You can read the PDF version of this article here.
I also published an in-depth report on this company not long ago which you can find here.
Imagine a company that has compounded revenue and operating profit at around 40% a year for five years, that just reported almost 40% revenue growth and +70% operating profit growth over the first 9 months of the year, and that has a founder who still owns the majority of the shares. Now imagine that this company has so much cash piling up on its balance sheet (roughly 20% of its market cap) that it has just announced its first ever share buyback, raised its payout ratio target from 30% to 40%, and increased its dividend for the second time this year.
Even though this sounds like the kind of business that would be crowded, the reality is very different. Company is a Japanese small cap that most funds can’t (or won’t) touch, and the reality is that it gave a reason for the market to “worry” this quarter (or did it?). Management gave an explanation for the growth slow-down (fyi, it was still above 25% organic), but I’ll explain below whether I believe their explanation or not.
This matters a lot, because the company is guiding for higher growth in Q4 and through 2030 and (at least on my estimates) the market isn’t pricing anything close to that. In this article I’ll go through the quarter, why I believe the deceleration is more nuanced than the headline suggests, and what the guidance for Q4 implies.
Without further ado, let’s get on with it.