The market is down this year?
Meteorologists can now forecast the weather 5-days out with an accuracy of 90%. Trying to forecast the weather 10 days out, and your accuracy rate falls to 43%
I believe the future of the market, the economy, and business is as difficult to predict as the weather and this is why it’s so hard for me to pay dear multiples for growth stocks. Because their share prices are based so heavily on things that happen more than 10 years down the road- you need to really “know" what will happen.
I believe a good price to pay for a growth stock, in a company with an obvious competitive advantage or monopoly, must be worthy enough to generate a 7% yield on paper. This way, if the growth flops your downside is still limited.
Belgium Post
I have been taking a look at Belgium Post. It looks similar to a growth-flop story (analysts paying too high multiples for “growth” they can’t accurately forecast). The weather changed, the growth stopped, and the growth investors left. They have left BPOST (Belgium Post) trading at a P/E of 4.72 EPS of 1.25 in 2021, at a share price of 5.9EUR. Annual report here
Here is the chronology.
2016 to 2017 Revenue grew at 23% through acquisition + organic growth. Share price very happy- I believe investors forecasting continued growth and these high rates.
2017 to 2018 more growth- 27% Organic!! Growth investors are ecstatic…(But payroll costs rose a lot, and operating margin dropped).
2018-2019 no growth. On 13 March 2018, they release an annual report. From that day share price goes from 27EUR to 7.63EUR. 72% Decrease in less than a year!! (Sucks to pay dear for growth). Payroll up. Operating margin down.
2019 -2020. Revenue grows at 9.9% company changes dividend policy to a more conservative policy (30-50% IFRS profit - see image attached).
2021-2022 Revenue growth stabilizes at 4.4%. Payroll is still high (probably the biggest risk).
30% payout on 1.25EUR EPS (2021) is 6.5%. This is in the lower range.
Risks:
The company faces quite a bit of pressure from its labor force, which is also its second-biggest expense. In Belgium, labor is treated much better and has much more power over a company than in the United States.
Consumer recession. Consumers are already struggling amidst higher inflation and higher fuel prices. Higher interest rates and a slowdown of e-commerce could lead to a decline in revenue generated from parcel delivery.