective value investing by avoiding expensive mega-cap stocks and focusing on quality companies with attractive free cash flow yields. The strategy achieves a 7.3% free cash yield compared to 4.9% for the S&P 500. |
Free Cash Flow Valuation Selectivity Quality Yield |
QualityFocus on fundamental stability and low leverage as key quality metrics. The strategy emphasizes cash flow stability scores and debt-to-EBITDA ratios to identify resilient companies that can preserve capital in adverse scenarios. |
Fundamental Stability Low Leverage Cash Flow Balance Sheet Resilience | |
Risk AppetiteManager identifies significant risks in both small caps due to elevated debt levels and large caps due to stretched valuations. Strategy focuses on avoiding these risks through selective positioning. |
Risk Management Debt Levels Valuation Risk Selectivity Capital Preservation | |
| 2023 Q2 |
ValuationThe letter extensively discusses valuation concerns, particularly around the largest stocks in the S&P 500. The mega-cap six stocks now trade at 40x expected free cash flow versus their historical discount to the market. The manager emphasizes that despite strong business fundamentals, rich valuations create problematic risk/reward profiles when substantial optimism is already priced in. |
Free Cash Flow Enterprise Value Multiples Risk Reward Pricing |
ConcentrationMarket concentration has reached extreme levels with the top 5 stocks comprising over 24% of the S&P 500, the highest since 1980. The manager warns that high concentration reduces diversification and exposes investors to company-specific risk, while historically the largest stocks tend not to remain at the top over time due to creative destruction and growth challenges. |
Market Cap Diversification Index Weight Creative Destruction Company Risk | |
AIThe manager acknowledges AI's potential enormous impact but cautions against the current enthusiasm driving stock prices to imprudent levels. Drawing parallels to the internet bubble, they note that while technological disruption often proves transformative, it historically tends to be more of a headwind than tailwind to incumbent firms, and predicting winners in early stages is extremely difficult. |
Technology Disruption Innovation Bubble Uncertainty | |
| 2023 Q1 |
Credit StressSilicon Valley Bank and Signature Bank collapsed due to maturity mismatches and deposit flight, while Credit Suisse was forced into a UBS sale. Banking pressures highlight risks from high leverage and potential further distress in commercial real estate lending. |
Banking Leverage Commercial Real Estate Deposits Contagion |
RatesFederal Reserve raised rates sharply to combat inflation, but current 10-year yields look reasonable in historical context. Higher rates may reverberate through leveraged parts of the economy, though the risk of dramatically higher rates has diminished. |
Federal Reserve Interest Rates Inflation Monetary Policy Bond Yields | |
ValueDistillate focuses on attractively valued stocks based on free cash flows with little debt. The firm sees significant valuation dispersion in markets and opportunities through selectivity, avoiding expensive mega-cap stocks that drove Q1 performance. |
Free Cash Flow Valuation Stock Selection Debt Avoidance Selectivity |
| Date | Pitch Type | Author | Ticker | Company | Industry | Sub Industry | Bull / Bear | Exchange | Keywords | Action |
|---|---|---|---|---|---|---|---|---|---|---|
| Oct 16, 2025 | Fund Letters | Thomas Cole | CMCL LN | Gold Fields Ltd. | Materials | Gold Mining | Bull | NYSE | balance sheet, dividends, FCF, Gold, inflation hedge, Mining, stability, valuation | Login |
| TICKER | COMMENTARY |
|---|---|
| CRM | Salesforce was the largest added-to position in the quarter and typifies the type of opportunity we are seeing. While the company has previously traded at levels we consider very expensive, 40-50x NTM FCF, that multiple has now dropped to around 11x while underlying free cash per share has grown solidly. The stock fell amid worries about how AI might impact it in the longer term even though fundamentals remain strong. While we do not know what the future holds, the company is trading at a valuation at which it can buy back nearly 10% of its stock each year. If fundamentals keep growing even modestly, the company will in theory be able to buy back all its equity in just a few years. This is reminiscent of Microsoft 15 years ago when fears of competition from free Google products and management concerns rendered it similarly cheap. It proved to be a significant opportunity at the time to buy a well entrenched technology player with annuity characteristics, and Salesforce today has many of the same attributes. |
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