Just a few months ago, it looked like Salesforce had reached a dead end. After years of dynamic expansion, growth slowed, margin pressure intensified, and the stock plunged by nearly a third. But at this year's Investor Day, the company showed that its story is far from over. Salesforce is redefining itself again - from a classic CRM systems provider to a comprehensive data-AI platform with ambitions to achieve more than $60 billion in revenue by fiscal 2030. It's a goal that exceeds the expectations of analysts and most of the competition in the enterprise segment.

The key to this transformation lies in the combination of data, artificial intelligence and its own ecosystem of cloud services. Salesforce has become one of the largest investors in internal research over the past few years, spending over $10 billion on developing next-generation tools for data analytics, predictive modeling and generative AI. The result is the emergence of a fully integrated platform that allows companies to work with massive amounts of customer data and turn it into business decisions instantly. This strategic shift is already delivering tangible results - the Data & AI segment grew 120% year-over-year in the last quarter to USD 1.2 billion.

This move takes Salesforce into a new growth phase. After a period of cost optimization and operational efficiency improvements, it is now on track for a combination of double-digit organic growth and stable margins. The company is no longer seen as just a CRM giant - it is becoming the backbone of the data and AI landscape for enterprise customers. This gives investors looking for long-term exposure to the structural growth of digitization and AI in the business world a new reason to revisit Salesforce $CRM.

Top Points

• New long-term goal: more than 60 billion in revenue by fiscal year 2030.
• Organic growth to exceed 10% annually between 2026-2030.
• Segment Data & AI is already growing by 120% Y/Y Y/Y and is $1.2 billion per quarter.
• Investments across USD 10 billion in research and development since the beginning of FY24.
• Planned acquisitions Informatica Will strengthen data management and AI model integration (closing mid-2026).
• Despite the stock's 25% drop this year, it remains Salesforce one of the most profitable software businesses with margins of over 20%.
• It has a market capitalization of $227 billion, a return on equity (ROIC) of 8.7% and high liquidity.
• The company is focused on Revenue growth from Data Cloud, Einstein AI and business process automation.

Growth engine: Data and AI as a new pillar

Salesforce has gone through a difficult transformation in recent years. After an era of acquisitive expansion, where it focused on portfolio expansion and acquisitions like Tableau, Slack and MuleSoft, there was a phase of consolidation and internal optimization. The company had to cope with cost pressures, integration of its platforms and slower growth in the traditional CRM segment. But what it has now unveiled at the Dreamforce conference shows that a period of turnaround may be around the corner. Salesforce is redefining its business model towards a data-driven AI ecosystemthat has the potential to be a key growth driver for the next decade.

At the heart of this strategy is Salesforce Data Cloudthat unifies data from multiple sources - CRM systems, marketing channels, e-commerce and customer interactions - and combines it with "Einstein AI" artificial intelligence tools. This connected system allows companies to use their own data more efficiently, automate decision-making processes and generate real added value. Salesforce is thus entering the space where three of today's fastest-growing technology areas converge: AI, data management and cloud services.

According to the company's leadership, this platform is set to deliver over the next five years steady double-digit organic growth. The Data & AI segment is already showing exceptional momentum, with revenues of $1.2 billion in the second quarter alone, representing a year-over-year growth of 120%. This is a structural change for a company that a few years ago depended 90% on traditional CRM. Salesforce is no longer just about customer relationship management, but about managing data as a strategic asset.

Another catalyst for growth is the planned acquisition of InformaticaThe move is critical - it will allow Salesforce to expand its capabilities in data integration, data cleansing and metadata management. This will make Salesforce a comprehensive platform that can not only process data, but also structure, store and prepare it for the deployment of AI models. This is a step that brings the company closer to being the technology standard in enterprise data infrastructure.

Salesforce's growth story thus rests on two pillars - AI transformation a economic discipline. After several years of investors criticizing the high cost of acquisitions and slow monetization of new segments, the company was able to switch into profitable growth mode. Operating margins of over 20% and a return on capital of 8.7% confirm that Salesforce can grow without losing its financial balance. This gives it the room to invest in research while generating stable cash flow that allows it to expand its technology portfolio without the need for significant debt.

The market is now watching to see if this strategy translates into sustainable growth. The company's management expects to achieve between fiscal years 2026 and 2030 organic growth of over 10% per yearwhich would mark a return to the best expansion years of the last decade. If this plan can come to fruition, Salesforce could not only outperform current valuations, but also regain its status as the growth leader in enterprise software - this time with a technology foundation that combines AI, automation and data into one ecosystem.

Financial performance and valuation

Salesforce has had a period that confirms the strength of its transformation strategy - a return to profitable growth and high capital efficiency. In the fiscal year ending January 31, 2024, the company achieved $34.9 billion in revenue, representing year-over-year growth of 11,2 %. This result is all the more impressive as it comes after two years of growth in the high teens followed by a stabilization phase. Gross profit increased by 14,5 % to $26.3 billion and operating profit rose year-on-year to USD 5 billion, which is almost quadrupled the previous year. The company has thus demonstrated that it can combine revenue growth with a dramatic improvement in operating leverage.

An even stronger signal is the return to high net profitability. Salesforce generated a net profit USD 4.1 billion, up from just $208 million a year earlier, with earnings per share rising from $0.21 to $4.25. This turnaround is related to a shift from an acquisition strategy to a focus on organic growth, higher productivity and more efficient cost management. EBITDA increased to USD 9.2 billionAs a result, Salesforce has been able to significantly strengthen its operating leverage and create a stable foundation to fund innovation without the need to raise debt.

In terms of its financial structure, the company remains extremely healthy. Total liabilities are USD 36 billion, with a debt-to-asset ratio of just 0,03which is well below the sector average. Altman's Z-Score of 4,81 confirms the low risk of financial instability. This makes the company one of the best capitalized software companies in the world. Despite heavy investment in development - over $10 billion since the beginning of FY24 alone - Salesforce maintains margins well above the sector averagegross margin of 77.7%, operating margin of 20.2% and net margin of 16.9%.

Return on equity has also improved - ROE OF 11% a ROIC 8.7% indicate an efficient use of resources and the ability to generate returns even in times of increased expenditure. In the context of the cloud sector, these are above-average figures, reflecting strong business performance and high conversion of revenue into cash flow. Price-to-Cash-Flow 18.1× is also significantly lower than most high-growth peers, which strengthens the argument that the title is undervalued relative to its growth ambitions.

From a valuation perspective, Salesforce trades at P/E OF 34×, which is slightly above the technology sector average but in line with firms with significant growth potential. P/S 5.7× reflects the brand's premium positioning and high level of margins, while EV/EBITDA below 24× shows that despite a relatively higher valuation by earnings, the ratio between profitability and value for investors remains reasonable. Compared to competing titles such as ServiceNow, Adobe, and Workday, Salesforce is more conservatively valued given the scale of its business and its growth rate in the data and AI segments.

Performance metrics also confirm that Salesforce is not a typical high-risk growth company - rather a technology blue-chip with a robust balance sheet. High interest coverage 59× a equity ratio of 0.63 underscore an extremely low reliance on outside capital. This gives the company an advantage in financing research and potential acquisitions. Unlike many younger AI firms, Salesforce can afford to grow without a loss-making phase, making it an extremely stable way to gain exposure to AI and data technologies.

Qualitative factors and strategies

Salesforce's success has never been based on numbers alone, but on the ability to anticipate the direction of technological developments and adapt in a timely manner. What started as a dedicated customer relationship management tool is now transforming into an ecosystem that combines data, AI, automation and analytics into one platform. From a strategy perspective, Salesforce is one of the few companies that has been able to transform its original product into a technology infrastructure for the entire enterprise sector - from small businesses to global corporations.

A critical role in this transformation has been played by AI strategy. Salesforce sees AI not as an add-on, but as the core of its future business. The tool Einstein AI, which was originally aimed at automating CRM tasks, has become a comprehensive platform for data modeling and predictive analytics. Integration with Data Cloud enables AI to be used directly on top of customer data, creating a strong competitive advantage - Salesforce can deliver personalized outputs to businesses without the data having to leave the safety of their infrastructure. This differentiates it from open AI platforms while meeting the demand for secure enterprise AI.

Another qualitative factor is Technology architecture. Salesforce has created a system that is modular, fully cloud-based and compatible with key enterprise IT infrastructure tools. This allows the company to scale services across segments and expand functionality without the need for massive acquisitions. This is evidenced by the integration of products such as Slack, MuleSoft or Tableauwhich now function as interconnected nodes of the data infrastructure. This approach minimises duplication and enhances the user experience - customers can move between tools within the same environment, increasing loyalty and reducing the risk of client churn.

The qualitative strength of Salesforce is underscored by capital management and innovation strategy. The company remains one of the largest investors in research in the industry - since the beginning of fiscal year 2024 alone, it has invested over USD 10 billion. This level of investment allows the firm to stay ahead of its competitors in technology while developing its own AI models without relying on external suppliers. Salesforce is thus becoming a hybrid between cloud infrastructure and research lab - a unique combination that is increasingly rare in the technology sector.

An important role is also played by management's vision. Marc Benioff, founder and CEO, remains a key figure who sets the direction and defines the company's philosophy - a combination of profitability, innovation and social responsibility. Unlike many tech giants, Salesforce builds its communication on the values of trust, sustainability and ethical approach to data. This gives it an exceptional reputation in an enterprise environment where security and regulatory issues are becoming increasingly important. In addition, the presence of Robin Washington as CFO has reinforced the emphasis on financial discipline and long-term goals - combining innovative thinking with operational efficiency.

Strategically, Salesforce also benefits from an ecosystem of partnerships. Collaborations with Amazon Web Services, Google Cloud and Accenture strengthen the interoperability of its solutions and extend their global reach. This allows the company to scale its products without the need for massive capital expenditures while avoiding direct confrontation with the big players. This "cooperative competition" strategy ensures that Salesforce remains a neutral provider for customers that use different cloud infrastructures.

Comparison with competitors

Salesforce operates in an extremely competitive enterprise cloud services segment, where it competes for dominance with technology giants such as Microsoft $MSFT, Oracle $ORCL, SAP $SAP, Adobe $ADBE and ServiceNow $NOW. Each of these players has a strong position in a particular segment - Microsoft in productivity and cloud infrastructure, Adobe in creative software and marketing automation, Oracle and SAP in ERP systems, while ServiceNow specializes in business process automation. However, Salesforce has managed to build a unique position that brings these worlds together - it has become a leader in customer relationship management (CRM) and is gradually expanding towards data management and artificial intelligence.

In terms of business model Salesforce has one key advantage over its competitors - its ecosystem is vertically integrated and built on a unified data architecture. This means that customers use CRM, analytics, marketing tools and AI models within a single infrastructure. This reduces implementation costs, increases data accuracy and strengthens client loyalty. While Microsoft Dynamics or SAP CX offer similar functionality, their systems are more modular and often rely on external integrations. Thus, Salesforce benefits from technology consistency that delivers more stable recurring revenue growth and higher margins.

Compared to Microsoft Salesforce remains smaller in volume but clearly dominates its core CRM segment. Microsoft is banking on synergies between Dynamics 365, Azure and Copilot AI, but Salesforce still has stronger specialization and deeper connections to business processes. This translates into higher adoption of AI tools and better monetization of data. In addition, Salesforce is one of the few players in the industry that does not run its own infrastructure, but leverages the capabilities of partners (AWS, Google Cloud, Azure) to maintain flexibility and lower fixed costs.

Oracle and SAP on the other hand, are more focused on ERP systems that address the operational side of the business. Their weakness is slower cloud adoption and low integration of AI tools. Salesforce, with its Einstein platform and Data Cloud, offers a higher level of personalization and interactive automation - exactly what today's businesses demand from modern data solutions. In this respect, Salesforce is also becoming a competitor to ServiceNowwhich dominates workflow automation but lacks the scale and depth of a data ecosystem.

When it comes to financial metrics, Salesforce is among the most profitable software companies in its segment. Its operating margins of over 20% far exceeds both SAP (13%) and ServiceNow (18%) and is close to Adobe's level. At the same time, it maintains an extremely healthy balance sheet - its debt burden is minimal, while its return on equity (ROIC of 8.7%) is among the highest in the sector. Valuationally, Salesforce is cheaper than Adobe or ServiceNow at comparable profitability, suggesting that the market has not yet fully priced in its data-AI strategy.

Analyst views and market expectations

Analyst reaction to Salesforce's newly unveiled strategy during the Dreamforce conference was overwhelmingly positive, although the tone remains guardedly optimistic. Investors particularly appreciated a clear long-term vision and a return to a growth story based on organic expansion rather than acquisitions. After several years of restructuring and cost-cutting, the company unveiled a plan that raises the bar again - targeting more than $60 billion in revenue by 2030 means an ambitious but realistic strategy that builds on a strong foundation in data and artificial intelligence.

Experts from Morgan Stanley a Goldman Sachs have highlighted that Salesforce is beginning to reposition itself as a a growth company with a profitable profilewhich is not a given for large software companies. According to their analysis, the company has managed to return to being one of the most attractive names in enterprise software thanks to cost consolidation, margin improvement and rapid growth in the Data Cloud segment. In particular, the analysts praised management's ability to maintain operating margins above 20% while expanding its portfolio with challenging, research-oriented products. This approach, they said, strikes an ideal balance between growth and stability.

Bank of America noted that the Data & AI segment could be a catalyst for Salesforce to change the company's revenue structure. If it maintains a growth rate of over 100% year-over-year, it could account for more than a quarter of total revenue by 2028. In doing so, analysts highlighted that Salesforce has exceptionally low barriers to adoption of AI solutions due to its client base and existing infrastructure - most clients already use the platform, and extending it with data and AI tools does not require a complex migration. This factor can accelerate monetization of new features and boost recurring revenue.

At the same time, however, a portion of the market remains cautious. Analysts from Jefferies a Barclays warn that the transition to an AI-driven business model will require massive investment in both development and integration of the Informatica acquisition. These costs could hamper earnings per share growth in the short term and put pressure on valuations if the pace of AI adoption among enterprises is not as rapid as Salesforce anticipates. Rapidly evolving competition also remains a challenge - Microsoft in particular, with its Copilot, may get a head start in integrating AI into work processes.

However, the overall sentiment on Wall Street is positive. By consensus of most investment houses, Salesforce continues to have the status of "buy" or "overweight"with an average target price of around USD 290-310 per sharewhich represents potential upside of 25-30% from current levels. Investors particularly appreciate management's ability to deliver tangible results - stable margins, rising profits and a return to double-digit growth without the need for large-scale acquisitions.

Investment scenarios

Salesforce's future path to 2030 will be driven primarily by the company's ability to turn its technology edge into real business results. The company is on the cusp of a new era where its growth will no longer be driven by the CRM segment alone, but also by the growing demand for data services, artificial intelligence and automation. This offers investors a story that could take three very different forms - from a return to rapid growth to stagnation if the AI revolution fails to meet expectations.

The optimistic scenario:

In the optimistic scenario, Salesforce takes full advantage of its unique position in data and AI. The Data Cloud segment will become the second pillar next to CRM and will account for more than a fifth of total revenue. The acquisition of Informatica, which is expected to be completed in 2026, will enable the company to integrate data more effectively across systems, significantly reducing the time to deploy AI solutions. In this scenario, revenue could grow by more than 10% annually and exceed $60 billion by 2030, with operating margins approaching 25%. The combination of high return on capital, stable cash flow, and AI segment growth would also likely lead to a revaluation of the stock in this scenario - the market would once again begin to value Salesforce as a growth company, not just a mature blue-chip software company. The result could be a return of valuation to a P/E of around 40x and real share price growth of 30-40% over several years.

A realistic scenario

A more realistic development, however, is likely to be more gradual. Salesforce will maintain a growth rate of between 9-11% per year, which would put the $60 billion revenue target at the low end of the outlook. The AI and data segment will continue to grow, but without a dramatic explosion - it will become a steady contributor to profitability rather than a revolutionary factor. The company will remain disciplined in spending and generate sufficient profit for investment and buybacks, with operating margins remaining between 21-23%. This scenario would confirm Salesforce's status as a stable technology leader that, while not growing as fast as in the past, can combine innovation and financial discipline over the long term. In this case, the stock would maintain a fair valuation around a P/E of 30× and would remain attractive primarily to investors focused on quality and certainty of returns.

Pessimistic scenario

In contrast, in the pessimistic scenario, Salesforce would face slower adoption of AI solutions, delays in Informatica integration, and stronger competitive pressure - particularly from Microsoft with its Copilot AI and deeper integration into workflows. If the company failed to monetize its data ecosystem fast enough, revenue growth could fall below 8% annually and operating margins below 20%. Revenues would then reach approximately $50-55 billion by the end of the decade, which would make for a stable but unexpansive business. In such a case, the market would likely react by dropping the valuation to a P/E of 25×, returning Salesforce to the category of mature, defensive technology titles. The company would remain profitable and financially strong, but without a clear growth catalyst, which from an investment perspective would mean stagnating value with minimal above-inflation returns.

Conclusion and Investment Considerations

After several years of internal change, Salesforce finds itself at a moment that may define its next decade. The company that was once at the birth of modern CRM is now moving into an era where data and AI alone will determine who the real winner of digital transformation will be. Against this backdrop, management's plan - to reach $60 billion in revenue by 2030 and return to double-digit organic growth - strikes as not only ambitious but also strategically timed. Salesforce has a strong balance sheet, high margins and a technology edge that allow it to fund growth even as the software market slows.

From an investor's perspective, Salesforce is a typical example of a company that has gone through a revaluation phase, restructured, and is now becoming an undervalued growth story again. The current valuation is more consistent with a company with a mature business than a company that has a new product cycle ahead of it - and therein lies the opportunity. If it can develop its Data & AI segment into a full-fledged revenue source and complete the Informatica integration without losing operational efficiency, Salesforce could move back into the growth leaders of the technology sector within a few years.

So far, the market has approached this scenario with caution, creating room for long-term investors. The company is no longer a pure growth title, but combines the stability of a mature corporation with the innovation potential of a young technology platform. This makes Salesforce an ideal choice for investors who are not looking for short-term euphoria, but structured growth backed by real data, technology research and strong returns on capital.

Realty Income, known as "The Monthly Dividend Company," confirmed its position as one of the most reliable players in the real estate investment trust (REIT) segment in the second quarter of 2025. Results for the past period showed that even in an environment of elevated interest rates and continued investor selectivity, its business model remains highly resilient and profitable. The firm benefits from extensive portfolio diversification, global expansion and a long-term strategy focused on steady earnings growth.

While many players in the commercial real estate sector are facing pressure on rents and financing, Realty Income continues to invest and strengthen its position in the US and European markets. The company's ability to combine stable cash flow, prudent capital management and a disciplined approach to expansion remains a key success factor.

How was the last quarter?

The second quarter of 2025 brought Realty Income revenue of $1.41 billion, up 5.3% year-over-year. Net income reached $196.9 million, or $0.22 per share, while key metric Adjusted Funds From Operations (AFFO) was $1.05 per share. The firm invested a total of $1.2 billion at an average yield of 7.2%, beating plan and adding over 100 new properties to its portfolio with a total leasable area of over 7 million square feet.

Growth was driven primarily by European expansion, which accounted for 76% of investment volume. This makes the company a truly global player with a balanced geographic mix of revenues. Operating profitability was maintained at a very healthy level, while the debt ratio Net Debt to Annualized Pro Forma Adjusted EBITDAre was 5.5x - still in a safe range. Successful euro bond issues at yields below 4% also played a significant role, providing attractive financing for expansion in Europe.

Portfolio performance remained excellent: occupancy reached 98.6% and the re-leasing recovery rate was 103.4%. This confirms the strong demand for the company's properties, which owns over 15,600 properties leased to more than 1,600 tenants across 91 sectors.

CEO comment

CEO Sumit Roy highlighted that the quarter's result once again shows the strength and stability of Realty Income's business model. He said the company is able to generate attractive returns across economic cycles through a combination of scale, diversification and disciplined execution. "Our ability to translate global presence and data-driven decision-making into stable returns is the foundation of our long-term success," Roy said.

He also noted that strong demand for "durable income solutions" - that is, stable returns from quality assets - remains one of the main drivers of growth. This makes Realty Income a natural partner for corporations looking to unlock capital from real estate assets through sale-leaseback transactions. Roy also confirmed an increase in full-year investment guidance to approximately $5 billion and a shift in the lower end of the AFFO outlook to a range of $4.24 to $4.28 per share.

Outlook

Realty Income expects to continue to see steady investment growth through the remainder of 2025, particularly in Europe, where it sees long-term scope for acquisitions in the logistics and industrial real estate segments. At the same time, the company maintains a conservative financing approach, funding new capital through a combination of equity issues, credit lines and bonds, ensuring a balance between growth and earnings capacity.

In terms of portfolio performance, the company expects to maintain occupancy above 98% and moderate AFFO growth in the coming quarters. Effective cost management and securing refinancing on favourable terms remains an important factor, which is being achieved thanks to the investment grade rating.

Long-term results

Over the long term, Realty Income represents one of the most stable and consistent models within U.S. real estate trusts. The company has long relied on a simple but extremely effective approach - purchasing quality commercial properties with long-term leases that generate predictable income. This model has proven successful even during market fluctuations, when stable tenant relationships and diversification across sectors and regions have proven to be the foundation of lasting resilience. Over the past four years, Realty Income's revenues have grown at an average annual rate of more than 20%, with the firm reporting total revenues of $5.27 billion in 2024 - up 29% from the previous year.

Operating profit reached $5.09 billion, representing nearly 41% year-over-year growth, while net income held steady at $861 million. At first glance, the growth in net profit may appear to be more modest, but it actually reflects higher depreciation and amortization and investment activity that reduces book profit in the short term but increases long-term returns. Key efficiency metrics confirm that the company remains extremely profitable, with EBITDA in excess of $3.3 billion and operating profit margins of over 95%, which is exceptional for the REIT sector.

Realty Income has also demonstrated the ability to effectively finance growth without excessive debt. While the number of shares has increased by approximately 25% between 2021 and 2024, primarily due to acquisition activity and portfolio expansion, profitability and dividend-paying ability have been maintained. The company has been able to increase the market value of its assets while keeping debt within safe limits. The net debt to EBITDA ratio has remained steadily below 6x, which is considered a conservative level in the context of the sector.

The results of the last few years thus confirm that Realty Income is able to combine growth and stability. Rising revenues from European acquisitions, an improving financing structure and the ability to increase dividends over the long term suggest that the company has a solid foundation for sustainable growth in the years ahead. From an investor's perspective, this is an exceptional example of a company that can combine conservative character with attractive returns and long-term income certainty.

News

In June, the company announced it had already 111th consecutive quarterly dividend increase, confirming its reputation as a "monthly dividend legend." The annual dividend is $3.23 per share, representing a payout ratio of approximately 77% AFFO. This makes Realty Income one of the most reliable dividend titles in the U.S. market, and its stable payout remains a key attraction for long-term investors.

Another notable development has been the growth of investment in European assets, which has accelerated income diversification. In addition to logistics and industrial properties, the firm is also focusing on retail parks and leisure properties in key regions of Western Europe.

Shareholding structure

Institutional investors hold approximately 79% of the company's shares, reflecting the confidence of large funds in Realty Income's long-term stability. The largest holdings are held by funds Vanguard Real Estate Index Fund (3.6%) a Vanguard Total Stock Market Index Fund (3.2%), followed by Vanguard 500 Index Fund a Parnassus Core Equity Fund. The presence of these long-term oriented investors provides a stable ownership structure and supports the low volatility of the stock.

Analyst expectations

Analysts anticipate that 2025 will be a period of stabilization and consolidation for Realty Income following a challenging environment of higher rates. Market consensus expects AFFO for the full year to be approximately USD 4.26 per share, equivalent to year-over-year growth of approximately 2%. The market also views Realty Income as a defensive title with an attractive dividend yield over 5 %that can continue to serve as a safe haven in an uncertain macroeconomic environment.

The long-term thesis remains unchanged - Realty Income combines exceptional dividend continuity, disciplined expansion, and the ability to generate steady returns that make it one of the pillars of portfolios focused on regular income.

Fair Price

Hello investors,

What price do you expect Paramount will be willing to pay for $WBD? They recently came with an offer of $20 per share, which was rejected. Rumor has it they're planning to revise the buyout offer for $WBD. I would personally expect $22–25 per share. I'm not optimistic that the price will climb to $30.

In an environment where most consumer industries struggle with price elasticity and margin pressure, there are segments that operate almost outside the laws of economics. Premium fashion and luxury accessories are one of them. They have weathered the recession, held onto margins and often grown even when the rest of the market has stagnated. Luxury is not just about products - it's about emotion, status and self-expression. That's the power of brands that have been able to translate design and story into long-term value.

And it is in this segment that a quiet but strategically significant shift is taking place. The luxury industry, long seen as the preserve of European houses, now faces American competition that combines prestige with pragmatism. Over the past five years, a phenomenon has emerged that has managed to transform the traditional approach to fashion - through a combination of precision brand management, disciplined pricing and global expansion.

The growth of these brands is no longer the product of chance. It is the result of a thoughtful transformation, investment in digital sales and the ability to engage a new generation of consumers who do not see luxury as unaffordable.

Top points of the analysis

• The luxury segment confirms its resilience to the cyclical downturn, with sales growing despite a slowdown in consumption.
• Strong brands, high gross margins (75%) and pricing discipline create room for profitability.
• The biggest challenge remains rising operating costs and weaker gross profit to net profit conversion.
• The revitalisation of the Kate Spade brand and the digitalisation of sales will be key drivers of further growth.
• Global expansion and a sustainable model can deliver a return to double-digit EPS growth after 2026.

Company Profile

The Tapestry $TPRgroup was created by transforming a traditional American brand that has gradually outgrown a single brand and built a portfolio with global reach. Today, it includes two core brands - Coach and Kate Spade - which together form the core of premium fashion for customers seeking design, quality and affordability without elitism.

Founded in New York in 1941, Coach is the epitome of American luxury. Its evolution from an artisanal leather bag manufacturer to a global lifestyle brand illustrates the transformation of an entire sector. Today, Coach has a dominant share of group sales, a strong position in the US, China and Japan and acts as the financial engine of the entire holding.

Kate Spade represents the other pole - a younger, more expressive brand that appeals to women through a combination of optimism, colour and design. Its mission is to diversify its customer base, increase purchase frequency and boost growth in the "accessible luxury" segment. Both brands share central control of design, marketing and digital platforms, but retain autonomy in creativity and positioning.

The holding company is based in New York and operates in more than 70 markets. The largest share of sales comes from the US, followed by Asia, where the brand has a strong presence, particularly in China, Hong Kong, Japan and Singapore. Manufacturing is largely outsourced to Vietnam, Cambodia and the Philippines, with the company emphasising quality control and supply chain sustainability. The sales model is a combination of own stores, e-commerce and selected wholesale partners. Own channels already account for more than half of revenues and provide control over pricing and customer data.

Management and leadership

The group is headed by Joanne Crevoiserat, who moved from her role as CFO to head the company in 2020. Her approach combines rigorous financial management with an emphasis on strategic continuity and cost discipline. Her leadership has brought stability after a turbulent pandemic period and moved the company toward long-term growth focused on efficiency and return on investment.

A key teammate is Scott Roe, who holds the dual role of CFO and COO. He is responsible for capital management, working capital optimization, cash flow and efficient allocation of resources across brands. Current management is emphasizing simplifying the structure, better inventory management, accelerating turnover and strengthening margins.

Organizationally, the brands are managed separately but use common platforms for marketing, logistics and data. This hybrid model allows the company to combine creativity with financial responsibility - a key factor that has helped the company survive volatile periods and grow in difficult macroeconomic conditions.

Financial performance

The fiscal year ending June 28, 2025 concluded the next stage of the company's long-term transformation. The numbers for the last four fiscal years illustrate well how Tapestry is moving from a stable but slower-growing company to a dynamic player that is balancing revenue growth with financial efficiency.

Revenues for fiscal 2025 were $7.01 billion, representing 5.1% year-over-year growth. This result marks not only a return to solid momentum after stagnation in previous years, but also strength in key segments - particularly the Coach brand. Over the 2022-2025 period, revenue increased by more than $330 million from $6.68 billion, despite the company simultaneously reducing the number of brands and consolidating its portfolio. This meant that growth was organic and came from improved efficiencies and higher prices, not acquisitions.

Cost of goods sold has gradually declined over the three years, falling to $1.72 billion in the most recent fiscal year. This trend is positive as it indicates improved production efficiency as well as a better bargaining position with suppliers. As a result, gross profit rose to USD 5.29 billion, up 8.2% year-on-year. This brought gross margin to 75.4%, an exceptionally strong level not only within the industry but also in the company's historical comparison.

However, this achievement is offset by an increase in operating expenses. DTC's marketing, distribution, digital and channel development spending reached $4.02 billion, up 7.2% year-over-year. The increase in SG&A reflects both expansion in Asia and the strengthening of brands in the online space, which requires heavy investment in campaigns and customer platforms. As a result, operating profit fell from US$1.14 billion in fiscal 2024 to US$415 million in fiscal 2025. As a result, operating margin fell from a stable 17% to 5.9%, a return to pre-pandemic levels.

Pre-tax profit was US$216 million, net profit fell to US$183 million, while net margin fell from 12.2% to 2.6%. Earnings per share (diluted EPS) fell from $3.50 to $0.82. This decline is partly due to transitional restructuring costs, higher marketing expenses and a shift in inventory cycles. However, in the long term, it is these investments that should lay the foundation for greater efficiency in future years.

The balance sheet shows a significant decline in assets from USD 13.4 billion to USD 6.58 billion. This movement is linked to the sale of some assets, the reduction of inventories and the consolidation of the structure following the divestment of the Stuart Weitzman brand. Liabilities fell to USD 5.72 billion and equity to USD 858 million. Total debt was $3.9 billion, while net debt was $2.8 billion. The debt to asset ratio of 0.59 shows higher leverage, but the company remains solvent and has sufficient interest expense coverage (4.9 times EBIT).

Operational efficiency improved in asset management: asset turnover reached 1.07x, reflecting the company's ability to generate higher returns on every dollar of assets. At the same time, however, the slower inventory turnover (2×) signals that some capital is still tied up in inventory, limiting cash flow. Yet this metric is key for the luxury segment, as slow inventory turnover increases the risk of discounting and margin pressure.

A look at the long-term trend shows Tapestry increasing sales by an average of 2-3% per year from 2022, with gross profit growing faster than revenue. This positive difference - roughly 3 percentage points per year - confirms the improving cost discipline in purchasing, production and logistics. By contrast, net profit is stagnating as SG&A growth largely absorbs the gross margin benefits. Profitability should normalize as management completes the optimization of marketing spend and digitization investments begin to deliver returns.

Qualitative factors and strategies

The Group's strength rests primarily on two pillars - the long-term ability to keep brands relevant in a changing cultural environment and the ability to pass on premium pricing without losing sales volume. Luxury goods are extremely sensitive to perceptions of value, not price. Tapestry understands this and builds its entire business model on the need for the brand to tell a consistent story. Coach has become a symbol of an American lifestyle that combines tradition and pragmatism. The brand doesn't try to compete with European houses by aesthetic exclusivity, but by combining quality, affordability and modern identity. Kate Spade, on the other hand, represents lightness, playfulness and creativity. It is the diversity of the brands' characters that is one of the group's main assets - it allows them to appeal to different consumer segments without cannibalising each other.

An important factor in the strategy is the transformation of the distribution model. The company is moving from traditional wholesale to a direct relationship with the customer. Direct-to-consumer channels now account for more than half of total sales, and their share continues to grow. The benefits of this model are threefold: higher margins, price control and full customer data management. This allows the company to accurately manage inventory, personalize offers and better evaluate the ROI of marketing campaigns. In recent years, Tapestry has focused on digitizing sales processes, developing CRM platforms, using AI for inventory planning, and managing product mix by region. All of this increases efficiency and strengthens the ability to respond to demand in real time.

Geographic diversification is also a strong pillar of the strategy. North America remains the largest market, but the core of growth is coming from Asia. China, Japan and Southeast Asia have become a major source of new customers. While European brands are competing for the top end of the market here, Tapestry is targeting the middle and upper-middle classes who are growing rapidly and looking for affordable luxury. This positioning gives it a space between the mass and ultra-luxury segments. In addition, the company is actively expanding into new cities outside the major metropolitan areas where luxury competition is not yet as strong and margins are higher.

In recent years, Tapestry has also invested in expanding its product portfolio. The handbag and accessories segment is complemented by the footwear, apparel, children's collections and home accessories categories. The aim is not only to diversify sales, but also to increase the frequency of purchases. While handbags are a one-off expenditure, accessories or footwear generate more frequent renewal. This shift increases revenue stability and allows better leveraging of brand power outside the traditional segment. Strategically, this is a key move that should increase operating leverage in the coming years.

Equally important is the sustainability aspect. The company is investing in supply chain traceability, recycled materials and green manufacturing processes. A sustainable approach is not just a reputational necessity, but also a business advantage - especially with younger customers who associate a brand's value with its attitude. Tapestry reflects this trend not only in marketing but also operationally - for example, by optimising packaging, reducing waste or using digital sampling instead of physical prototypes. These steps can reduce costs and improve the efficiency of the entire supply chain in the long term.

Comparison with competitors

Within the "accessible luxury" segment, Tapestry leads the way through a combination of margins, brand strength and geographic reach. The closest comparable player is Capri Holdings $CPRI, owner of the Michael Kors, Versace and Jimmy Choo brands. Capri has a similar market capitalization but lower gross margins and weaker performance outside North America. Tapestry has the advantage of higher levels of digitization, more sophisticated customer segmentation and better inventory management. Compared to Capri, it comes across as a more consistent and financially balanced model.

Ralph Lauren $RL is a more traditional brand with global reach but less ability to adapt to a younger generation. Burberry $BRBY.L in turn benefits from an iconic British identity but struggles with less distribution efficiency and lower return on capital. Of the European houses, Tapestry most closely resembles Kering in its approach to brand portfolio management, but at a more accessible price point. This position is advantageous as it combines mass volume with premium margins.

Financially, Tapestry is typical of the American approach - less tradition, more performance. While European brands hold exclusivity through limited collections, Tapestry leverages data, rapid innovation and flexibility. This allows it to remain relevant across generations and cultural cycles. But at the same time, it runs the risk of wearing out its brand aura faster if it gets too close to the mainstream. Success will depend on how management can balance exclusivity with accessibility.

Valuation and performance metrics

In terms of fundamentals, the company is trading at multiples that reflect potential rather than current reality. The P/E in excess of 130 is a result of a one-time earnings decline in 2025, but also market confidence in margin recovery. Historically, the stock has traded in a P/E range of 18-25, and a return to these values would require an operating profit of around $1 billion. Price to Sales of 3.5 times is well above the sector average, meaning investors are valuing brand strength and gross margin, not current net profit.

Return on equity (ROE of 10.99%) remains acceptable, albeit lower than in recent years. Gross margin of 75% is top-notch, but operating (5.9%) and net (2.6%) margins are under pressure. Gearing is higher - debt to asset ratio 0.59 - but still sustainable thanks to solid cash flow and low interest rates on existing loans. An Altman Z-Score of 3.3 confirms stable financial health.

In terms of capital efficiency, the biggest room for improvement is in accelerating inventory turnover and optimizing marketing spend. Every 0.1 point improvement in asset turnover could add 30-40 basis points to operating margin. The company also has room for higher return on investment as both the Coach and Kate Spade brands generate high value added per unit cost. In the coming years, margin normalization could lift operating profit by $400-600 million, which would correspond to EPS growth back into the $2.5-3.5 range.

Risks and challenges

The biggest near-term risk is tariffs on imports from Asia, which are estimated to knock $160 million a year off earnings. Longer term, this is a structural challenge - the company is dependent on external manufacturing partners, which reduces cost control and flexibility. Any shift in business policy can immediately impact margins.

Another risk is the cyclicality of consumer sentiment. While the premium consumer tends to be more resilient, continued market uncertainty, currency fluctuations and geopolitical tensions can affect demand, particularly in Asia. A slowdown in the Chinese luxury market was evident in both 2024 and 2025 and Tapestry will not escape this.

An internal challenge is maintaining brand identity. Coach has achieved high prestige but is in danger of becoming too close to the mass segment in the eyes of consumers. Kate Spade, on the other hand, needs to undergo a creative refresh and re-find a strong product line to generate steady growth. From a capital management perspective, it is crucial that management can better align expense growth with revenue trends and restore the operating leverage that was previously a source of high profitability.

Technological change represents both a threat and an opportunity. Design automation, 3D modelling and virtual product presentation can reduce costs and accelerate innovation, but they require investment and a shift to a new working model. Competitors that master digital innovation faster can gain a cost and product advantage.

The underlying investment thesis is based on the belief that the Group is on solid footing - it has high value brands, a stable customer base and the ability to deliver above average gross margins. The key variable for the years ahead is not demand but the efficiency of converting gross profit into net profit. If management can restore operating leverage and stabilize costs, today's period of transitional weakness can become the launching pad for the next growth cycle.

Investment scenarios

Optimistic scenario: return to growth profitability

In the optimistic scenario, the effectiveness of the current restructuring steps will be fully realised. The company is able to reduce operating costs in marketing, distribution and administration by USD 200-300 million per year and gradually return its operating margin to above 8%. Revenues could grow at 4-5% per annum over the next two to three years, primarily due to the continued success of the Coach brand and the gradual recovery of Kate Spade.

Digitization and data-driven inventory management would deliver improved capital efficiency - inventory turns could increase from 2x to 2.5x, freeing up several hundred million dollars in working capital. This would also increase free cash flow, enable additional share buybacks and contribute to earnings per share growth. EPS could return to the $2.8-3.2 range, while valuation would normalize at a P/E of 30-35.

On this trajectory, the market would likely reprice the stock upwards by 40-60% over two years as management's ability to translate gross margin into stable profitability would be confirmed. This scenario assumes a stable macroeconomic environment and a gradual unwinding of tariff pressure.

Realistic scenario: gradual stabilisation of performance

The realistic scenario assumes that the transformation takes place more gradually. Operating margins will stabilise at around 6-7 % over a two-year horizon, with revenue growth of around 3 % per year. Coach will remain the driver of the group, but Kate Spade will continue to grow more slowly, while Asia will contribute to organic revenue growth through expansion in secondary cities.

In this scenario, earnings per share would reach around US$2, which would equate to a return of around 7-9% per annum, combining stable FCF and share buybacks. Cash flow would remain positive, debt stable and the rating unthreatened. Valuation in this case would be in the P/E range of 20-25, a fair valuation for a mature fashion company with consistent, though not dynamic, growth.

Investors would benefit from a return of confidence in management in this scenario, but without dramatic stock appreciation. This development would confirm that Tapestry is a stable, profitable business with a quality brand portfolio, but without an immediate growth catalyst.

Pessimistic scenario: cost pressures and margin stagnation

In the pessimistic scenario, the negative trends from 2025 deepen. Tariffs on Asian imports become a permanent barrier, marketing and distribution costs remain high and global luxury demand weakens. In this case, sales would stagnate at around USD 7 billion and operating margins could fall below 5%.

Net profit would be around USD 150-200 million per year and EPS would remain below USD 1. At this level of performance, valuations would likely fall to the sector's historical average, a P/E of 18-22, which would imply a 25-30% decline in the stock from current levels. While the company would remain solvent and able to fund its operations, the pace of share buybacks and investment in growth would have to be curtailed.

The risks of this scenario are loss of momentum in Asia, inability to restructure SG&A and a potential decline in premium sentiment in key markets. While such a development would not threaten the company existentially, it would lock the company into a low efficiency and weak growth zone for several years.

What to watch next?

Investors should monitor several indicators. First and foremost, the evolution of the operating margin, which will be a measure of the effectiveness of the restructuring. Next, the inventory turnover rate and the amount of free cash flow, as these variables will show whether capital efficiency is improving. The distribution of sales between regions will also be important - what share will be accounted for by Asia and whether double-digit growth in China will resume. The share of DTC channels, which is a direct indicator of profitability, should also be monitored.

At the brand level, it will be interesting to see how Coach maintains its premium position without losing affordability and whether Kate Spade can find a new design direction to accelerate growth. The response to the tariff environment will also be an important factor - the potential relocation of some production outside Asia could reduce cost risks, although it will increase CapEx in the short term.

Conclusion and investment considerations

Tapestry represents a combination of a resilient luxury business and a modern data-driven execution. Its brands have deep value, high gross margins and global coverage. The weakest link remains operational efficiency, which has been eroded by rising costs and tariffs. If management can stabilize SG&A, optimize inventory, and return margins to at least pre-pandemic levels, the stock can re-position itself as a premium growth stock.

Longer term, the company has three strong arguments: a growing middle class in Asia, a structural shift to DTC and digital sales, and brands with timeless appeal. In the short term, however, the investment remains suitable for patient investors - the transition to higher profitability may take several quarters.

If the strategy comes to fruition, the current price may be a buying opportunity before returning to the next growth phase. Tapestry has the potential to become an American model for how to manage luxury - not as a symbol of luxury, but as a precisely managed and highly profitable business that can weather any economic cycle.

Novo Nordisk continues the extraordinarily successful growth story that has made the Danish pharmaceutical group one of the world's most valuable companies. The first half of 2025 has once again delivered strong revenue and earnings growth, driven primarily by the division's Diabetes & Obesity Carewhose products such as Wegovy® a Ozempic® remain synonymous with modern treatments for obesity and type 2 diabetes. However, growth is accompanied by the first signs of a cooling of momentum, particularly in the US market, where competition is intensifying and the market for GLP-1 drugs is approaching short-term saturation.

The company continues to demonstrate exceptional profitability and financial stability. Operating profit is up more than a quarter year-on-year, net profit has surpassed DKK 55 billion and free cash flow remains exceptionally strong. At the same time, however, management notes continued pressure in the GLP-1 segment, mainly due to the boom in non-original composites and slower market expansion. Still, Novo Nordisk $NVO remains a dominant player with huge room to grow - especially with expansion outside the US and continued innovation in research.

How was the last quarter?

In the first half of 2025, the Sales of DKK 154.9 billion, an increase of 16 % in Danish kroner and 18% at constant exchange rates (CER). Operating profit increased by 25% to DKK 72.2 billion a net profit increased by 22% to DKK 55.5 billion. Earnings per share were DKK 12.49, 23% more than in the same period in 2024.

The growth was mainly driven by the division's Diabetes and Obesity Carewhich reported sales of DKK 145.4 billion, an increase of 16% (18% at CER). The segment Obesity Care grew particularly strongly - by 56 % at DKK 38.8 billion, while sales GLP-1 drugs diabetes sales increased by 8%. Rare Diseasewhich increased by 14%.

Geographically, both USwith sales up 16% (17% at CER), and international marketswhich added 16% (19% at CER). In addition, the US results were positively impacted by a one-off adjustment to prior accounting items of approximately DKK 3 billion associated with the 340B programme. However, despite the strong numbers, the company warned in its outlook that the second half of the year would be weaker in terms of growth, mainly due to the lower pace of expansion in the US and increased competition.

Novo Nordisk also continues to invest heavily in R&D. Projects are heading into clinical phase 3 subcutaneous and oral amycretin for the treatment of obesity, and the company is expanding research into a combination product CagriSema. In addition, a higher dose approval process has been initiated semaglutide 7.2 mg (Wegovy®) for the European market, which could strengthen the Company's position against Eli Lilly's growing competition.

CEO comments

Outgoing CEO Lars Fruergaard Jørgensen in his final quarter at the helm, praised the strong performance while being realistic about the challenges ahead for Novo Nordisk:

"While we achieved 18% revenue growth in the first half, we had to adjust our full-year guidance downwards. We expect slower growth in the second half of the year due to the continued use of GLP-1 composite, a slower rate of market expansion and increasing competition. Our response will be to further improve business execution, manage costs more effectively and continue to invest in future growth," Jørgensen said.

He was succeeded on 7 August by Maziar Mike Doustdarwho has many years of experience leading Novo Nordisk's international operations. The changes have also affected research, with all development activities now under the leadership of Martin Holst Langewhile Emil Kongshøj Larsen has taken on the role of Executive Vice President International Markets. These moves are intended to simplify the management structure and strengthen global expansion.

Outlook

Novo Nordisk now expects Full year 2025 revenue growth of 8-14% at CER and operating profit growth 10-16% at CER. In Danish kroner terms, growth will be around 3 to 5 percentage points lower due to currency appreciation. The reduced outlook reflects the slower market expansion of GLP-1 drugs and the impact of the continued use of non-original composite versions of these drugs, particularly in the US.

Expanding the availability of obesity and diabetes treatments globally remains a key focus for the company. Novo Nordisk plans to expand in the second half of the year distribution of Wegova® and Ozempic® to other countries and strengthen commercial activities in Europe, Asia and the Middle East. At the same time, new production capacity is being built in Denmark and the US, which is expected to increase global production capacity by more than 40% by 2026.

The company also reaffirms its commitment to shareholders - to remain one of the most profitable businesses in the industry, with an operating margin in excess of 40% over the long term, and to continue to steadily increase dividends.

Long-term results

Novo Nordisk has shown an exceptionally strong growth trajectory over the last four years. From 2021 to 2024 revenues increase from DKK 141 billion to over DKK 290 billion, more than doubling. This growth has been driven by the explosive demand for obesity drugs, especially Wegova® and Ozempic®, which have become a phenomenon not only in medicine but also in popular culture. Net profit in 2024 up more than 20% to a record DKK 101 billionwith an operating profit of DKK 128 billion.

Earnings per share more than doubled to DKK 22.68reflecting not only higher profitability but also the ongoing share buyback programme. Novo Nordisk has an extremely efficient operating model, with gross margins exceeding 80 % and operating margins holding steady between 42-45 %. Market diversification has played an important role in long-term growth - the US accounts for about two-thirds of sales, but international markets are now growing faster, especially Asia, Latin America and the Middle East.

The company remains a leader in the development of GLP-1 agonists, but is also moving into next-generation drugs such as amycretin and combinations of GLP-1 and GIP. Rapid revenue growth allows it to fund massive research, investment in manufacturing capacity and global expansion without having to raise debt. The company's debt remains extremely low and its cash position strong, giving the company considerable strategic flexibility.

News

In addition to the strong results, the company announced several strategically significant moves. The biggest event is the change in management - after many years, Lars Fruergaard Jørgensen is handing over management to his successor Maziar Doustdar, who is expected to strengthen the company's international growth. Novo Nordisk also launched a new clinical trial REDEFINE 11 and progressed with the development of oral and subcutaneous versions of amycretinwhich could bring further breakthroughs in the treatment of obesity. The Company is also continuing regulatory processes for new doses of Wegova® for the European market and plans to expand production in North America.

Shareholding structure

Institutional investors hold approximately 9.3% of Novo Nordisk shareswhich is typical given the dominant position of the Novo Nordisk Foundation family. The largest institutional shareholders are Washington Mutual Investors Fund with a 0,26 % share, Bridge Builder Large Cap Growth Fund a Loomis Sayles Growth Fund. In total, they hold shares of over 1,700 institutionsconfirming broad investor interest. Direct management involvement is minimal, consistent with the model of a European pharmaceutical corporation with a clear control structure and long-term stability of ownership.

Analysts' expectations

The market continues to rate Novo Nordisk as one of the most promising players in global pharmaceuticals. Despite the reduced outlook for the second half of the year, analyst consensus remains positive. The majority of them expect the company to achieve revenues of around DKK 300 billion and a net profit of over DKK 105 billion. Earnings per share are expected to exceed DKK 23, which would represent a further year-on-year increase.

The target share prices are in the range of DKK 850-925, with the median representing approximately 10% upside potential. While analysts appreciate the strong product line, robust pipeline and excellent operating margins, they also warn of the risk of slowing growth in the US and potential pricing pressures from regulators and competitors, particularly Eli Lilly. Nevertheless, Novo Nordisk remains a key industry leader redefining obesity and diabetes treatment globally.

Fair Price

Hi everyone, I'm curious how you're currently approaching investments in Ferrari $RACE, PayPal $PYPL, Amazon $AMZN and NU Holdings $NU. Ferrari looks interesting both technically and fundamentally after the recent pullback. I think PayPal is currently undervalued, and with the expanded use of AI technologies and collaboration with developers within the OpenAI ecosystem, it enables, for example, AI agents to make purchases through PayPal. It also has its own stablecoin, PYUSD, backed 1:1 by the dollar and issued via Paxos Trust. Amazon remains a strong growth name, but valuations are fairly high again, so I'm not sure it's the right time to enter now. NU Holdings still maintains a good growth pace in Latin America, but it has also run up a lot in recent months. How do you see it — are you adding to any of these names, or are you mostly waiting at this stage of the market?

The Bristol Myers Squibb pharmaceutical empire is on the cusp of another transformational phase. The company, whose name is associated with top drugs such as Eliquis and Opdivo, faces the natural life cycle of its portfolio - expiring patents, increasing generic competition and the need to find a new source of growth. It was at this point that Bristol Myers decided to take a step that could define its future for the next decade - entering the field of RNA medicine. Acquisition of the company Orbital Therapeutics for $1.5 billion is not just an expansion of its research portfolio, but a signal that the company wants to become a technology innovator, not just a traditional revenue manager.

While the pharmaceutical sector is shifting away from traditional molecules to biologic therapies and personalized treatments, Bristol Myers is using the acquisition to create a new pillar of growth that could gradually replace patented drug revenues. Technology In vivo CAR-T a circular RNA represent a direction that could fundamentally transform the way cancer and autoimmune diseases are treated. The market has so far priced this bet restrainedly - the stock is trading at a discount to the sector, despite the company's strong profitability and financial stability.

The story of Bristol Myers Squibb in 2025 is thus one of transformation: from a conservative pharmaceutical company to a modern biotech conglomerate that recognizes that the future of treatment is written in RNA code.

Top Points

• Acquisition of Orbital Therapeutics for $1.5 billion opens the way for the company into RNA therapeutics and in vivo CAR-T technologies.
• Revenues rise 7.3% to $48.3bn in 2024, although some key drugs are entering a decline phase.
• The company maintains a gross margin of 61.7% a ROE of almost 30%which is well ahead of the sector.
• The stock is trading at P/E OF 17.5×, below the sector average (23.3×) - an indication of undervaluation.
• Leverage remains high (debt-to-assets of 0.54), but interest coverage and cash flow are solid.
• Analysts note that a combination of strong research and development of the RNA portfolio can propel the company back into a growth phase.

New growth engine

Bristol Myers $BMY's growth engine in recent years has been a shift away from traditional pharmaceuticals to innovative biologic and cell therapies that have the potential to change the revenue structure of the entire company. The company recognizes that the future drug market will be dominated primarily by biotechnology - which is why it has decided to reshape its portfolio toward technologies that enable the treatment of disease at the genetic level.

In particular, the key pillars of this new growth are portfolio expansion in the immunotherapy field, investments in cell therapies and most recently the acquisition of Orbital Therapeutics. This acquisition is a breakthrough: Orbital brings circular RNA technology that enables therapeutic mechanisms to be activated directly in the patient's body. If confirmed in clinical trials, this approach could substantially cheapen and speed up the process of developing new drugs. The gene and cell therapy market is expected to grow from approximately $20 billion today to more than $90 billion by 2030, according to analyst estimates, and Bristol Myers aims to be a major player in this segment.

Another major growth area is expansion of immunotherapywhere the company is strengthening the position of its Opdivo and Reblozyl drugs in new indications and preparing to combine them with new biologics. This area is expected to account for nearly a third of the company's revenues over the next five years. In addition, Bristol Myers is expanding collaborations with academic research centers and smaller biotech startups, creating an open ecosystem for new drug development.

Market estimates show that if the new research programme develops as planned, new therapies could contribute up to $5-7 billion a year to revenues over the next few years. This would mark the company's return to a stable growth zone after several years of stagnation. From an investor perspective, then, the current period of transition is one of opportunity - the stock still reflects more past developments, while the growth engines are just getting started.

The essence of the investment thesis is that Bristol Myers can afford to transition to a biotech-oriented model without losing financial stability. With strong profitability and a sufficient cash position, it is funding expansion from its own resources rather than external capital, which reduces the risk to shareholders. If new projects start to translate into revenues as early as 2027, the company can transform itself from a defensive pharmaceutical title into a growth player with long-term potential.

Bristol Myers' positives and growth opportunities

• Strategic entry into new biotech segments through acquisitions and partnerships increases the chance of finding new sources of growth outside of the traditional pharmaceutical portfolio.
• Diversifying revenues towards advanced therapies such as cellular and immunological therapies reduces reliance on older products and expired patents.
• High operating and gross margins provide ample room for further investment in research and innovation without negatively impacting financial stability.
• A strong balance sheet and cash generation capacity allow the company to finance expansion from its own resources and maintain its dividend policy.
• Confirmation of the success of the new therapeutic platforms may lead to a revaluation of the stock and a return to a growth phase, which would increase the valuation of the entire company.

Risks and challenges facing Bristol Myers

• Failure in the development of new therapies or delays in clinical trials may significantly limit the return on investment and slow expected growth.
• Higher debt levels associated with an acquisition strategy may increase financial risk, particularly in a period of higher interest rates.
• Increasing competition in the biotechnology industry and faster innovation by smaller companies put pressure on the pace of development and margins.
• Stringent regulation and lengthy drug approval processes can delay the launch of new products and increase costs.

Long-term results

Bristol Myers' results in recent years show a company in transition - strong sales and robust margins on the one hand, and fluctuating profitability due to one-off items and high portfolio restructuring costs on the other.

The year 2024 then brought the first signs of revenue stabilisation after a period of decline:

• Revenues reached USD 48.3 billion, representing a year-on-year increase of 7,3 %.
• Gross profit increased by nearly 6 % to $36.4 billion, reflecting strong margins despite rising costs.
• Operating expenses increased to USD 19.6 billion, mainly due to higher investment in research and development.
• However, it closed the year an accounting loss of USD 8,9 billiondue to one-off asset write-downs and the revaluation of investments.

Operationally, the company remained profitable - EBITDA of USD 3.2 billion means that the underlying profitability of the portfolio remains intact. Adjusted for exceptional items, Bristol Myers continues to be among the most efficient pharmaceutical companies in the world, as evidenced by its stable margins and above-average return on capital.

Over the long term, the company has maintained:

• Stable revenues of around $45-48 billion 45-48 per year.
• Gross margins of over 60%..
• Regular dividend growth and share count reduction outstanding, boosting EPS.
• Healthy operating cash flowthat allows us to fund acquisitions and research without raising capital.

The loss in 2024 therefore does not reflect operational weakness but rather an accounting restructuring before entering a new strategic phase. Investors therefore view this year as a transition year rather than a signal of a permanent decline in performance.

Key Metrics

Bristol Myers remains a financially strong business with a conservative valuation and above average efficiency. When compared to the pharmaceutical sector, it comes out as undervalued but more profitable player.

Valuation

• Market capitalization: USD 89 billion
• Enterprise value: USD 127 billion
• P/E 17.5× vs. sector 23.3× - Stock is trading at a discount despite high profitability.
• P/S 1.85× vs. 2.03× - A stable ratio that indicates a fair valuation of earnings.
• P/CF 6× - Extremely low number given the strength of cash flow, which increases the attractiveness of the title to value investors.

Profitability

• Gross Margin: 61.7% (vs. sector 54%)
• Operating Margin: 26.1% (vs. 12.5%)
• Net margin: 10.6% (vs. 7.4%)
• ROE: 29.6% - an exceptionally high return on equity.
• ROIC: 13.3% - confirming the efficient use of invested capital.

➡️ Bristol Myers therefore generates twice the profitability of the average pharmaceutical company at a lower market valuation. This underlines the undervaluation thesis.

Liquidity and operational stability

• Quick ratio 1,11 a current ratio 1,21 show solid short-term liquidity.
• Cash ratio 0,46 indicates that the firm holds an adequate cash reserve,
• Inventory turnover 6.7× - effective inventory and working capital management.

Debt and solvency

• Debt to asset ratio 0.54 is higher than the sector average, reflecting a more aggressive capital structure.
• Interest coverage 6.3× ensures comfortable repayment of liabilities.
• Altman Z-Score 1.8 highlights the need to monitor the ratio between new investments and profitability - this is not a warning signal, but rather a call for discipline.

Comparison with competitors

Within the global pharmaceutical sector, Bristol Myers Squibb is in an interesting position - among the top five players by revenue, but also among those that the market values at a significant discount. While Eli Lilly $LLY and Novo Nordisk $NVO have appreciated sharply over the past two years thanks to expansion in diabetes and obesity treatments, Bristol Myers is focusing on a different segment - immunotherapies and cell therapies - which have a different investment cycle and longer payback periods.

Bristol Myers' strengths are scientific diversification and development efficiency. The company has a robust portfolio of successful drugs (Opdivo, Reblozyl, Eliquis) as well as one of the most extensive clinical networks for cancer and autoimmune disease research. Compared to Pfizer $PFE or Merck $MRK, BMY has less exposure to short-term trends, but therefore a higher concentration of capital in areas that can deliver long-term breakthrough results. This approach gives the company a defensive nature - while competitors often expand through tens of billions of dollars in acquisitions, Bristol Myers opts for more targeted and science-specific investments.

In the area of capital efficiency the company is ahead of most direct competitors. Its return on equity and margins are among the highest in the industry. For example, ROEs of over 29% and operating margins of over 26% show that the company can extract more value from its products than Pfizer or Merck, which are facing pricing pressure and rising costs. From this perspective, Bristol Myers remains one of the few pharmaceutical leaders that can maintain disciplined profitability even in times of high investment.

Conversely, its greatest weakness remains the pace of innovation and speed of commercialisation. Compared to more aggressive competitors such as Amgen or Eli Lilly, Bristol Myers has been slower to bring new therapies to market. This is also reflected in investor sentiment - while biotech stocks benefit from the rapid translation of research into practice, BMY is still seen as more of a traditional pharmaceutical player with a longer investment horizon.

Another factor where the company is losing ground is relationship with the market and communication strategy. Eli Lilly and Merck have been able to convince their investors of long-term growth through clear presentation of research plans and outlook. Bristol Myers has been more cautious and the market has not yet fully appreciated its move into biotechnology, despite having comparable research potential.

Investment scenarios

Bristol Myers' future depends on whether it can translate the scientific potential of its new platforms into real commercial results. The company stands at a crossroads - between the defensive stability of the past and a growth ambition that could define its value for the next decade. Thus, investment scenarios are based on the pace of clinical progress, the success of commercializing new therapies, and the ability to maintain high profitability during the transition phase.

Optimistic scenario - the birth of a new biotech leader

In this scenario, Bristol Myers is able to rapidly integrate the technologies acquired through the acquisition of Orbital Therapeutics and use them to develop the first generation of commercially successful gene and cell therapies. Clinical trials will yield positive results in the next two years, allowing the portfolio to be expanded to include new indications in oncology and immunology. Revenues could return to double-digit growth rate and surpass the threshold USD 55 billion per year by 2028.

High operating margins would be maintained through disciplined production and efficient cost management. The market would start to value Bristol Myers as a growth player rather than a defensive pharmaceutical company - the P/E multiple could approach 22-24 times, close to the level of companies like Amgen or Merck. The stock would then have room to reprice by 25-40 % within three years.

Realistic scenario - stable growth with reasonable valuation

In the base case, Bristol Myers becomes an example of gradual transformation. Revenues from traditional drugs will gradually decline but will be replaced by new portfolios in immunotherapy, haematology and cell therapies. The company is expected to be able to sustain mid-single-digit revenue growth around 3-5% per annum, with margins remaining stable due to a higher proportion of premium products.

Cash flow will remain strong, allowing for continued dividend payments and share buybacks. In the eyes of investors, Bristol Myers would profile as a value stable company with a higher dividend yield than its competitors, but with the potential for growth through new projects. The valuation would be around P/E 18-19×, which would represent a fair valuation relative to the sector.

Pessimistic scenario - pressure on earnings and innovation delays

The downside scenario assumes that new therapies face delays or fail in later-stage trials, while revenues from existing drugs decline faster due to generic competition. In this case, the company could see revenue stagnate below USD 45 billion and a 20-30% drop in net profit.

Debt would become a more sensitive factor as the ability to self-finance research would decline. Investors could start to focus on the defensive value of the dividend rather than the growth story, which would keep valuations in a range P/E OF 13-15×. In that case, the stock would remain cheap, but without a catalyst to push it higher.

Conclusion and Investment Considerations

Looking at Bristol Myers today requires a degree of patience as well as courage. The company is in a period of transition, with traditional revenue streams losing momentum, but at the same time there is scope for a new phase of growth based on science, innovation and a biotechnology approach. The company's stock currently reflects market skepticism rather than the true value the business carries - creating room for investors who can read beyond the horizon of quarterly numbers.

Bristol Myers today embodies the type of investment story that only occasionally appears in the market - a stable, strongly profitable company with a defensive balance sheet that is also transforming itself into a next-generation science-based player. While this transition brings risks and uncertainty, it also creates an opportunity to capture value before the market fully appreciates it. If even a portion of the potential of new therapies is realized and investments in gene platforms begin to bear fruit, Bristol Myers could return to the growth headlines - not as a trendy biotech story, but as a stable pharmaceutical leader with new momentum.

For the long-term investor, current valuations represent an attractive entry point. The company pays a solid dividend, has ample cash to fund research, and maintains above-average margins. The market has not yet fully priced in this transition to a more innovative phase, which means that the highest returns can be earned by those who look forward - not back. As a result, Bristol Myers is not positioned as a short-term bet, but as a strategic position for investors seeking a combination of scientific growth, defensive stability and patiently accumulated value.

McDonald's entered the second half of 2025 with results that confirm its exceptional resilience and ability to generate steady growth even in an environment of slowing consumption. Despite pressure on household budgets and increasing competition in the fast food segment, McDonald's was able to increase sales and profit and maintain high operating margins. The driver of growth remains the global restaurant network, managed through a combination of franchising and direct operations, complemented by a strong digital platform and loyalty programs, which are now a key component of the strategy.

The company benefits from the efficiency of its business model - for every dollar spent by a customer, a significant portion flows back into royalties, allowing profits to grow even without network expansion. Investments in digitization, menu personalization, and marketing innovation are helping McDonald's $MCD not only increase frequency of visits, but also the value of the average spend. As a result, the company continues to strengthen its position as a fast-food leader that can successfully respond to changing customer behavior and maintain a high return on capital.

How was the last quarter?

In the second quarter of 2025, McDonald's consolidated sales were $6.84 billion, representing year-over-year growth of 5 %or 4% when adjusted for foreign exchange. Operating profit increased 11% to USD 3.23 billionwhile net profit was USD 2.25 billionup 11% from a year ago. Earnings per share increased by 12% to $3.14Adjusted for one-time restructuring charges, it was USD 3.19, up 7% from last year.

Global comparable sales increased by 3,8 %driven by growth in all three major segments. In the US, sales increased by 2,5 %, in international operating markets by 4 % and in licensed markets (including Asia and the Middle East) by 5,6 %. Total Systemwide sales, i.e. sales of all restaurants including franchises, increased by 8% to more than $9 billion for the quarter. and approximately 33 billion over the past 12 months under loyalty programs.

Sales growth was driven primarily by higher average spend per customer, reflecting the success of pricing and marketing strategies. Growth in digital channels, which now account for approximately one-third of all transactions, also contributed positively. The international segments, particularly Japan and European markets, showed double-digit improvement thanks to strong marketing campaigns and the expansion of the digital ordering system.

Consolidated operating results confirmed continued efficiency improvements. McDonald's reduces administrative costs under the "Accelerating the Organization"to streamline the management structure and enhance flexibility in the markets. Despite restructuring costs of USD 43 million the company was able to increase operating profit by 11%. Free cash flow remains strong and profit-to-cash conversion is high, allowing McDonald's to maintain an attractive dividend and continue to repurchase shares.

CEO commentary

CEO Chris Kempczinski emphasized that the second quarter results confirm the strength of the brand and its ability to grow even in a difficult macroeconomic environment. "Our 6% global Systemwide sales growth is proof that when we focus on what's key for customers - i.e. value, taste and convenience - our brand grows," said Kempczinski.

The CEO highlighted the role of technology and digitalisation, which he said are the main growth drivers for the coming years. "We are investing in technologies that improve the customer experience and operational efficiency. Our ability to rapidly scale digital solutions around the world is a major advantage. We believe the combination of local relevance and global brand strength will further strengthen our position as a leader," he added.

Outlook

McDonald's expects the second half of 2025 to deliver continued, albeit slightly slower, growth, primarily due to seasonality and lower pricing adjustments. The company continues to bet on expanding its digital and loyalty channels, which are expected to cover more than 70% of all markets. Investment in restaurant upgrades and self-service ordering technology will continue in line with the aim of improving the customer experience and staff efficiency.

The company is also continuing to optimise its structure and plans further steps in its reorganisation programme, which is expected to deliver annual savings of hundreds of millions of dollars by 2026. While the macroeconomic environment remains mixed, McDonald's management reaffirms its goal of achieving a 2025 earnings per share growth of 6-8% and maintain an operating margin above 45%.

Long-term results

McDonald's has a long-standing reputation for stability and exceptional profitability. In 2024, the company has earned USD 25.9 billion, an increase of 1.7% from 2023. Net profit reached USD 8.22 billion, down only slightly by 2.9%, while maintaining record high net margins of around 32 %. Earnings per share (EPS) was USD 11.5, just slightly less than the record $11.63 of 2023.

Operating profit rose to USD 11.85 billionproving that McDonald's can grow efficiently through its franchise model despite a saturated market. Most of the revenue comes from franchisee fees, which significantly reduces the capital intensity of the business and ensures high returns. The debt to EBITDA ratio remains at a conservative level, while cash flow allows the company to pay dividends and make massive buybacks each year.

Over the past five years, McDonald's has managed to increase operating profit by more than 25 %even though total sales have only grown at a single-digit rate. This confirms a long-term shift away from expanding the number of restaurants to maximizing the efficiency of the existing network. The company is also benefiting from a global loyalty program that is delivering steady and recurring revenue, and from the development of new concepts - from McCafé to testing drive-thru models with fully digital check-in.

McDonald's has also long excelled in return on capital. ROE has been consistently above 80%, ROIC exceeds 25%, all at very low capital intensity. This makes McDonald's stock one of the most popular titles among dividend investors. The dividend payout has been continuous for more than 45 years, and the company has increased its dividend every year for more than four decades, making it one of the so-called "best dividend payers". Dividend Aristocrats.

Shareholder Structure

Ownership of McDonald's stock is heavily concentrated in the hands of large institutional investors. Approximately 75% of the shares are held by institutions, with the largest shareholder being Vanguard Groupwhich, through its funds, owns nearly 43 million shares valued at over 13 billion USD. They also have a significant stake in Fidelity a iShares (BlackRock). The number of institutions holding shares exceeds 4 200, confirming the high confidence of the capital market and the exceptional stability of the shareholder base. The share of insiders is negligible (0.23%), which is typical for global companies of this size.

Analysts' expectations

According to the consensus of Wall Street analysts, McDonald's outlook remains positive, despite slowing sales growth in the US. Most analysts expect earnings per share to exceed the 2025 USD 12 and full-year sales of approximately USD 26.5 billion. The company should maintain a net margin of around 32-33 % and a return on equity that exceeds most competitors.

The target prices for the stock range between USD 315-340, with a median of around USD 325 represents approximately 10% upside potential from current levels. Analysts appreciate the stable cash flow, the ability to grow the dividend and the growing digital segment, which may become a new growth driver. Risks include a potential slowdown in consumer spending and pressure on margins due to rising food prices and wages.

Fair Price

In every tech boom, there are companies that are not visible, but without them the whole ecosystem would collapse. While investors keep an eye on giants like Nvidia, TSMC and ASML, a key part of the chip-making process is happening in the shadows - with those who provide the precision manufacturing itself. It is there that the story of a company on the cusp of a new growth cycle is now beginning to be written.

While investors' attention is focused on chipmakers or AI models, a segment is taking shape in the background that quietly benefits from every expansion of semiconductor manufacturing. Technological shifts, pressure to localize production, and a return of investment to U.S. factories are opening up space for suppliers that provide key manufacturing processes but have remained off the mainstream investor radar. This is where one of the few players that has not only the know-how but also the capital to turn this opportunity into long-term growth is beginning to emerge.

After years of being overlooked, the market environment is turning in its favour - new investment cycles, government support and a growing emphasis on precision manufacturing are creating a combination that could make a small technology firm a significant beneficiary of the entire chip era. At a time when the valuations of large semiconductor companies are at all-time highs, there comes a time when attention can shift to those who make their success technically possible.

Top Points

• Rising demand for high-end masks thanks to more advanced manufacturing nodes and the AI boom.
• Installation of the first "multi-beam mask writer" in the US - a technological milestone in the industry.
• Record cash reserve of over $575 million and near zero debt.
• Significant expansion of U.S. manufacturing capacity as part of the reshoring trend.
• Gross margins of around 35% and operating margins of almost 25% confirm high efficiency.
• USD 20 million share buyback - a signal of management confidence.
• The outlook for FY2026 envisages a return to growth after the cyclical downturn in the sector.

Company profile

Photronics $PLAB is in the business of manufacturing photomasks and reticles - key components that determine the accuracy, quality and performance of final chips and displays. Unlike in-house suppliers within large foundries, it operates as an independent manufacturer with a global footprint, from the US to Europe to Taiwan, Korea and China. This geographic diversification allows it to serve the world's largest chip manufacturers while reducing dependence on a single market.

The business is divided into two main areas - Integrated Circuit (IC) a Flat Panel Display (FPD). The former forms the core of revenues and includes photomasks for semiconductor chips used in mobile devices, data centers, automobiles or industrial applications. The second division focuses on templates for the production of displays and OLED panels, where the company benefits from long-term cooperation with Asian partners. Although the display market is undergoing consolidation, the IC segment is growing rapidly due to the shift to multi-layer structures and advanced lithography processes.

By remaining independent, the company is able to respond flexibly to customer needs across the ecosystem - from memory manufacturers to foundries specialising in logic chips. This position provides it with a stable foundation, but also opens up room for growth as the investment cycle in the semiconductor sector re-spins.

Basic facts about the company

• Year founded: 1969
• Headquarters: Brookfield, Connecticut, USA
• Stock exchange and ticker: NASDAQ - PLAB
• Employees: Approximately 1,800
• Fiscal year end: October 31
• Current CEO: Frank Lee (announced plans to leave in 1-2 years)

Management and governance

Management is characterized by a pragmatic approach that combines technological expertise with financial discipline. It is led by a long-time CEO Frank Leewho has been a key figure in the company's transition from a regional supplier to a global player. Under his leadership, the company has undergone a major modernization, expanded into Asia and the United States, and achieved a significant improvement in profitability. Frank Lee has deep experience in the semiconductor industry, where he has worked for more than three decades, and is one of the managers who can combine technical expertise with realistic cost management.

On the other hand, he announced in 2025 that he plans to leave within one to two years, which opens up the question of generational leadership turnover. The succession process is already underway, with the board creating a transition framework and evaluating internal and external candidates. This is a sensitive period for investors, as continuity of management is essential to maintain the technology strategy and long-term relationships with key customers.

The current management team is building on a philosophy of "capital efficiency first" - i.e. on using internal cash rather than aggressive borrowing. This strategy has enabled the company to finance the expansion of production capacity while rewarding shareholders through share buybacks. The repurchase of over one million shares during the last quarter is a testament to management's confidence in the long-term value of the company.

An important feature of the management culture is also technological perfectionism. The company regularly reinvests a portion of profits in upgrading production equipment, such as installing multi-beam mask writers that improve accuracy and productivity. The management team is characterised by low turnover and considerable technical depth - key positions are held by professionals with many years of experience in the optical lithography industry, which is a major competitive advantage in this highly specialised segment.

Comparison with competitors

The photomask segment is dominated by three main groups of players: the Japanese corporations Hoya and Dai Nippon Printing and the American Photronics. While both Hoya and DNP have strong positions in the 'premium hubs' and work with the largest foundries, their main advantage lies in scale. Photronics, on the other hand, profiles itself as a specialist - smaller, more agile and able to adapt production to a faster pace of innovation.

In terms of profitability, Photronics is at the forefront. Its operating margin of over 20% exceeds both Hoya Corporation (around 18%) and Dai Nippon Printing (around 15%). Where it lags is in the level of average gross margin, reflecting the smaller share of the most advanced masks. However, this gap is narrowing as the company increases the share of high-end orders - they already accounted for nearly 40% of IC segment revenues in the last year.

At valuation, the difference is even more pronounced. While Hoya trades at a P/E of over 25 and a P/S of over 3, Photronics remains below 1.6 times earnings, suggesting undervaluation at current margins. In terms of liquidity and solvency, the situation is even more pronounced - Photronics has a cash position almost 10 times stronger than DNP and virtually no debt.

Financial performance and key metrics

The financial results confirm that the company can maintain high efficiency even in a cyclical cooling period. For fiscal year 2024, revenue was $866.9 million, down only slightly by 2.8% after a record year in 2023. Operating profit was $221.5 million and net income rose to $130.7 million. EPS was $2.12, indicating steady profitability even as overall investment in the semiconductor value chain declined.

Margins remain exceptionally strong: gross margins of over 35%, operating margins of 25% and net margins of nearly 13% are all well above the industry average. This demonstrates not only technological maturity but also a disciplined cost structure. The growth in capital expenditure on plant upgrades - especially in the US - confirms that the company is moving towards greater automation and the production of more demanding masks, where margins are highest.

Fundamental metrics speak clearly: a market capitalization of $1.3 billion and a P/E of around 12 indicate an undervaluation relative to competitors that typically trade at multiples above 20. ROE of 9.7%, ROA of 6.2% and ROIC of over 10% demonstrate efficient use of capital. Extremely strong liquidity (Quick Ratio of 4.6, Current Ratio of 5.0) along with near-zero debt create a cushion of safety that is rather exceptional in the technology industry. An Altman Z-Score of 5.82 confirms excellent financial health and virtually zero risk of default.

Compared to the sector average, the company has lower gross margins than equipment manufacturers (e.g., ASML or Applied Materials) but significantly higher operating and net margins than most subcontractors. Moreover, its return on capital and financial stability are above average compared to similarly sized players - such as Photronics competitors Hoya, Toppan or Dai Nippon Printing - mainly due to its low debt and disciplined cash management.

Qualitative factors

A key pillar of the long-term strategy is a shift to manufacturing high-end masks for advanced nodes that are more technologically and cost intensive. This segment has the highest growth potential as the number of layers and design complexity increases with each new generation of chips. Each shift of one technology generation increases the value of a mask set by tens of percent.

The second strategic direction is capacity expansion in the US, driven by the trend towards reshoring. Chipmakers such as Intel, TSMC and Micron are building new factories on US soil, and with them the need for local suppliers of photomasks is growing. The installation of the first "merchant multi-beam mask writer" in the US represents a milestone - not only in terms of efficiency, but also in terms of technological independence.

Financial discipline and the ability to generate cash is also a strength. The company can afford to invest in research and development without incurring debt, while returning capital to shareholders through buybacks. These buybacks are not cosmetic - it bought back over 1.18 million shares during the last quarter, reflecting management's confidence in its own growth story.

SWOT analysis

Strengths

The company has an exceptionally strong financial position that sets it apart from most of its competitors in the semiconductor supply chain. Nearly zero debt and cash in excess of half a billion dollars provide it with high resilience to demand fluctuations and the ability to fund growth purely from its own resources. This conservative approach to capital structure minimizes interest rate risk and allows it to respond quickly to opportunities such as investments in next-generation manufacturing equipment.

Technological competence in the area of high-end photomasks. The company is able to produce masks for advanced manufacturing nodes below 10 nanometers, which are essential for advanced processors, memory chips and AI accelerators. The growing share of high-end masks in total sales (roughly 40% in 2025 vs. 30% two years ago) demonstrates the successful transformation towards higher margin segments.

Another pillar of strength is a global manufacturing base. Locating plants in the US, Europe, South Korea, China and Taiwan allows us to respond to the local needs of chipmakers while spreading geopolitical risks. The company also benefits from the trend towards local manufacturing (reshoring), which is supported by government programs such as CHIPS Act in the US. In this context, Photronics represents one of the few truly independent Western suppliers in a segment otherwise dominated by Japanese conglomerates.

Weaknesses

The main weakness remains Smaller scale of business compared to giants such as Dai Nippon Printing (7912.T) or Toppan Holdings (7911.T)which have more extensive capacity and research facilities. This factor limits the ability to expand aggressively and may make it difficult to access large orders at a time when chipmakers favour volume suppliers.

Another weakness is the lower presence in manufacturing EUV masks (extreme ultraviolet lithography), which is essential for the most advanced chips manufactured at 3nm nodes and below. Although the company has made progress in this area by installing a new generation of multi-beam writers, it still lags behind Japan's technological lead.

Organisational risk may also be the impending change of leadership - Current CEO Frank Lee has announced that he will retire within a year or two. The transition to a new leader in such a technology-intensive industry risks losing consistency in management and strategic direction. Although the succession process is being overseen by the board, the market may reflect this uncertainty with higher stock volatility in the short term.

Opportunities

The number one opportunity is the recovery of the semiconductor industry investment cyclewhich is starting to pick up again after the weaker years of 2023-2024. Growing demand for chips for artificial intelligence, data centres, automotive and industrial applications is creating room for increased orders for photomasks across segments.

Another key growth driver is the trend towards localisation of production. The shift of some capacity from Asia to the US and Europe - supported by government incentives and geopolitical concerns - means that chipmakers need local partners for fast and secure supply of masks. With manufacturing facilities in the US, Photronics is strategically positioned to benefit from this trend.

From a technology perspective, it represents an opportunity expanding production using multi-beam technologythat increase accuracy and reduce costs in the production of more complex masks. This opens the way to new customers in the high-performance computing and AI chip segments.

Financially, it can also be a driver an active capital policy - A high cash reserve allows for continued share buybacks and the introduction of a regular dividend in the future. This could make the company more attractive to institutional investors who have so far preferred larger, more stable semiconductor titles.

Threats

The main threat is the cyclicality of the semiconductor sector. Orders for photomasks are directly tied to chipmakers' investment activity - once investment in new lines slows, demand could fall by tens of percent within a few quarters.

Competitive pressure from Asia remains a long-term problem. Japanese and Taiwanese firms have significantly larger manufacturing scale and strong relationships with major foundries such as TSMC or Samsungwhich limits the room for expansion of independent suppliers.

Another risk is possible delays in technology projects. Transitioning to new generations of devices or certifying processes takes months or years, and any failure in the testing phase can affect reputation and revenue. Also geopolitical tensions between the US and China is an unpredictable factor - the company has a significant amount of production capacity in China, which could be hit by export restrictions if sanctions escalate.

Last but not least the risk of a global recessionthat would limit investment in data centre infrastructure and consumer electronics, two key sectors from which most orders come. This could temporarily halt the current growth trend and squeeze margins.

Investment scenarios

Optimistic scenario

In the most favourable scenario, the semiconductor sector enters a phase of renewed growth cycle, driven mainly by the development of artificial intelligence, edge computing and automotive electronics. Chipmakers around the world are increasing investment in new lines, boosting demand for advanced photomasks. In such an environment, Photronics would benefit from a combination of several factors - expanding capacity in the US, the growing share of high-end masks, and customers moving to more technology-intensive nodes.

Revenues could grow at a rate of 8-10% annually over the next three years and surpass the $1 billion mark by 2027. Operating margins could move toward 27-28% and net profitability toward 15%. Given its conservative balance sheet, the company could use some of its free cash flow not only for share repurchases but also to implement a dividend, expanding its investor base to include institutional funds focused on stable income.

In such a scenario, the stock could reprice to multiples consistent with a growing technology company - a P/E between 18-20 and a P/S above 2.5. This would imply a potential market capitalization of around $2.5-3 billion, about double the current value. For investors, this would be a scenario combining steady growth, margin expansion and strong cash flow - with a return that could exceed 100% within three years.

A realistic scenario

The base, and therefore most likely, scenario assumes moderate but stable growth. Demand for chips remains healthy, although cyclical fluctuations persist. The company is gradually increasing the share of high-end masks and benefiting from new multi-beam technology tools, but the pace of growth is dampened by weaker activity in the display (FPD) segment and a slow return of investment in China.

Revenues could grow around 4-5% per year in this scenario, with margins remaining close to current levels (gross around 35%, operating between 22-24%). Net profit would stabilize between USD 130-150 million per year. The company would continue share buybacks but would remain restrained from acquisition activity. Free cash flow would continue to cover both investments and return of capital to shareholders.

From a valuation perspective, Photronics would trade at a P/E of between 13-15 in this scenario, which would imply a fair share price of around $50-55 on gradually increasing earnings. This scenario would confirm the company's position as a a stable, conservative growth stock with low debt risk and high resilience to sector downturns. Investors would find defensive growth rather than speculative exponential appreciation.

A pessimistic scenario

In a downside scenario, the semiconductor cycle would slow down - chipmakers would reduce investment in new lines and pressure on mask prices would intensify significantly. The result would be a 10-15% drop in sales, with a portion of fixed costs not easily reducible. Operating margins would fall below 20%, gross margins below 30%, and net profits could fall towards USD 80-90 million per year.

In addition, there could be uncertainty around a change in leadership - a possible departure of the CEO without a clearly defined successor could undermine investor and partner confidence. With the current cost structure and high capital intensity, free cash flow would be reduced and the company could suspend its share buyback program. The stock would then likely respond by falling to levels of $25-30, 30-40% below current prices.

This scenario would also show the company's sensitivity to the global macroeconomy - particularly demand for consumer electronics, smart devices and automotive chips. Still, thanks to its cash position and low debt, Photronics would remain liquid and able to survive a prolonged downturn without the need for external financing.

What to watch next?

• The growth of the high-end segment: Revenue development from sub-10nm advanced IC masks - a key indicator of future growth and margins.
• New manufacturing technologies: Success of multi-beam mask writer deployments and their impact on efficiency and quality.
• Margins and investments: Maintaining operating margins above 23% even with growing CapEx would confirm financial discipline.
• Investment cycle 2026: The return of chip demand and production line expansions could deliver strong order growth.
• Management transition: The choice of a new CEO and continuity of strategy will be key to stability and investor confidence.
• Capital policy: Continued share buybacks or introduction of a dividend as a signal of cash flow strength.
• New contracts in the US and EU: Expanding the customer base outside Asia would strengthen the strategic position.
• Use of incentives: Possible subsidy programs under US and European Chips Act as a catalyst for expansion.

Conclusion and investment considerations

In a market dominated by attention to the giants of the semiconductor world, smaller but key suppliers often remain overlooked. Yet this is where the technological foundation of the entire industry is being formed. This company combines high technology sophistication, financial strength and growing exposure to the trends that will shape the chip industry over the next decade - AI, data centres, automotive and localisation of manufacturing.

For investors, the story is one of a stable yet growing title - a company that has all the parameters to go from being an inconspicuous link in the supply chain to a major beneficiary of the new chip era. At a time when the market is looking for the next movers after Nvidia and TSMC, this is the player that can offer a combination of technological certainty, low valuation and long-term growth potential.

The third quarter of fiscal year 2025 provided Walt Disney with clear evidence that the strategic transformation that CEO Bob Iger has been driving since his return is beginning to bear fruit. Results exceeded expectations on both earnings and free cash flow, with the strongest contributions coming from strong growth in the Experiences segment (which includes parks, resorts and cruises) and significant improvement in streaming services. At the same time, the company is benefiting from the transition to a stable growth phase after pandemic years and a major restructuring of its media empire, where it is refocusing on the core of its business - creative content, direct-to-consumer relationships and technology-driven monetization of its brands.

Disney $DIS thus confirms that it can combine a traditional entertainment model with a modern digital ecosystem. While the company previously struggled with high losses in streaming, now Disney+ and Hulu are becoming a source of stable revenue and are approaching long-awaited profitability. At the same time, parks, hotels and cruise ships are breaking records in attendance and profits, offsetting the slower growth rate in the movie content segment. The third quarter results clearly show that Disney is once again moving toward sustainable growth and a return to investor appeal after years of realignment.

How was the last quarter?

In the third quarter of fiscal year 2025, total revenues were $23.65 billion, up 2% year-over-year. Pre-tax profit increased 4% to $3.2 billion, while segment operating profit increased 8% to USD 4.6 billion. Net profit more than doubled to $2.92 per share, compared to USD 1.43 in the same period last year. Adjusted non-GAAP EPS was USD 1.61, representing 16% growth. The company generated USD 3.7 billion of operating cash and free cash flow increased by more than half to USD 1.9 billion.

The segment experienced the strongest growth Experiencescomprising Parks, Resorts and Disney Cruise Line. Operating profit here rose $294 million to $2.5 billionwhile the U.S. domestic parks posted a 22% year-over-year increase in profitability to USD 1.7 billion. They were helped not only by strong attendance and higher average spend per visitor, but also by the timing of the Easter season, which brought in an additional profit of around $40 million. On the other hand, the cruise segment was less negatively impacted by pre-opening costs of around $30 million.

Segment Sportsprimarily representing ESPN, reported an operating profit 1 billion, up $235 million from the prior year. The result was driven by lower losses from foreign operations (mainly in India) and a 3% increase in domestic advertising revenues. Conversely, higher costs for NBA and college league broadcasting rights reduced ESPN's domestic profit by 7%.

In the Entertainment there was a $179 million decline in profits at USD 1 billionprimarily due to weaker performance of film titles and the discontinuation of Star India. Division Direct-to-Consumer (streaming), however, saw a sharp turnaround, with revenue up 6% and operating profit up USD 365 million at $346 millionconfirming that Disney+ and Hulu are approaching a break-even point. The number of subscribers across Disney+ and Hulu reached 183 million, an increase of 2.6 million more than in the second quarter, with Disney+ alone adding 1.8 million new users.

CEO comment

CEO Robert A. Iger reviewed the results as evidence of the growing momentum across all of the company's major pillars. He said Disney is successfully renewing its creative vitality while accelerating growth in streaming services and expanding its global entertainment portfolio. "We are excited about the progress we are making in streaming, where we will soon launch a direct-to-consumer ESPN service while integrating Hulu into Disney+. This move will create a unique platform that brings together premium sports, movie and family content," said Iger.

The CEO also highlighted that Disney continues to expand its parks and experiences around the world at an all-time high. "Never before have we had so many open development projects across regions - from Asia to Europe to North America. Our brand is growing globally and has a stronger connection with fans than ever before," Iger added.

Outlook

Disney expects the fourth quarter of fiscal 2025 to be marked by continued growth in streaming services, particularly with the integration of Hulu into Disney+ and the expansion of its partnership with Charter Communications. The company anticipates subscriber growth of more than 10 million compared to Q3, with the majority of the growth expected to come from Hulu. It is also expected to A slight increase in the number of Disney+ users.

At the full fiscal year 2025 level, Disney forecasts Adjusted earnings per share of $5.85, which represents year-over-year growth of 18%. Segment Entertainment Direct-to-Consumer is expected to reach operating profit of $1.3 billionwhile the Sports division will grow by approximately 18 % and Parks and Experiential Services by 8 %. Overall, the company expects continued double-digit growth in operating profit.

Financially, Disney remains in a strong position, with free cash flow for the nine months of fiscal 2025 reaching USD 7.5 billion, an increase of 66% from the prior year. This performance gives the company room to invest in park expansion, content production and potential debt reduction.

Long-term results

Disney's long-term performance reflects a gradual but steady return to profitability after a turbulent pandemic and a major transformation of its media portfolio. Revenues in 2024 were USD 91.36 billion, up 2.8% from the previous year, while net profit more than doubled to USD 4.97 billion. The company thus recorded the strongest net profit growth in a decade. Operating profit increased 29% to USD 11.58 billiondespite higher operating costs associated with the development of streaming services and fleet expansion.

In the longer term, a clear stabilisation is visible. Since 2021, when the pandemic hit park and cinema revenues hard, Disney has been able to return to organic revenue growth of more than 35 % and more than to more than double profits. The Experiences division has become the main driver of the entire group and accounts for more than half of operating profit. Not only attendance is growing, but also average spend per customer, with new attractions and hotels expanding the Experiences portfolio in the US, Asia and Europe.

The streaming business, which was a loss-making item in the past, is now breaking even. Disney+ and Hulu together serve nearly 200 million users, and the company is looking to increase average revenue per user (ARPU) through a combination of advertising, premium content and higher prices. At the same time, management has slashed production and licensing costs, reducing the direct-to-consumer segment's loss by billions of dollars from its 2022 peak.

Importantly from an equity investor perspective, Disney has restored its ability to generate free cash flow at a level that allows it to not only fund expansion, but also consider a return to dividends. The company has had two years of strong EBIT growth (at USD 9.6 billion) and is now on the cusp of a period where it can benefit from a combination of improved efficiency, rising ARPU and steady revenue growth in the parks business.

Shareholding structure

The company's ownership structure remains extremely stable and predominantly institutional. Approximately 74% of the shares are held by large funds, led by Vanguard Groupwhich, through various funds, controls over 108 million shares. The other major shareholder is Fidelitywhich holds over 22 million shares. The insider stake is minimal, around 0.07%, reflecting the institutional nature of the stock and the long-term confidence of large investors. In total, Disney shares are owned by over 4,000 institutions, ensuring high liquidity and low volatility even in periods of heightened market uncertainty.

Analysts' expectations

According to the Wall Street analyst consensus, Disney is on track to deliver its best results since 2019. For the full fiscal year 2025, the company is expected to deliver earnings of over USD 10 billion and EPS of around 5.8-6 USD, equivalent to 18% growth. In particular, analysts credit the gradual recovery of streaming services, the growth of the ESPN segment, and the expansion of the parks, which together provide a combination of stable cash flow and long-term growth potential.

The stock's price targets are in the range of 130-145 USDwhich translates to approximately 20% upside potential compared to the current market price. In particular, investors appreciate that Disney is once again finding a balance between growth, innovation and return on capital. The main risks include potential increases in content costs, geopolitical factors affecting park attendance and strong competition in the streaming business. Still, most analysts remain optimistic about the long term, calling Disney stock an attractive opportunity for investors looking for a combination of stability and growth potential.

Fair Price

Hello investors — lately I hear nothing but AI: there are partnerships everywhere, companies are shifting capital between themselves, and it feels like everyone is betting on it. I don't want to say AI has no potential for the future, but for me we're still at the beginning and it's more promises than something truly fundamental that would change the economy and the world overnight.
So I want to ask where you see interesting opportunities outside of AI, because it seems to me companies outside AI are being forgotten.
I have Booking, Hermes, and Nu Holdings on my watchlist — I won't analyze or characterize them here; every investor will make up their own mind :)

Hello investors, lately I hear nothing but AI — there are collaborations everywhere, companies are shifting capital between themselves, and it seems like everyone is betting on it. I don't want to say that AI has no potential for the future, but for me we're still at the beginning and it's more promises than anything truly significant that would change the economy and the world overnight.
So I want to ask where you see interesting opportunities outside of AI, because it feels like companies outside of AI are being overlooked.
On my watchlist I have Booking, Hermès, Nu Holdings — I won't analyze or characterize them here; every investor will make their own decision :)

Michael Jordan's name has long been part of more than just basketball history - it has become an economic phenomenon. What began in 1984 as a bold bet by Nike on a young athlete with a two-and-a-half million dollar contract has turned into one of the most profitable brands of all time. The Air Jordan was not just another shoe model, but a symbol of a new era of marketing where the product became the epitome of personality and style. In four decades of existence, one signature line has grown into an empire that generates billions in sales and continues to set the course not only for sports fashion, but for pop culture as well.

Today, the Jordan brand has a life of its own - with collections, ambassadors, stores and a community. A culture has formed around basketball shoes that has transcended sports and influenced generations of fans and fashion designers. It's a testament to its strength that even forty years after the original contract was signed, new Air Jordan models sell out immediately, while older editions sell for multiples of their original prices. Nike has done something that is rarely achieved in branding - it has created a brand that is at once nostalgic and modern, mass and exclusive.

With an estimated value of over $10 billion and growing profitability, the Jordan Brand represents a key assetfor Nike $NKE that could stand alone among the fashion industry's most valuable brands. Analysts talk about the potential of this business being far from exhausted - on the contrary, the brand has room to expand that even the parent company itself does not offer today. At a time when Nike is looking for a new impetus for growth, the question of whether the Jordan Brand is an undervalued gem that could have its own equity story is becoming increasingly loud.

Top Points

• The estimated value of the Jordan Brand exceeds $10 billion, equivalent to more than a tenth of Nike's market capitalization.
• The brand is growing steadily at 8-12% per year, even though Nike as a whole is facing stagnation in its core athletic footwear segment.
• Jordan Brand has higher operating margins than the rest of Nike and stronger customer loyalty.
• The "World of Flight" sales network has the ambition to become a standalone global chain.
• Analysts speculate that the brand's value could reach $15 billion to $20 billion over the next few years, or become a spin-off candidate.
• Jordan Brand also has a strong presence in non-basketball segments - fashion, lifestyle, collaborations, limited series.

Jordan Brand - an undervalued gem with its own economics

Today, Jordan Brand operates as a separate economic ecosystem within Nike. It is estimated to generate over $6 billion a year, more than the entire Adidas company in the US. Unlike traditional sports brands, it is not just based on performance sports, but on a unique combination of nostalgia, design and cultural capital. As a result, it achieves premium valuations and gross margins that analysts estimate at 30-35%. Just for comparison, margins on mainstream sports shoes are around 15-20%.

The brand remains exceptionally strong forty years after its inception. Jordan Brand sells not only basketball models, but also lifestyle collections, collaborations with fashion houses and limited editions that sell out immediately. This creates an extraordinary scarcity effect - key to sustaining demand and value. On the secondary market, some models fetch several times their original price, making Jordan not only a fashion icon but also a collector's asset. This aspect also creates a lasting marketing effect - the brand does not need massive advertising because its customers are ambassadors themselves.

Moreover, the brand's growth is based on strategic expansion beyond traditional segments. World of Flight's flagship stores in Tokyo, Seoul, Mexico City and now Philadelphia represent a new type of retail experience where sport, art and community come together. This philosophy reinforces the authenticity of the brand and builds long-term loyalty with a younger generation of customers. In doing so, Nike makes it clear that Jordan is not just a product line, but a platform that can evolve on its own.

From an investment perspective, it is interesting to note that the Jordan Brand on its own would be worth more than companies such as Crocs, Birkenstock, Gap, Urban Outfitters or Levi's - all of which have their own stock market listings. Analysts' estimates range between $12 billion and $15 billion, with optimistic scenarios predicting that the brand could exceed $20 billion by 2030. This is due to the high return on capital, strong margins and lack of direct competition in the premium basketball shoe segment.

The strength of the Jordan Brand is that it has a combination of the attributes of a classic luxury brand and a broad reach. Unlike pure fashion brands (e.g. Gucci or Balenciaga), Jordan is still accessible to mainstream consumers, yet offers exclusivity and emotional added value. This hybrid model is extremely attractive from a growth perspective, as it allows for the expansion of the customer base without losing the premium perception.

At the same time, it should be added that Nike has an asset in its hands that could theoretically operate independently. Discussions about a possible Jordan Brand spin-off have been popping up from time to time among investors, although Nike management has not officially commented on such a move. A spin-off could unlock the true value of the brand, much like Ferrari's separation from Fiat in the automotive industry - and show that Jordan is not just an icon of the past, but a steadily growing brand with its own equity story.

In the long term, Jordan Brand has the potential to become one of the most valuable brands in the entire sports and lifestyle apparel segment. By maintaining its current growth rate of 8-10% per year and expanding its retail network, the brand could generate sales of over $10 billion per year by 2030, which would equate to a valuation of $18-20 billion. This would make the Jordan Brand not only the most successful sub-brand in the history of the sports industry, but potentially a brand that could outperform parent Nike in margin and profitable growth.

Jordan Brand's positives and growth drivers

• Strong global brand and cultural influence: the Jordan Brand is a symbol of the connection between sport, fashion and lifestyle. It has an exceptionally strong identity and loyalty across generations, ensuring sustained demand.
• Premium margins and high profitability.
• Diversification beyond basketball: The brand has successfully expanded into the streetwear, lifestyle and women's fashion segments, reaching new customer groups and reducing its reliance on the sports market.
• Strategic store expansion: the "World of Flight" flagship store network strengthens the direct relationship with the customer, increases control over distribution and creates a premium shopping experience.
• Strong secondary market: the collectible value of Air Jordan shoes fosters long-term interest in the brand, sustains media attention and delivers a value-added effect for each edition.

Negatives and risks to brand growth

• Risk of loss of exclusivity: Excessive new models or wider distribution could damage the brand's premium image and reduce its cult status.
• Dependence on Michael Jordan's legacy: Although the brand has a life of its own, its core story is still tied to a single personality that is increasingly distant to the younger generation.
• Growing competition in the lifestyle segment: Adidas, New Balance, On Running and luxury fashion brands are all trying to occupy the same market space that Jordan has built.
• Sensitivity to economic cycles: In times of inflation and declining consumer confidence, demand for premium footwear may weaken, especially outside the US.
• Potential tensions within Nike: The Jordan Brand is so strong that it may begin to overshadow the parent brand and create a strategic dilemma regarding its independence or spin-off.

Analysts' views and ratings on Jordan Brand

Analysts agree that the Jordan Brand remains one of Nike's most important growth pillars and represents a brand that has been able to transcend the sporting context and build its own cultural and economic value. Experts from investment firms and the retail sector point out that Jordan in particular has the ability to increase Nike's growth rate at a time when traditional segments such as running and training shoes are stagnating. In the eyes of the market, the Jordan brand is seen as a stable source of premium margins and a loyal customer base - a factor that protects Nike from cyclical fluctuations in demand.

At the same time, analysts point out that the Jordan Brand is beginning to function as a standalone engine of Nike's brand recovery. Projects like "World of Flight" show that Nike can make Jordan an exclusive retail experience that reinforces a direct connection with the customer. This model, which combines a community-based approach, limited editions and digital sales channels, is increasing profitability and creating long-term sustainable growth, according to experts. Some analyses even estimate that, if managed properly, Jordan could be worth between $15 billion and $20 billion within five years and become one of the world's most profitable fashion brands.

On the other hand, there are also critical voices warning of the first signs of a slowdown. In recent quarters, sales have fallen in some regions, particularly in Asia, and analysts warn that the limited-edition market may be prone to oversaturation. Some experts consider Nike's current strategy too focused on nostalgia, noting that younger consumers who have never seen Michael Jordan play may perceive the brand less authentically in the future. They also warn of the risk that a large number of new models and collaborations may dilute the exclusivity that underpins the Jordan Brand's success.

Still, most analysts are positive about the future of the brand. Despite short-term fluctuations, Jordan remains an exceptional example of a brand that can combine commercial success with cultural influence. At a time when Nike faces competitive pressure and declining momentum in its core product lines, the Jordan Brand represents a symbol of stability, margin strength and potential capital growth for investors - an asset whose intrinsic value may still be significantly undervalued, according to analysts.

Comparison with competitors

Compared to its competitors, Jordan Brand stands in a unique position - it is at the intersection of sports performance, fashion and culture, a segment that most rivals have failed to fully dominate. While Nike itself competes with Adidas $ADS.DE, Puma $PUM.DE or Under Armour $UA in a broad portfolio of athletic footwear, Jordan is in the more exclusive and profitable space of premium sneakers and lifestyle products. Analysts often liken the Jordan Brand's position to the "Ferrari" of the sports fashion world - it is not the largest in volume, but it has the strongest symbolic value that other brands cannot replicate.

Adidas has long tried to build a similar cult around its brand Yeezy in partnership with Kanye West, but after the partnership ended, its relevance was greatly diminished. New Balance may be gaining popularity through collaborations with fashion houses and designers, but it remains a choice for a specific group of customers rather than a mass cultural phenomenon. Puma a Under Armour build on performance and functionality rather than the emotional or collectible aspect of the brand, a factor that makes Jordan a unique asset.

At the other end of the spectrum stand luxury fashion brands like Gucci, Balenciaga or Diorwho are trying to break into the sneaker segment through collaborations and limited edition collections. While these create short-term hype, they lack the athletic authenticity and long-term consistency that Jordan maintains through his roots in basketball and connection to icon Michael Jordan. This factor brings a credibility to the brand that fashion houses and tech-oriented rivals cannot replicate.

Jordan Brand thus stands between two worlds - sport and luxury - and takes the best of each. While competitors fight for market share through discounts, mass marketing or controversial collaborations, Jordan benefits from scarcity, exclusivity and a strong story. This allows it to afford higher prices, stable demand and sustainable margins that most sports brands don't have. In this context, Jordan is one of the few brands that can compete with both sports giants and luxury fashion houses - and it is this balance that gives it the potential to become the most profitable brand of its kind.

Nike's valuation and financials

Nike's financial profile remains robust despite a challenging period of declining sales and profits. The company has a market capitalisation of around USD 96 billion, with enterprise value is approximately 100 billion USD. This reflects its status as a stable global leader with high brand value and a strong balance sheet. Despite a lower growth rate compared to previous years, Nike maintains an extremely healthy liquidity ratios, s quick ratio of 1.45 a current ratio of 2.19which gives the company considerable operational flexibility. The company has a low debt ratio (ratio debt-to-assets ratio of 0,30) and an excellent interest-paying capacity (interest coverage of 12,35×). The Altman Z-Score of 4.54 confirms the high financial stability and minimal risk of bankruptcy.

In terms of valuation, Nike trades at a significant premium to the sector. P/E 33.3× is more than double the industry average (15,8×), signaling that investors continue to value the company's brand strength, global reach, and margin advantage. The same trend is evident in other metrics - P/S 2.08×, P/B 7.15× a P/CF 32×. These multiples show that the market is confident in Nike's long-term profitability and ability to generate stable cash flow despite short-term fluctuations in demand. At the operating level, Nike can rely on a gross margin of 41.9%which is well above the sector average (33,9 %), although an operating margin of 7,36 % is in line with the market standard.

Profitability remains one of the main pillars of the company's value. ROE over 21% a ROIC OF 10.5% confirm the ability to use capital efficiently and the strength of the brand as a key driver of profitability. In the most recent fiscal year ended May 31, 2025, Nike experienced a decline in revenue of 9,8 % at USD 46.3 billionwhile net income fell by 43,5 % at USD 3.2 billion. Nevertheless, the business remains highly profitable and generates significant free cash flow through disciplined cost control and limited debt.

Over the long term, Nike has a strong balance sheet with assets over USD 36 billion and equity of over USD 13 billion. Asset turnover ratios (1,24×) and inventories (3,32×) confirm the healthy efficiency of operations management. Nevertheless, the company is facing pressure on operational performance - EBITDA has fallen by 48% over the past year a net profit has returned to 2020 levels. This is due to weaker demand in China, declining volumes in the athletic footwear segment and higher marketing spend.

Compared to the sector, Nike remains a clearly premium valued company, but also a structurally sound company with a high return on capital, excellent liquidity and stable profitability. The current weaker near-term results can be viewed as a cyclical correction, not a structural problem. With strong brand equity, the growing influence of the Jordan Brand and gradual expansion in direct-to-consumer (DTC) sales, Nike remains an attractive player with long-term growth potential, albeit with a tight valuation-to-earnings ratio in the short term.

Investment scenarios

Optimistic scenario

In the most favorable scenario, Nike manages to stabilize its core business, resume growth in China, while fully exploiting the potential of the Jordan brand. This division could achieve double-digit annual sales growth and become a standalone pillar of profitability with margins of over 35%. Successful expansion of the "World of Flight" retail concepts, new collaborations with fashion brands and digital sales strategies could strengthen global presence and increase the value of the Jordan Brand to $18-20 billion. Nike would benefit from a higher direct-to-consumer (DTC) sales share and an increase in average price per pair of shoes, allowing operating margins to return above 10%. The stock could gradually move towards a return to valuations above 40 times earnings in this scenario as the market would once again appreciate its growth profile and ability to innovate.

A realistic scenario

In the base case scenario, Nike maintains its position as the market leader, but without a dramatic acceleration in growth. Revenues will fluctuate around 2-4% per year, with Jordan Brand remaining a key factor for stabilization. This brand will generate increasing but gradually slowing returns, around 8-10% per annum, and will become the 'golden goose' within the portfolio. Nike will continue to optimise costs, digitise sales and manage inventory. Profitability will remain below historical highs but stable, with a net margin of around 6%. In this scenario, the stock moves without much volatility, while long-term investors could benefit from stable cash flow, buybacks and a growing dividend.

Pessimistic scenario

A negative scenario could occur if Nike fails to respond to changing trends, loses touch with the younger generation, and Jordan Brand begins to face market fatigue. Over-reliance on retro editions, loss of exclusivity and weakness in Asia could lead to a decline in sales and margins. The brand could then stagnate or fall below USD 10 billion in value, which would mean a loss of momentum for the entire group. A macroeconomic slowdown and higher raw material prices would further depress operating income, leaving investors with a dividend without a growth story.

Long-term view

Over the long term, both Nike and Jordan Brand remain assets with exceptionally strong brand equity and global distribution strength, making them attractive choices for conservative investors focused on stability, brand equity and margin discipline. Despite short-term downturns and cyclical pressures, both brands can be expected to maintain their leadership position in the premium sports fashion segment and generate above-average returns on capital over the long term. Meanwhile, Jordan Brand has the potential to become a stand-alone equity entity - whether in the form of a spin-off, a partial IPO or as a key profit engine that will make Nike a growth company again.

Conclusion and Investment Considerations

An investor's view of Nike today requires a certain amount of perspective and patience. The company is going through a period of transition - part of the traditional business is slowing down, while something is growing in the bowels of the company that may change the balance of the entire concern in the long run. Jordan Brand is not just a product line, but an economic phenomenon that proves a strong brand can survive generations and turn a cultural legacy into a stable cash flow. Where Nike once pulled performance footwear and marketing around athletes, today the company is held together by a brand that was created forty years ago - and yet feels more contemporary than ever.

From an investment perspective, Nike stands at a crossroads. It can settle for a position as a stable global leader with a strong balance sheet and premium valuation, or it can decide to unlock the potential that the Jordan Brand holds. The question of an eventual separation of the brand - or at least a clearer quantification of its share of profits - could change the way the market values the entire enterprise. If Jordan were to become a separate entity, it could receive a very different valuation multiple than the rest of the sports segment. That's a scenario investors shouldn't overlook.

At the same time, it should be perceived that Nike remains a business with extraordinary brand strength, capacity for innovation and customer loyalty that competitors can only wish for. The current weaker results can be seen as a phase of consolidation, not a retreat from the scene. For long-term value-oriented investors, the combination of a solid balance sheet, a premium brand and a growing Jordan division represents an attractive opportunity. The market today values Nike as a mature company - but the real question is whether its next growth era is being born within that maturity.

Devon Energy entered the second half of 2025 in exceptionally strong shape. The company was able to increase production above the high end of its estimates, generate robust cash flow, while reducing capital expenditures. Despite the downturn in global oil and gas prices, the company confirmed that its business model, based on capital discipline, technological efficiencies and a diversified portfolio, delivers stable results even in times of volatility. Quarterly numbers show that management is successfully delivering on the objective of maximizing free cash flow and long-term returns to shareholders, while further strengthening the balance sheet and operational efficiency.

The second quarter confirmed Devon Energy's ability to combine production growth with tight cost control. The company achieved net income of $899 million, or $1.41 per share, while adjusted earnings were $536 million ($0.84 per share). Revenues from oil, gas and NGL sales reached $2.7 billion, supporting operating cash flow of $1.5 billion. As a result, the company continues to fully cover its capital expenditures from operating income and generated strong free cash flow, which reached $589 million for the quarter. The results were significantly impacted by lower drilling costs, optimization of processing and transportation costs, and effective capital management across the portfolio.

How was the most recent quarter?

Devon Energy $DVNproduction averaged 841,000 barrels of oil equivalent per day in the second quarter, beating the high end of guidance. Oil production alone was 387,000 barrels per day and accounted for 46% of total production. The three percent increase in production from the previous quarter was driven primarily by higher performance in the Delaware Basin, which remains a key asset for the company. This success is the result of a combination of lower capital expenditures, higher well productivity and technological advances that allow for more efficient production at lower unit costs.

Capital investment was $932 million, 7% lower than the original plan. This marks the second consecutive year Devon has reduced its capital expenditure without negatively impacting production volumes. Upstream costs, including taxes, fell a further 5% to $11.75 per barrel of oil equivalent, with the largest items - production, transportation and processing costs - at $9.17 per barrel. The company achieved one of the most efficient operating results in its sector as a result.

In terms of the financial position, the quarter was characterised by a further strengthening of the balance sheet. Cash reserves increased by $525 million to a total of $1.8 billion. The net debt to EBITDAX ratio declined to 0.9 times, keeping the company deep in the investment grade range. The company also completed the sale of its stake in Matterhorn Pipeline for $372 million, further increasing liquidity and optimizing its midstream portfolio.

Management Commentary

President and Chief Executive Officer Clay Gaspar called the second quarter results a clear demonstration of the strength of Devon Energy's operating model. He said the company has been able to combine production growth with strict capital discipline and solid returns for shareholders. "Our strategy of focusing on efficiency and managed investment is working. In a volatile commodity price environment, we are generating consistent cash flow and strengthening our financial position," Gaspar said.

He also highlighted that the company's optimisation programme is progressing faster than expected, with a target of achieving by the end of 2026 1 billion in annual pre-tax free cash flow. According to Gaspar, Devon continues to streamline its portfolio - selling smaller assets, investing in higher-return projects while increasing the proportion of its own midstream assets, which supports long-term earnings stability.

Outlook

The company's outlook for the second half of 2025 is marked by production growth and continued cost reductions. Devon has raised its production guidance to a range of 384 to 390 thousand barrels of oil equivalent per day and total production to 825 to 842 thousand barrels of oil equivalent per day. In contrast, it reduced capital expenditure to $3.6 billion to $3.8 billion, an additional $100 million less than the previous forecast. This second budget reduction during the year reflects the successful implementation of cost-saving measures and optimization of infrastructure and drilling investments.

The Company is also continuing its extensive $5 billion share repurchase program. Since its inception, it has repurchased 85.4 million shares for $3.9 billion. Devon is succeeding in combining a growth story with an emphasis on steady returns on capital and a strengthening balance sheet. With high liquidity and low debt, the company has room for both further investment and a generous dividend policy.

Long-term results

Devon Energy has had a period that well illustrates the cyclical nature of the oil industry and the company's ability to adapt to changing market conditions. A record year in 2022, when earnings were boosted by the extremely high oil price following the Russian invasion of Ukraine, was followed by a gradual cooling in commodity prices. Despite this, the company has managed to maintain profitability, optimise its cost structure and continue to generate strong cash flow, which is the basis for dividend payments and share buybacks.

In 2024, Devon increased revenue by 5% to USD 15.94 billionwhile net income reached USD 2.89 billion, down about 23% from a year earlier. This decline was due to lower oil and gas prices, not operating performance - operating profit rose 357% to USD 10.7 billion The company also managed to maintain an operating margin well above the industry average, making it one of the most efficient producers in the North American shale oil segment.

In terms of results, 2023 was marked by a decline in energy prices following the boom year of 2022, when Devon recorded revenues of over US$19 billion and net income USD 6 billion. Despite a 21% decline in revenues in 2023, the company avoided a dramatic drop in profitability by tightly controlling capital expenditure, upgrading mining technology and strengthening midstream infrastructure. It is the integration of the upstream segment (oil and gas production) with the midstream segment (transportation, processing and storage) that has become one of the key pillars of stability for Devon.

Another important driver of long-term performance is the consistent decline in debt and growth in liquidity. The company has been gradually reducing its net debt to EBITDA ratio to well below 1.0×, providing it with exceptional financial flexibility. As of December 31, 2024, Devon had available USD 1.8 billion of cash while continuing to repurchase shares even as oil prices fell. This move demonstrates management's high confidence in the company's ability to generate long-term free cash flow even in a less favorable market environment.

News

The company made several strategic moves in the past quarter that support its long-term stability. The most significant of these was the sale of the stake in Matterhorn Pipeline for $372 million, which resulted in the company realizing a gain of $307 million. It subsequently purchased the remaining interest in the company Cotton Draw Midstream for $260 million, giving it full control of the asset and eliminating the need to pay out shares to minority owners.

Diversification of natural gas sales is also a key element of the strategy. Devon has signed two new contracts - the first for the supply of 50 MMcf per day for LNG exports with pricing linked to international markets, the second for 65 MMcf per day for a planned power plant CPV Basin Ranch Energy Center in Texas with market-linked pricing ERCOT West. Both contracts will come into effect in 2028 and will help expand export opportunities and stabilize revenues outside the U.S. benchmarks.

Shareholding structure

Devon Energy has an extremely stable institutional base. The institution owns over 77% of the shares and major shareholders include funds Vanguardwhich hold over 52 million shares in various index funds. The insider stake is just 0.8%, reflecting strong institutional confidence. The company has maintained a long-term investment grade rating, stable cash flow and a low debt-to-EBITDA ratio.

Shareholders were paid a fixed dividend for the second quarter of USD 0.24 per share while additional shares were returned through share repurchases 249 million. This confirms Devon's commitment to regular cash distributions and maintaining a balanced capital policy that combines growth and return.

Analyst expectations

Analysts view Devon's results as very strong and confirming the company's long-term strategy. For the full year 2025, the company is expected to make a profit of around $3 billion and maintain a high level of free cash flow even with lower oil prices. The Wall Street analyst consensus sets a target price for the stock within a range of USD 59-67, with an average target of around $63 implying a roughly 15% upside potential from current levels.

Devon's strengths remain a combination of production growth, financial stability and strong shareholder returns. The relatively low debt levels and the ability to quickly reduce capital expenditure without impacting production are also important factors. Conversely, the main risks include continued pressure on WTI oil prices, limited infrastructure at Permian and potential regulation on emissions and gas production. Still, Devon Energy is considered one of the most stable midstream oil companies in the U.S. and is among the favorites of investors seeking a combination of growth, stability and dividend yield.

Fair Price

Hi colleagues,

I like holding REITs — I’m pretty surprised they’re weakening a lot right now; I expected they’d be rising as US rates get cut.

Is this related to the US government shutdown? If so, what’s the connection?

There are some stories in the stock market that are written without much media attention, but grow all the more impressively over time. Applied Industrial Technologies is exactly that case. Over the past five years, its market value has risen by more than 300 %equivalent to an average annual appreciation of around 60 % - a performance that would be the envy of most technology companies. What started as a classic industrial distributor of bearings, seals and hydraulics has turned into a highly profitable business with a technological soul and a clear growth strategy in automation.

The industrial world is changing - and faster than it used to. Where logistics and component cost used to be decisive, technology, efficiency and integration capability are now taking over. Companies that can combine traditional manufacturing with automation are becoming the new winners of the industrial cycle. Against this backdrop, a story has been born that combines precision engineering, the discipline of capital and growth based on real demand, not on exaggerated market expectations.

The year 2025 brought records in the industry as well as confirmation that industrial automation is moving from being an add-on to a core business. Companies that have been able to transform their model from simply distributing to providing technical solutions are beginning to benefit from higher margins, stable contracts and growing demand for digitized operations. A market that was considered slow and conservative just a few years ago is turning into one of the most exciting places where industry meets technology.

This shift is mainly due to a consistent strategy, investment in engineering capabilities, the acquisition of companies with technological know-how and a focus on solutions with long-term returns. The result is a combination of growth, efficiency and financial strength that offers investors a story of a stable but dynamic company.

Top Points

• The company achieved record revenue of $4.56 billion, representing 1.9% year-over-year growth, and beat the high end of its guidance.
• Net income rose to $393 million, while EBITDA topped $498 million, with margins surpassing 30% for the first time in the company's history.
• EPS increased to $10.26, up 2.8% year-over-year, and the company announced a 24% dividend increase and record free cash flow of over $465 million.
• The acquisition of Hydradyne, the largest in six years, strengthened the automation segment and paved the way for additional growth opportunities.
• Outlook for fiscal 2026 calls for revenue growth of 4-7%, EBITDA margin expansion to 12.5% and EPS between $10-10.75.

Company Profile

Applied Industrial Technologies $AIT is one of the inconspicuous but essential players in the US industry. The company was founded in 1923 and has since established itself as one of the largest providers of technical solutions to the manufacturing, energy, transportation and construction sectors. Its strength lies in bridging two worlds - traditional industrial component distribution and modern engineering solutions that help clients increase efficiency, automate processes and reduce operating costs. What was historically a logistics company has become a technology partner with a focus on innovation, data and high value-added services.

At the core of the business is an extensive network of more than 600 branch offices and service centers in North America, ensuring the availability of thousands of products from leading manufacturers of bearings, gears, hydraulic systems, seals and other mechanical components. This distribution division, known as Service Center Segment, is still a key part of the turnover, but its importance is gradually shifting from simple logistics to the provision of complete service packages. Here, Applied benefits from a large customer base, technical know-how and the ability to provide preventive maintenance and optimization of entire facilities. As a result, it maintains a strong position in cyclical industries where clients place a premium on both reliability of delivery and fast service.

The second, increasingly important component is Engineered Solutions Segmentwhich represents the future of the company. This segment includes automation and robotic solutions, motion control systems, sensor integration, performance monitoring software and other technologies that enable the digitization of manufacturing processes. Here, customers pay not just for products, but primarily for engineering services - the design, installation, optimization and long-term management of systems. As a result, this part of the business has significantly higher margins and a more stable cash flow. It is Engineered Solutions' return to organic growth after seven quarters of stagnation that is one of the main drivers of Applied Industrial Technologies' current transformation.

The third pillar of the strategy is Acquisitive growth. The company has long sought out smaller technology companies that complement its capabilities and expand its product portfolio. The latest example is the acquisition of Hydradyne - the largest transaction in six years - which strengthened Applied's position in hydraulic systems, automation and service. The move not only expanded access to clients in new industries, but also accelerated margin growth through synergies between distribution and engineering solutions. The acquisitions are also a key tool for the Group's gradual technological modernisation towards more sophisticated and less cyclical revenue streams.

Applied Industrial Technologies today operates in an environment that requires a combination of technical expertise and financial discipline. The company remains firmly anchored in traditional industry, but is also becoming a technology partner that is helping clients transition to automation and digital management of manufacturing processes. This dual nature - a solid foundation in distribution and dynamic growth in automation - gives the company a unique profile among industry players. It is also reflected in the financial results: rising profitability, record cash flow and an increasingly efficient capital structure.

Key benefits

1. Strong exposure to automation and engineering solutions - The company is successfully transforming its model from traditional distribution towards high value-added, higher margin technologies.
2. Stable foundation in MRO services - maintenance and repair of industrial equipment provides recurring revenue even in periods of economic uncertainty.
3. Sound finances and efficient capital allocation - High free cash flow, low debt and growing dividends give the company room for acquisitions and return on capital.

Main disadvantages

1. Lower margins in the distribution business - The core Service Centres segment remains marginally weaker and limits the overall profitability of the group.
2. Dependence on industrial activity - Decline in investment and production in key sectors may dampen revenue growth in the short term.
3. Acquisition integration risks - Rapid expansion through acquisitions (e.g. Hydradyne) carries the risk of higher costs, delayed synergies and margin volatility.

Comparison with competitors

Applied Industrial Technologies operates in a highly competitive environment, competing with traditional industrial distributors and technology integrators. Major competitors include Motion Industries $GPC, W.W. Grainger $GWW, and Fastenal $FAST, while on the automation solutions side, the company is increasingly clashing with Rockwell Automation $ROK and Emerson Electric $EMR.

Compared to these players, Applied has a smaller market capitalization (around $9.6 billion) but higher growth potential due to its ongoing technology transformation and shift to engineered solutions. Its ratio P/S OF 2.1 ratio is lower than Rockwell or Grainger, reflecting an increasingly defensive profile, but leaving room for rerating if the company can sustain double-digit earnings growth over the long term.

In terms of Margins Applied is between pure distribution and highly automated companies. Gross margin 30,3 % and operating 10,9 % are lower than Rockwell Automation, which benefits from premium software solutions, but higher than Fastenal, which remains a predominantly logistics player. This medium profile represents an advantage: a combination of stable cash flow with the potential for further margin improvement as engineering contracts become a larger proportion of the portfolio.

Compared to its competitors, Applied also has above-average healthy balance sheet. Its debt-to-asset ratio is 0.18, while Rockwell or Emerson are between 0.3-0.4. This gives the company leeway for further acquisitions, which remain the main driver of growth. Analysts also appreciate the high return on capital (ROE OF 21.8% a ROIC OF 14.8%), which is above average in the industry and shows that the company is efficiently converting capital into profit - a key factor for sustainable shareholder value accretion.

Management

Applied Industrial Technologies is led by Neil A. Schrimsherwho has served as President and Chief Executive Officer since 2011. Under his leadership, the company has transformed from a traditional distributor of industrial components to a technology-driven engineering solutions provider.

Schrimsher has pursued a growth strategy through Targeted acquisitionsthat expanded the company's competencies in automation, hydraulics and robotics, culminating in this year's purchase of Hydradynethe largest transaction in six years. Its approach is built on long-term capital discipline and an emphasis on sustainable EBITDA growth, which has led to record results in fiscal 2025.

Financial management is responsible for David K. Wellswho has served as CFO since 2017. His conservative approach to debt and proactive cash flow work have contributed significantly to Applied achieving historically high returns and remaining liquid through expansion. Under the pair's leadership, the company has been able to grow its dividend by more than 20% annually while funding acquisitions without having to increase debt.

Management thus represents a combination of stability, capital prudence and technological visionthat is exceptionally well balanced in the industrial solutions sector.

Market potential and growth opportunities

Applied Industrial Technologies is at the heart of a fundamental structural transformation of global industry. Whereas the volume of physical component distribution used to be a key growth driver, today the ability to combine service, data and automation is critical. The global market for industrial maintenance, automation and MRO solutions is estimated to exceed 1.3 trillion dollars and is expected to grow at a rate of 5-7% annually. This growth is driven by several trends: aging industrial infrastructure, digitization of manufacturing plants, pressure on productivity, and acute labor shortages. Companies across sectors are looking for ways to reduce downtime, automate processes and optimize supply chains - exactly the areas where Applied is strengthening its position.

The biggest structural opportunity comes from Automation and integration of sensor systems. According to Markets & Markets, the industrial automation market, which was estimated to be worth approximately 220 billion dollarsis expected to grow to $370 billion. Through its acquisitions (notably Hydradyne and IRIS Factory Automation), Applied is expanding its presence in the hydraulics, robotics and IoT control segments, gradually moving from the role of distributor to that of system integrator. This shift brings higher margins, longer-term contractual relationships and resilience to cyclical fluctuations.

Another growth driver is digitalization of maintenance and predictive servicewhich is moving from a reactive model to a data-driven solution. Increasingly, customers are demanding systems that can detect wear and tear in real time and optimize part replacements to minimize downtime. Applied is investing in software platforms that link this data to component deliveries, creating a recurring revenue stream with higher margins.

Growth potential is also supported by Regional diversification. Over 85% of revenues come from North America, but the industrial automation market in Latin America and Southeast Asia is growing at double-digit rates. These regions are investing in infrastructure upgrades where Applied's know-how and acquisition strategy gives it the opportunity to gain share before the largest global players enter.

A significant long-term opportunity is also Energy transformation and decarbonisation of manufacturing. New industrial projects in battery and chip manufacturing and green energy require advanced solutions for precision control, hydraulics and automated material flows. Applied is becoming a natural supplier of these technologies because it combines traditional industrial maintenance expertise with advanced process control systems. As the U.S. Industrial Investment Plan Inflation Reduction Act alone brings investment through 500 billion dollars, this is a segment that can provide the company with steady growth for decades to come.

Financial performance and key indicators

Fiscal 2025 confirmed that Applied Industrial can grow even in an environment of slowing demand. Revenues increased 1.9% to $4.56 billion, with the company reaching new all-time highs in EBITDA and earnings per share. Underlying operating profit rose to $498 million and net income rose to $393 million. Meanwhile, management highlighted that it managed to beat the top end of initial guidance by almost 2.5%, thanks to a combination of organic growth and acquisition expansion.

In terms of profitability, the company delivered an extremely balanced performance. Gross margin, operating margin and net margin were 30.3%, 10.9% and 8.6% respectively, an improvement on previous years and confirming effective cost management. Return on equity (ROE) of 21.8% and return on invested capital (ROIC) of 14.8% are among the best in the industry, as is return on assets (ROA) of 12.4%. This level of efficiency demonstrates excellent use of capital and operating leverage.

The company's liquidity is strong, with a current ratio of 3.32 and quick ratio of 2.36 providing significant financial flexibility. Leverage is low, with a debt-to-asset ratio of 0.18 and long-term debt-to-equity of just 0.24. An Altman Z-Score of 7.98 clearly indicates excellent financial health and minimal likelihood of financial distress.

In terms of valuation, AIT trades at a market capitalization of $9.6 billion and an enterprise value of $9.8 billion. The P/E of 24.1 is comparable to the sector average but can be considered fair given the higher return on equity and record cash flow. The Price to Sales of 2.09 and Price to Book of 5.14 reflect the company's premium valuation, but are underpinned by quality results and a strong growth outlook. The Price to Cash Flow (P/CF) ratio of 20.5 shows that the market values stable cash flow generation, while the interest cover of 29.8 confirms very low financial risk.

Free cash flow growth of 34% to a record $465 million was also a significant milestone, enabling a 24% dividend increase and the continuation of the share buyback programme. The company remains attractive to investors seeking a combination of growth and yield.

Key metrics 👇

• Return on Equity (ROE): 21.78%
  - Significantly above the sector average (12.77%), confirming management's ability to effectively convert shareholder capital into profit.
• ROIC: 14.76%
  - Double the sector average; denotes high capital efficiency and a healthy ratio between investment and project returns.
• Operating Margin: 10.92%
  - Stable profitability of operations even in an environment of cost pressure. Margins keep pace with industry leaders, plus room for expansion thanks to the growth of the Engineered Solutions segment.
• Net Margin: 8.61%
  - Solid net profitability given the cyclical nature of the industry. This brings the company closer to the margins of technology-focused competitors.
• Gross Margin: 30.31%
  - Exceeded 30% for the first time in the firm's history, reflecting a structural shift from distribution to higher value-added technology solutions.
• Debt to Assets: 0.18
  - Low debt ensures a strong balance sheet and high financial flexibility to pursue the acquisition strategy without significant risk.
• Interest Coverage: 29.79×
  - Extremely secure level of interest coverage - the company generates almost 30× more operating profit than it needs to pay interest, completely eliminating the risk of insolvency.
• Current Ratio: 3.32
  - Liquidity is well above the industry average (1.67), confirming a strong ability to fund operations and acquisition activities in the short term.

Qualitative factors and strategies

Applied Industrial Technologies has long been more than just a distributor of industrial components. Its strategy is shifting to providing comprehensive engineering solutions that integrate hardware, software and data analytics. The acquisition of Hydradyne - the largest in six years - strengthened the company's position in hydraulics, automation and motion control. The acquisition brings cost synergies, expands the product portfolio and increases market reach.

The Engineered Solutions segment, which has seen a return to organic growth after seven quarters of stagnation, is also playing a key role. Technology, robotics and automation platforms in this segment achieved double-digit organic growth, becoming the main driver of results. Management refers to this area as "the engine of the new era of AIT" as it delivers higher margins and lower cyclicality than traditional service operations.

At the same time, the company continues to integrate acquisitions and seek new M&A opportunities. The approach to acquisitions is conservative - AIT is targeting companies with a high return on investment that immediately contribute to EPS. As a result, strategic goals are to continue to expand automation, process control and digital manufacturing monitoring solutions.

Analysts' views

Analysts rate Applied Industrial Technologies as one of the best managed industrial companies in the United States. In particular, they praise its disciplined capital management, exceptional ability to generate cash flow, and steady dividend growth. A moderately positive consensus prevails, with most analysts recommending the stock as a "buy" with price targets ranging from $195-215.

According to Oppenheimer, AIT is "a company that combines the efficiency of industrial distribution with the dynamism of technology growth." Bank of America then highlights improving margins and the effective integration of acquisitions that are making an immediate contribution to EBITDA.

Risks and critical insights

Although Applied Industrial Technologies has emerged as a stable and disciplined company in recent years, its growth trajectory is not without risks. The biggest threat remains The cyclical nature of the industrial sector - The company's key customers come from the engineering, energy, mining and automotive sectors, industries that are sensitive to economic fluctuations. Any slowdown in investment activity or a drop in demand for maintenance and spare parts can be reflected immediately in lower order volumes. While Applied is diversifying its portfolio towards engineered solutions, it remains strongly tied to the industrial cycle.

Another weakness may be structural pressure on marginsthat accompanies the current expansion in automation. Entering into more technology-intensive projects implies higher demands on research, workforce skills and the development of in-house solutions. While this shift increases added value, it also prolongs the return on investment. If the pace of revenue growth slows, the company could face downward pressure on operational efficiency and stretched working capital. This could ultimately reduce cash flow, which is one of its greatest strengths today.

It is also worth noting competitive dynamics. The market for industrial supplies and solutions is consolidating rapidly, with large global players entering the game, linking physical components with digital production management systems. Companies such as Rockwell Automation, Siemens or ABB have significantly increased resources for development and marketing. If Applied cannot keep up the technological pace, it could find itself in the position of a lower-tier supplier with lower margins. There is also a risk that smaller, specialist competitors may offer cheaper and more agile solutions in certain segments - particularly robotics and sensors.

Another important factor is acquisition risks. Applied's strategy is largely based on acquisitions that strengthen its presence in key segments. However, integrating new businesses carries operational and cultural risks - differences in internal systems, inventory management, customer base and staffing policies can weigh on margins and reduce efficiency in the short term. If acquisitions, such as the recent purchase of Hydradyne, fail to deliver the expected synergies, this could undermine returns on capital and put pressure on investors to change strategy.

Investment scenarios

Optimistic scenario:

AIT maintains revenue growth rate at 6-7% per year, margins move to 12.5% and EPS exceeds $10.75. The acquisition of Hydradyne delivers full synergies and the Engineered Solutions segment achieves double-digit growth. Shares could head above $220 in this scenario.

Base Case Scenario:

Revenues grow 4-5%, EBITDA margins remain around 12%, and EPS stays in the $10-10.5 range. The company continues acquisition activity and gradually raises dividends. Valuation remains fair and the stock is trading in the range of $190-205.

Pessimistic scenario:

Slowing industrial production and higher acquisition integration costs will reduce EPS growth below $9.5. Organic growth will stall and margins will fall below 11%. Shares could fall to $170 with the market waiting for confirmation of a new growth cycle.

Long-term scenario:

AIT will remain one of the main beneficiaries of the structural transformation of the industry towards automation. Steady revenue growth, a strong balance sheet and disciplined capital allocation give the company the potential to appreciate by more than 40% over five years, even without expansionary acquisitions.

Conclusion and investment considerations

Applied Industrial Technologies shows that even in a highly cyclical industry, sustained records can be achieved. The combination of disciplined management, a strong balance sheet and growing exposure to the automation market makes AIT an attractive long-term position for investors seeking a balance between growth and stability. The year 2025 confirmed that the "less but better" strategy is working - the company is not growing aggressively, but increasing efficiency and quality of returns.

From an investment perspective, AIT ranks as a defensive growth stock with an excellent return on capital and a stable dividend. Its ability to combine engineering expertise with technological advances in the industry puts it in a favorable position on the cusp of a new era of automation. If the company executes on its plan of margin expansion and continued acquisition integration, it will remain one of the few industry names that can combine tradition, innovation and profitability into one stable investment story.