Thesis Tracker - 06/06/2025

29% annualised return per stock, each thesis remains in-tact and no losers.. yet

Hi Cosmic Community,

After releasing 7 buy and 2 hold investment thesis’ to date, I will use this post to track progress, reassess business quality, the thesis and update my view. Hopefully this keeps me honest and can flag any potential red flags.

Investment performance to date has been strong with an average return per buy thesis of +24%, which is annualised at 29%. Although I do not share a public portfolio yet, the performance is reflected in my personal trading account below, with most of the alpha achieved over the last year. This is well above my internal targets and unsustainable longer-term.

Source: IBKR

Rather the expectation is for these companies to deliver returns closer to earnings growth - around low-teens levels. The investment philosophy is to buy dominant businesses with quality aspects defined as:

1. Market leaders in attractive industries with sustainable competitive advantages

2. Those with long runways to reinvest capital at high returns

3. Scalable, capital light models and strong balance sheets

4. Aligned management who have an owner’s mindset and long-term focus

They are durable compounders that should grow consistently above market and be resilient during downturns. This is a true long-term strategy with a view to holding these businesses for decades rather than months.

Performance to date has seen all seven stocks in the green with Wise, Schwab, Mastercard and Richemont the main contributors. Importantly, there have been no blow ups and no detractors. I expect there will be losers over time but given strong equity markets each stock has held up well.

To track progress, I use a quality scoring system based on six categories, each rated from 1 to 5, resulting in a total score out of 30. While scoring is inherently subjective as it relies on personal judgment, I find it useful to assess after each results update. Both the absolute score and direction of change can provide signals and hopefully flag any thesis drift or red flags over time. The scoring methodology is below:

Each stock is ranked below. You will see that each buy name is ranked >25. Maybe its bias… but I believe it comes from using a strict criteria which identifies those adhering to the quality scoring methodology and weeding out the others.

Hold ratings of Atlas Copco and Synopsys are included, and are scored towards the bottom of the range - confirming why they are on the bench (watchlist).

The below details the initial thesis, progress and outlook across each stock.

Mastercard (Buy initiated on 18/06/24, +30%) - Quality Score 25

Overview: Price $590 | Market cap: $536b | FY25 Net Revenue: $32b | EPS: $16

Thesis - preferred exposure to digital payments due to its market share gains, diversification and margin upside. Has a more resilient business model to peers.

Tracker - consistent outperformer with revenue continuing to surpass expectations. Earnings are expected to be impacted by a whopping 4% increase in its tax rate. The company just keeps powering on.

View - Hold, a true compounding machine with a clear runway for mid double-digit earnings growth. Trades on fwd P/E of 34-35x now, above its historical 10-year multiple of 30x. I get an 11% IRR from here. Valuation is a bit rich, would prefer to wait for a better entry where something invariably comes up to worry the market.

Wise (Buy initiated on 18/06/24, +67%) - Quality Score 26

Overview: Price £11.41 | Market cap: £12b | FY26 Underlying Income: £1.6b | EPS: 39p

Thesis - leading digital player with counter-positioning and long runway to gain share in cross-border payments. Margins were managed down to reinvest in growth rather than a response to competition and lack of runway.

Tracker - thesis largely playing out, continued momentum across operating metrics such as active customers and volumes. Landmark banking partnerships further validates it credentials. Margins have remained elevated.

View - Hold, sentiment has shifted positive for the stock. I think it remains the long-term winner and has a long runway to grow earnings at high double digits. I get a low-teens IRR from here. Trades on fwd underlying P/E of 44x and statutory P/E of 25x. I think there will be better entry points given the growthier nature of the business, and uncertain pricing and reinvestment dynamics.

Amazon (Buy initiated on 01/07/24, +11%) Quality Score 26

Overview: Price $214 | Market cap: $2.3t | Revenue: $706b | FY25 EPS: $6.27

Thesis - unique opportunity to invest in a dominant leader with both operational and financial momentum. Margins to inflect due to mix-shift towards higher margin segments and cost optimisations.

Tracker - revenue growth has been solid and margins have surprised to the upside given significant cost focus and scale. Competitive position remains strong. Key risks have gone up around tariffs and generative AI.

View - Buy, EPS can compound at +20% for next 4 years given margin inflection. Trades on fwd P/E of 32x. Similar to other players, growth capex is elevated and impacts FCF. I get a 14% IRR from here. Anything can happen in the short-term given China risk, but I think the risk-reward remains attractive.

Charles Schwab (Buy initiated on 27/08/24, +25%) Quality Score 25

Overview: Price $88.25 | Market cap: $162b | Revenue: $23b | FY25 EPS: $4.43

Thesis - cash sorting likely ending, with Schwab able to pay down expensive debt and deliver net interest margins of 3%. This lifts net interest income and uncovers latent earnings potential, with EPS growth >20%.

Tracker - this is playing out, cash levels up, NIMs up, capital ratios up and balance sheet stronger now. New accounts and net new assets, an indicator of market share, is growing close to target levels again - after the disruptive TD Ameritrade acquisition. Strong equity markets have been a tailwind.

View - Buy, Schwab is heading to a better place. Its got momentum. While a competitive marketplace, I think the company has key advantages around service, brand and scale that enables it to win. I am still buyer here at fwd P/E of 19x growing EPS >20% over next 3 years. I think the company has leeway to exceed earnings expectations.

Diploma (Buy initiated on 25/10/24, +9%) Quality Score 25

Overview: Price £46.38 | Market cap: £6.2b | Revenue: £1.5b | FY25 EPS: £1.74

Thesis - becoming a better business with stronger organic growth, more resilience and sustainable margins. Near-term M&A expected to provide a tailwind and drives EPS growth of 15% over 3 years.

Tracker - organic growth and margins have beaten expectations. The Peerless acquisition is growing strongly. M&A has been weaker and divestments in non-core assets have reduced my earnings expectations. Have earnings growing at 13-14% now.

View - Buy, preferred industrials exposure given localised supply chains, diversified revenue mix and strong organic growth. Capital management has been good and I am confident M&A can contribute >5% to revenue over the medium-term. Trades on fwd P/E of 25x and 4% FCF yield. It can deliver a low-teens IRR from here.

Richemont (Buy initiated on 13/12/24, +14%) Quality Score 27

Overview: CHF151.55 | Market cap: CHF82.8b | FY26 Revenue: €23b | EPS: €6.59

Thesis - becoming a better business with greater focus, diversification and higher exposure to Jewellery. Jewellery can sustainably grow due to branded shift, high quality brands and low aspirational exposure.

Tracker - Jewellery growth has outperformed peers - even Hermes. Watches was below expectation but remains <3% of group earnings. The luxury industry is weak especially in China. Richemont is exposed to inflationary risks around gold, swiss franc and tariffs.

View - Buy, inherent pricing power, leading brands and attractive industry dynamics drives durable growth. The company can grow earnings at low double digits. Trades on fwd P/E of 21x ex cash and 4% FCF yield.

Auto Trader (Buy initiated on 12/02/25, +2%) Quality Score 26

Overview: £7.90 | Market cap: £7b | FY26 Revenue: £637m | EPS: 35p

Thesis - dominant online classified with strong pricing power and runway to continue growing average spend per dealer.

Tracker - Stock and product uptake from dealers was below expectations due to faster time to sell and weak dealer profits. Outlook also reflected this softness. Competitive position remains strong.

View - Buy, weaker outlook is likely cyclical rather than structural. The moat is expanding with more dealers and consumers using its platform. Competition also remains weak with no clear number two player. It can deliver 11-12% EPS growth and 1.4% dividend yield to generate an IRR around 13%. Trades on fwd P/E of 22x.

Atlas Copco (Hold initiated on 23/07, -16%) Quality Score 22

Overview: SEK158 | Market cap: SEK770b | FY25 Revenue: SEK180b | EPS: SEK5.97

Thesis - high-quality business with strong returns (ROCE of 30%) - although they should face margin pressure from mix-shift to dilutive M&A while multiple remains elevated.

Tracker - thesis has largely played out, consensus revenue and earnings estimates have fallen. The backlog of orders from 2021 has largely been fulfilled, with revenue reflective of true end demand going forward.

Outlook - Hold, prefer to stay on the sidelines given exposure to industrial capex budgets and potential weakness given tariffs. Trades on fwd P/E of 27x and is forecast to grow earnings at high-single digits. Will wait for a more attractive entry point.

Synopsys (Hold initiated on 24/06, -20%) Quality Score 20

Overview: $486 | Market cap: $76b | FY25 Revenue: $6.8b | EPS: $14.95

Thesis - preferred semiconductor EDA exposure given leadership qualities, increased focus and strategic Ansys acquisition. Near-term risks around Ansys acquisition and high valuation keeps us on the sidelines.

Tracker - numbers have tracked largely in-line. Risk around Ansys (size and regulatory approval) and China have increased. FCF conversion is also poor. I have already adjusted my earnings estimates and terminal FCF yield to provide greater margin of safety.

View - Hold, trades on fwd P/E including share-based comp of 43x and 2% FCF yield. I get a 5% IRR at these levels. The numbers would look a lot better post Ansys transaction.

If you want more information, please view stock update posts where I have detailed my thoughts more broadly.

Disclaimer: All posts on “cosmiccapital” are for informational purposes only. This is NOT a recommendation to buy or sell securities discussed. Please do your own work before investing your money.