Core view
Performance growth is not a necessary condition for “stock price evergreen”
The revenue and profit growth of apple and Microsoft, the top two global technology companies in terms of market value, is out of sync with the market value growth. From 2012 to 2022, Apple’s market value increased seven times, its revenue increased three times and its net profit increased four times. Microsoft’s market value increased by 9 times, its revenue increased by 2 times and its net profit increased by 3 times.
Gross profit margin and free cash flow financial indicators are not necessary conditions for “stock price evergreen”
Since 2012, the share price of Luxshare Precision Industry Co.Ltd(002475) has risen 35 times, while the gross profit margin of Luxshare Precision Industry Co.Ltd(002475) has fluctuated from 23.29% in 2014 to 16.11% in Q3 in 2021. According to the cash flow dimension of value investment, the free cash flow performance of Luxshare Precision Industry Co.Ltd(002475) is also unsatisfactory. In the past decade, only 2019 has had positive free cash flow.
Doubled share buying growth. Double the share price increase and grasp the inflection point of performance growth. For example, in the semiconductor market since 2019, the performance growth has been brought by domestic substitution and chip price rise.
10x share buying business. It is difficult for technology companies to maintain high performance growth for a long time. The income of American semiconductor companies has maintained a continuous growth of 20%, which is very small. However, such operating income does not affect their share price rise. We believe that it is wrong to only look for 10 times the growth rate, and we need to look for it from the perspective of deeper good business. 10x shares buy business, not growth.
Buy underlying technology 100 times. Only looking at the growth and business model can not find the opportunity of 100 shares. Only the emergence or re application of new technologies can support the logic of 100 shares. Microsoft’s 100 + fold increase is driven by Microsoft’s operating system technology and cloud computing technology. TSMC’s 100 fold increase is the contribution of semiconductor manufacturing technology. Tesla, the global leader in electric vehicles, has increased more than 100 times in 9 years, which is the re innovation and re application of vehicle driving technology and belongs to the innovation of underlying technology. Tesla is a platform level innovation. Its underlying technology may not be the latest, but the business logic is often brand-new. If the old logic is applied, it is easy to make mistakes. We pointed out in the report “the cycle of technology”: technology is a combination of evolution and spiral innovation, and investment should not pursue the absolute innovation of technology. Technology has been continuously combined with other technology points according to the current demand, and the direction of investment is consistent with the change direction of demand.
The company attribute positioning behind the three-tier logic. The double increase is a product-based company, which operates a single product with limited scope of influence, such as low-end components, module assembly, etc. The increase of 10 times is the organizational company, which should rely on excellent management to expand in a vertical field. For example, Luxshare Precision Industry Co.Ltd(002475) , Hangzhou Hikvision Digital Technology Co.Ltd(002415) , Sg Micro Corp(300661) . The company with a 100 fold increase is a platform company with underlying technology to support the vertical expansion of its industrial chain and form a platform effect of “taking me as the center”. For example, Tesla, TSMC and Microsoft.
Investment advice
Most of the investment opportunities are mediocre, with one times of stocks relying on diligence, 10 times of stocks relying on research strength and 100 times of stocks relying on talent. From the perspective of technology cycle, there is a double opportunity to look for in the field of consumer electronics in the period of technology maturity. The 10 times chance is in the technology growth period and the 100 times chance is in the technology introduction period.
Risk tips
Technology changes rapidly, and the target company cannot seize the opportunity of each technological change. The imperfect supporting facilities have hindered the promotion of the application of new technologies.
