But should they?

That question got me curious. How accurate are analyst estimates in the first place? And does it differ between European and American companies?

To answer these questions, I decided to do a study on it myself. And like my previous study on European 100 baggers, it turned out to be more work than expected.

The study is built up as follows: first, the steps of the process are explained, followed by the discussion of the results. After that, there is a discussion about the shortcomings of the study. Or jump directly to the results.

Why this matters for retail investors

Many retail investors follow analyst consensus estimates to time their buys and sells around earnings season. The logic seems straightforward: if a company beats estimates, buy. If it misses, sell. Or better yet, buy before the beat.

This study wants to address how useful that guidance actually is. Because if analysts are frequently wide of the mark, then following their estimates to make investment decisions is terrible advice.

The core questions this study tries to answer are:

• What percentage of companies fall within a +/- 5% range of the analyst consensus?

• Does the accuracy differ between European and American companies?

• How far off are analysts when they are wrong?

• And are analysts systematically optimistic or pessimistic in each market?

The answers may surprise you. Let’s dive in.

Process

Original studies on analyst accuracy do exist. However, they are mainly focused on the US stock market or worldwide.

Since I am interested in the European stock market, I took it upon myself to collect, clean and analyze the data.

The typically used dataset in research papers is called I/B/E/S Estimates owned by the London Stock Exchange Group. It contains all the estimates from analysts all over the world.

Acquiring the dataset is slightly outside my budget. It costs a staggering $10,000 to get access. Well, I had to resort to finding the next best thing: financialmodelingprep.com (FMP). For $139/month, I got access to much of the last 2 decades of analyst estimates.

Who are these analysts you’re talking about?

Major institutions employ business analysts who are assigned to follow a specific industry. They read trade magazines, go to industry conferences and talk with management of companies in the industry.

Based on that information, the analyst writes reports and comes up with estimates on earnings and revenue for the upcoming quarter or year.

Mostly banks and funds share estimates publicly. Among them are Bank of America, Goldman Sachs, Morgan Stanley, JPMorgan, Barclays, UBS, Wells Fargo, and others.

The Scope

The scope of the study was defined as follows:

• S&P 500 and STOXX 600 constitutes. These companies are the largest and most likely to be covered by major institutions.

• Minimum market cap of 1 billion in local currency

• All data recorded in local currency

• Financial services and real estate sectors are excluded. Their earnings structure differs too much from other industries

• Semi-annual reporting included, which is common among European companies

The database

After pulling all the data, the raw dataset contained 62,089 analyst estimates from 1103 companies. 600 European companies and 503 American companies.

After applying the scope of the study, the last step towards a usable dataset is cleaning. Skimming through the data uncovered concerning outliers.

When the consensus (average earnings estimate of all analysts) is close to zero, a big beat or miss creates a huge surprise (percentage difference between estimate and actual earnings).

Take the aviation company Boeing, for example. In Q4 of 2025, analyst consensus was $-0.43 EPS for the quarter. The reported earnings per share were $10.59. A whopping 2500% difference.

To adjust for such unusual cases, I did what other researchers also did, winsorizing. This method caps extremes. I choose 500%. It still shows in the dataset that analysts were off, but the reduction prevents major skewing of the results.

Other extreme cases had estimates close to zero, like 1 or 2 cents. When actual earnings are closer to 10 or 20 cents or more, analysts are off by a factor of 10.

To avoid this type of extreme results, I filtered out all estimates between -0.05 and 0.05 (in local currencies). Again followed a standard among researchers.

Obviously, such extremes have to do with multiple factors I address later in the shortcomings section.

After cleaning the raw data and applying the scope, 299 companies and 13496 estimate records got dropped. The table below displays the leftover distribution.

Both indexes provide an equal number of companies. The difference is the number of estimate reports recorded. The United States represents on average 3x more reports due to 2 factors:

1. American companies are obliged to report quarterly, while most European companies prefer semi-annual reporting.

2. Data vendors have more accurate data on US companies. There is less interest in European companies, thus less effort to provide complete datasets.

The analyst estimate report distribution per quarter proves point #1.

Results

Before we dive into the results, it is important to note that estimates are Non-GAAP (General Accepted Accounting Standards) while reported earnings are GAAP. Analysts use the Non-GAAP, because it reflects a clearer view of the core operations.

It is comparing apples and oranges. Yet, the surprise between actual and estimated earnings is widely looked at across the financial industry.

Analyst consensus with in 5% of actual earnings

Analysts spend their days following a particular industry and the public companies within it. They talk with management of these companies, read trade journals and go to industry conferences.

With all that information, do they predict accurately the earnings for the next quarter?

As it turns out, just 16.4% of the estimates for American companies fell within a margin of 5%. 5 out of 6 estimate reports were off by more than 5%.

Analysts covering European companies were close enough in only 14.6% of the cases.

Over 80% falls outside the window of 5%. This raises the next question:

How far off are the analysts when they miss?

Typically, analysts covering American companies are off by an absolute median 22.6%. For European companies it is over 27%.

The median is used here due to the earlier mention of winsorizing. The extreme outliers would skew the results when using the average. It would be over 56% and 70% respectively. While the median is the middle value when mapping all the results and putting them in a row.

These results suggest that analysts are off frequently and by a fair margin. This raises a new question:

Do analysts tend to overestimate or underestimate earnings?

Surprisingly, analysts covering the United States are neutral. 49.3% of the consensus estimates are optimistic, while 47.7% is underestimating the earnings. 3% of the consensus is equal to the reported earnings.

The picture looks different for European companies. Analysts are optimistic 60.4% of the time and pessimistic only 38.4% of the time. 2.2% of the time, estimates earnings are equal to the actual earnings.

Share

Does the number of analysts covering a stock affect accuracy?

A reasonable assumption is that more analyst’s coverage leads to better estimates. It averages out the outliers.

For American companies, accuracy stays relatively stable across analyst buckets. Analysts are off between 20% and 25%.

Coverage accuracy for European companies tells a different story. A trend emerges that the more analysts cover a company, the further the consensus estimate of the actual reported EPS is.

The dataset doesn’t cover which analyst made which estimate. It would have been interesting to take a closer look at why European companies have a higher error rate.

Are European companies listed as ADRs in the US covered more accurately?

This question stems from the previous question. Since American companies have better estimate accuracies, would this trend be visible with European companies listed through ADRs on the New York Stock Exchange or the NASDAQ?

ADRs are American Depositary Receipts. It allows US investors to purchase foreign companies in their own currency.

In the chart above, companies listed through ADRs on the NYSE or NASDAQ are on average better covered by analysts compared to other European companies.

However, the estimates are worse. The analyst consensus of companies listed through ADRs are further off from the actual reported earnings.

A similar trend exists with estimates within 5% of the reported earnings. Again, the other European companies’ estimates are more often outside the 5% of the actual earnings.

It is kinda surprising, as the biggest European companies are listed in the US. They have more coverage yet perform worse.

Are European companies more complex? Or are they less transparent towards analysts compared to their American counterparts? Unfortunately, this dataset won’t answer such questions. Maybe a new study? :)

Subscribe now

Shortcomings

The most significant limitation of this study is survivorship bias. The dataset is a snapshot of current listed companies in the indexes S&P 500 and STOXX 600. Companies that were delisted, went bankrupt or were acquired are absent. Their estimates might be totally different.

The second limitation is the data vendor FMP. They don’t own the most used data on this topic. They collect it independently through released reports. While most samples I checked with other online sources were the same, there were also a few minor differences.

It might happen that reported earnings or estimates get adjusted later, typing errors or something else. For the best results, the I/B/E/S Estimates database owned by the London Stock Exchange Group is the best option.

Third, capping extreme outliers and excluding estimates close to zero reduces huge differences in outcome. While most samples looked like data errors, some might have been real world estimates.

Removing and changing data is always a trade-off between readability of outcomes and the potential risk of removal of real data, however unlikely it is.

Why are analyst estimates so often off?

Analysts are not independent. They work for banks and brokerages that have business relationships with the companies they cover. Issuing a negative estimate might damage the relationship. Even when it should be independent.

Analysts, also, can potentially move the market (short-term) for the bank/fund they work for to unload or load up on shares.

There is also the Non-GAAP vs GAAP problem discussed earlier. Analysts model adjusted earnings which supposedly reflect a more truthful representation of what is going on in the company. However, the company has to report earnings following GAAP figures.

Investment write-offs, lawsuit settlements, etc. can move outcomes significantly.

Lastly, there might be a psychological effect at work, price anchoring. When a well-known financial institution publishes an estimate, others cluster around it. The consensus becomes self-reinforcing rather than independently derived.

Conclusion

This study set out to answer one question: should retail investors follow analyst estimates?

Across 62,089 records spanning the S&P 500 and STOXX 600, analysts land within 5% of actual earnings fewer than 1 in 6 times. The median miss exceeds 22% for American companies and 27% for European ones. European coverage carries an additional optimism bias, with analysts overestimating earnings 60% of the time.

The answer to the opening question is a resounding no.

Disclaimer
The information provided in this newsletter is for informational purposes only and does not constitute financial, investment, or professional advice. All opinions expressed herein are solely those of the author and are based on publicly available information as of the date of publication. Investments in stocks and other securities involve significant risk, including the potential loss of principal. Past performance is not indicative of future results. Readers are encouraged to do their own research and consult with a qualified financial advisor before making any investment decisions. The author and publisher of this newsletter assume no responsibility for any errors, omissions, or outcomes related to the use of this information.

By reading this newsletter, you acknowledge that the author is not liable for any decisions made based on the content provided.

The company is the right investment for a coffee-can portfolio. Here is why:

The core business delivers spare parts to maintenance & repair technicians overnight, straight into their vans by 7am. The company built the network from scratch and remains the only operator of its kind in Italy. On top of that, it provides value-added services that save technicians even more time.

The big growth story comes from another business unit. It operates in the HVAC service industry. The market is deeply fragmented, with no regional or national player in sight. The company is a serial acquirer and has already taken 13 businesses under its wing since the start in 2023. Revenue from this unit alone is on track to surpass the original business in 2026.

The founders run the company, but it isn’t founder dependent, which is unique for micro-cap companies. Management is transparent and admits mistakes openly in the shareholder letters. Their capital allocation is on par.

This kind of discipline from the founders and management is rare in a company this size.

Subscribe now

Key Metrics:

• Revenue 24% CAGR

• Near 0 debt

• 54% Insider ownership

• Serial Acquirer

• First-mover in niche markets

Enough said, let’s dive in!

Read more

I hit the 250 subscriber mark, which is a milestone for me add Paid Subscription.

Read till the end, to claim your 50% discount!

Mission

The EuropeanValueInsights publication focuses on long-term investments becoming multibaggers on the European stock market.

The publication exists for the investor who looks for such investments but doesn’t have the time, knowledge or confidence to find European stocks themselves.

Why support EuropeanValueInsights?

I look forward to analyzing companies and publishing write-ups full-time (don’t we all). Company analysis is currently done behind the desk only. I have the ambition to do more field work, visit plants, locations and management, just like Peter Lynch and Philip Fisher did back in the day.

You and I both benefit from this approach because it disqualifies more businesses. Collectively, we don’t have to trust in financial statements alone. Our business knowledge increases and we learn more about worthy competitors through management.

Further, I want to improve my writing speed and style to increase the content publication frequency.

Subscription model

Currently, there are 3 plans: free, paid and VIP. As said earlier, I would like to put out more content, and take on the journey of investing in Europe. When I do this work full-time, I offer more each plan. But for now, I have to be careful not to drown myself.

I am grateful to every one of you and glad to know I can bring value to people.

Free

Free subscribers will receive occasional posts. These include self-performed market studies and short company theses.

Paid Members

Paid Members receive:

• ~2 deep-dives per month on stocks I believe are great investments and are likely to increase multiple times over.

• Access to private chat

• Access to Portfolio updates as it happens

• Access to the interactive Watchlist

Monthly: €33/month
Annual: €295

Subscribe now

VIP Member

VIP members have access to all the paid features and an 1 hour video call to discuss your portfolio or company of your choosing.

Yearly: €590

Discount

As a thank you to all of you, I added a 50% discount on monthly and annual subscriptions till the 5th of March.

Claim Discount

Once again, thank you all for the support and cool interactions I had in the past months with you all.

• 50% of Balance Sheet is Cash

• Revenue 20% CAGR

• Competitor withdraws from market

• +22% Free Cash Flow

• Asset-light

• 0 Debt

The following company is a SaaS provider with a 20% revenue CAGR in the last 5 years. There is a lot of room to grow as they expand to Asia and other industries. Their software solution is 1 of 2 solutions and the competitor withdraws from the niche market.

The company’s moat is sticky due to switching costs. When fully integrated, it is hard to switch to other solutions. Their industry-specific adjusted software seamlessly integrates into the customer’s workflow. For competitor solutions, customers have to adjust the workflow to the software.

The industry this company operates in is expected to grow up to 13% annually till 2029. The company itself is expected to grow faster!

Enough said, let’s dive in!

The Business

Today’s business is Planisware ($PLNW). A French SaaS provider for multi-specialist project management solutions. The company spun off from Thales (defense industry) in 1996 and IPO’ed in April 2024. The current market cap is €1.4 billion, which gives enough runway to grow multiple times over.

Project management software solutions exist in 6 pillars. Planisware is active in 4 of them:

• Product Development & Innovation

• Project Controls & Engineering

• Project Business Automation

• IT Governance & Digital Transformation

In the early days, Planisware distributed the software on disks. In 2019, they made the major decision to pivot (with success) to cloud-based systems to generate recurring revenue.

The company manages and owns the servers themselves, but rents the datacenter space. Planisware owns the entire technical stack to ensure a high level of privacy and security. While the company mainly sells subscriptions, it offers licenses (non-recurring) to industries that require the software to run in-house.

Other forms of recurring revenue come from cross-selling and up-selling. Think about updates and technical support.

The recurring revenue grew from 69% in 2020 to 89% in 2024.

Customers

Planisware offers 2 software solutions: Enterprise and Orchestra. The former addresses sophisticated project processes for companies with over 10.000 employees. While the latter is geared towards fast deployments for medium-sized companies with at least 500 employees.

Planisware’s software has been adopted in a wide range of industries such as life sciences, automotive, manufacturing, utilities, technology, telecommunications and aerospace and defense.

The company listens to the needs of the industries and makes adjustments in the software accordingly. It allows various industries to seamlessly integrate Planisware’s software into their operational workflow. All the while, many competitors offer 1 solution and the industries have to fit their workflow to the solution.

Financials

Since the company IPO’ed recently, long-term trends are not visible in the financial data. In this analysis, we can’t look at expanding margins or other trends. However, there are 4 years worth of financial data and the company appears healthy.

Balance sheet

The balance sheet looks great. Cash & cash equivalents is half the total balance sheet. It is a huge amount of cash they are hoarding.

Further, the company doesn’t hold long-term debt. They don’t hold inventory. Retained earnings rise yearly. It is exactly what you expect from a fast-growing asset-light company.

There is one interesting item on the balance sheet, the contract liabilities, which is deferred revenue. Planisware sells multi-year contracts and in some cases receive the full amount upfront.

The company received the money, but hasn’t done the required work in exchange. Thus, the money is considered a liability. The contract liability is for work due within a year.

Even though it is considered a liability, it increases the working capital. Receiving the revenue upfront functions basically as an interest-free loan.

The growing contract liability is a derivative for orders/contracts. If the number increases yearly, then they have acquired more customers. Or more customers prefer to pay upfront, which benefits Planisware’s cash flow.

Cash flow

The operating cash flow increases mostly due to the net income and working capital increase. The capital expenditures have increased slowly in the last 4 years. In the past years, the company expanded its datacenter and opened office locations.

Due to the low CapEx and increasing operating cash flow, the free cash flow margins are steady above 22% and doubled in 3 years. The company uses the FCF typically to pay off short-term debt and increase dividends.

The financing cash flow tells us that the company increased the outstanding shares a couple of times in the past 5 years. The last issuance was IPO related.

In the past year, they bought back an insignificant amount of shares. Both years equate to approximately €50.000.

The issuance of shares and minimal buy-backs makes it unclear where management stands regarding the outstanding shares. Looking at the cash flows, issuance isn’t needed at all.

Income statement

Planisware’s revenue increased the last 5 years by over 17% per year. The gross profit hovers around 70%. It seems low compared to competitors, but Planisware includes staff costs like salaries, bonuses, pensions and benefits. Also, costs related to hardware maintenance, support and depreciation are added.

Management spends around 13% of revenue on R&D every single year. Operating margins fluctuate between 25-29%.

Low taxes (17%) and 0 interest payments keeps the net income around 24-26%.

Management

Planisware started out with 4 founders who are still active today in various roles. All of them are also on the board of directors. Together they have navigated the company through an ever-changing industry.

Each of the founders has their own specialties in business, project management, engineering, AI and leadership.

Management has shown to think long-term. For example, due to high inflation in the past, they renewed contracts with customers that allow for price increases. They could charge a lot more, but choose not to. The price raises with inflation.

According to management, it isn’t sustainable to increase prices faster than that. They like to think of customers as long-term partners.

Ownership

Planisware is controlled by Olhada. It is the majority shareholder with 63.3% of the shares and voting rights. Olhada is a LLC owned by the founders and their respective families. We can conclude that Planisware is indirectly owner-operated.

A collective shareholding organized by Planisware, holds the employees’ shares. The holding equates to 5% of the shares and is the 2nd largest owner.

The company is heavily owner-operated, and many employees have skin in the game. Ideal for investors.

During the research, it turns out that the investment fund originally founded by the ‘father of growth investing’ T. Rice owns a 2.2% stake in Planisware. A good sign, right?

The investment fund got the chance to buy in at €16 a share at the IPO before the first quote (€21) registered.

Growth

Mordor Intelligence projects that Planisware’s serviceable market will grow 11-13% till 2029. The industry’s growth is mainly driven by the willingness of managers to improve processes, access to resources and manage complexities between departments and location.

It has become clear for enterprises that project management solution from Planisware is an expenditure that reduces costs throughout the company. This realization increases the budget for such software solutions rapidly.

While the market grows fast, Planisware grew faster in the past, 20% CAGR over 5 years. The growth is primarily driven by the increasing market and market spend. Upselling and cross-selling increase what the companies spend when they get locked in. Further, more companies become the size Planisware has viable solutions for.

Planisware also penetrate new markets in Asia and the non-IT sector. Lastly, the company has pricing power due to the stickiness (see section Moat). Although the pricing is treated carefully, and mostly adjusts prices for inflation per contract.

Research shows that companies grow faster compared to peers when they are serial acquires. In the project management industry, this is difficult to achieve as the industry hosts a few players. A new acquisition by Planisware isn’t likely.

However, the company made an acquisition in 2018. This became the Orchestra solution targeting smaller companies.

Share

Competitors

According to Gartner’s Adaptive Project Management Quadrant (below), Planisware has competition from Asana, Monday.com, Planview and Smartsheet. The industry report considers the first 4 as leaders.

Garnter’s Adaptive Project management Quadrant, at the courtesy of Planisware.

Planisware, on the other hand, considers Planview its closest competitor as it provides the only other global modern multi-specialist software in this category.

Garnter defines leaders as those who demonstrate and have an understanding of the wide range of customer needs. They engage in the market as thought leaders and help to drive customer success.

All competitors offer solutions to enterprises, while Asana and Monday.com offer plans per seat with a minimum of 2 seats. They target companies of all sizes, don’t own the technical stack and host the software on AWS. You can see why Planisware consider them direct competitors.

At the same time, Planview is actively moving customers to the cloud and retiring on-premise software.

Here, Planisware separates itself from the rest. They have their own vertical integration and offer on-premise software through licenses. Governments and Aerospace and defense are customers in need of in-house solutions. Aerospace and Defense licensing is a small but increasing space.

As said earlier, Planisware also works directly with industries and adapts the solutions to the industry’s needs. The software adapts to the industry’s workflow and not the other way around as with many other competitors.

Subscribe now

Moat

The project management software solutions experience a certain sticky moat. Usually, a department within a company tests and pilots various solutions. After a decision is made, the PM software is rolled out company-wide.

Every employee follows some tutorials or receives training to become familiar with the software. It costs the company money and unproductive time to get every employee up and running. Thus, switching solutions is not easily said and done.

The various competitors have different degrees of entanglement with other software solutions. For example, Asana connects with Google Workspace, GitHub, Customer Relations Management (CRM) and other tools.

Planisware is an all-in-one solution for all departments. There is no need for integration with other tools, but it is possible to do so.

Due to industry-specific adjustments in the software, the provided solutions are more intertwined with the operational workflow. Planisware experiences more stickiness.

The moat’s strength is somewhat measurable by looking at the industry’s churn rate. The metric indicates the percentage of customers who stop using a product or service during a period.

Planisware reports a below industry average churn rate of just 2%. Competitors don’t report churn rate, but the ‘inverse’ number, net retention rate.

Many customers deciding on Planisware stay around for a while. Anecdotical evidence (reported by Planisware) suggests that many customers expand their internal user base.

Companies mainly cancel the subscription when they get acquired or when only one department makes use of the smaller version.

Due to technical stack ownership and vertical integration, Planisware experiences a 2nd moat in a niche market. Every competitor moves to the cloud, but Aerospace and Defense and Governments require on-premise solutions. The market is small and viable for 1 player only.

Risks

There is one major risk in the way Planisware operates. They own the technical stack, which makes them responsible for cybersecurity. Servers in Europe, the United States, and Asia store and process project data, business plans and trade secrets on a daily basis.

Currently, Planisware relies on third-party software tools to safeguard its servers and IT systems from cyberattacks and security breaches.

In case third-party software ceases to provide the necessary security, Planisware has to find an alternative or develop the technology in-house.

Another risk is lay-offs. The company states lay-offs don’t have an impact on Planisware as their customers use Planisware to identify places to cut costs. Further, they don’t make explicit statements. Maybe, due to multi-year contracts or other factors, Planisware isn’t directly affected.

What about AI?

The SaaS industry as a whole is being sold off by investors. They feel the threat of AI. Their conviction is that LLMs can create SaaS tools easily. Thus, there is no need for buildings full of programmers anymore.

From personal experience, software development is more difficult than only writing code. It is about design, architecture and innovation.

Vibe coder is a new term used for cohorts who use only LLMs to create programs. They have no background in software development and run in all kinds of problems. Both the vibe coder and the LLM have no idea what they are doing.

Software developers who have a deep understanding of programming can prompt LLMs better. But even then, the LLM isn’t innovative, nor does the code work completely. It blatantly copies existing projects. Most software developers currently use it as an autocomplete tool.

Could more SaaS companies pop up and offer the same solutions? Can’t deny that. However, Planisware adjusts the software solutions to the industry’s needs. They have 30 years more of information and have seen industries develop. Competitors can’t take that away easily.

Cyclicality

The industry itself isn’t cyclical. Expenditures on project management solutions is rising every year. This has to do with the savings for companies and thus a justified expense.

What Planisware noticed in the last year (2025) is delayed contract signatures due to the world’s instability. It creates some cyclicality when the subscription contracts must be renewed.

Revenue and growth are delayed by 1 year. However, it isn’t the typical cyclicality other industries (i.e. automotive) experience.

Valuation

The IPO is just short of 2 years ago and there is not much historical financial data about growth and improvement of margins. The company has reported a 20% CAGR in the past 4 years. The current projected growth is high double digits and later double mid-digits.

An industry comparison below indicates Planisware’s price to be roughly 1.5 times higher than the competitors. Of course, this assumes that the competitors are fairly priced. Planview and Smartsheet are private companies who lack public data to make this analysis.

Planisware’s revenue is relatively expensive. While the earnings are cheaper compared to the competitors. When we look at the income statements, it becomes clear that Asana and Monday.com spend a lot more on marketing. This shifts the balance from overpaying to underpaying throughout the income statement.

The price paid for FCF is somewhat in between the 2 competitors.

The justification for Planisware’s slightly higher price is:

• Offers more specialized software and orientates directly on the needs of certain industries. Competitors offer generic software suitable for all company sizes.

• Offers multiyear contracts

• Stickier than competitors and have a higher retention rate.

• The only one offering on-premise software

Based on this, a share price between 14-15 euros is reasonable. It is lower than institutional investors could buy in during the IPO at €16. But the metrics then come close to Monday.com’s metrics. Since Planisware has the above points, it has a margin of safety built in. From today’s price of 20 euros, this is a 25 to 30 % drop.

A €15 share price lowers the P/E to 20. When growth picks up and investor sentiment too, the share price propels upward faster due to a combination of earnings and P/E increase.

Conclusion

Planisware is a great company that specializes in project management software solutions. It IPO’ed less than 2 years ago and is unusual for me to look at. There is less historical data available.

However, the current balance sheet looks great. Increasing shareholder equity and without any long-term debts.

The company’s moat is expertise and industry-specific solutions. Competitors offer generic solutions. Once the software solutions are integrated, it is difficult to change again, creating a certain stickiness. This is visible in the high retention rate.

All in all, the company is a little overpriced due to the expected growth. The lack of historical margins can’t tell us if the company improves its moat and how quick the return of capital is.

The next annual report will be released at the end of February. Maybe this will shed some light on questions we still have.

For now, a competitor analysis results in a reasonable share price of 14 to 15 euros with margin of safety built in.

Disclaimer
The information provided in this newsletter is for informational purposes only and does not constitute financial, investment, or professional advice. All opinions expressed herein are solely those of the author and are based on publicly available information as of the date of publication. Investments in stocks and other securities involve significant risk, including the potential loss of principal. Past performance is not indicative of future results. Readers are encouraged to do their own research and consult with a qualified financial advisor before making any investment decisions. The author and publisher of this newsletter assume no responsibility for any errors, omissions, or outcomes related to the use of this information.

By reading this newsletter, you acknowledge that the author is not liable for any decisions made based on the content provided.

Why are there no studies on phenomenal European stock returns? How hard can it be?

So, I decided to perform a study myself. And boy was I wrong about the project’s complexity. Let’s dive in!

The study is built up as follows: first, the steps of the process are explained, followed by the discussion of the data. As last, there is a discussion about the shortcomings of the study. Or jump directly to the results.

Process

The original book I use as a guide, explained how the acquired data for his study costed $50,000 in 2014.

Well, I don’t have that kind of money laying around to spend on this project. With a background in data science, I took it upon myself to collect, clean and analyze the stock price data myself.

It took almost 2 full weeks (had to correct some errors down the line) to create a clean dataset. It was surprisingly difficult to find European stock market data going all the way to the 1980s.

Public charting software like Tradingview and Yahoo Finance, visualize stocks from the end of the 90s, but mostly early 2000s.

I turned my search to stock price data providers like Twelvedata and Eodhd. Both providers offered some European countries, but not all of them. Italy, a major economy, wasn’t available at all.

In the end, I settled on Eodhd (no affiliate). For the simple reason that it offered more data for a lower price ($22/month).

The subscription gained me access to the stock exchanges of Austria, Belgium, Switzerland, Czech Republic, Germany, Denmark, Spain, Finland, France, Great Britain, Greece, Croatia, Hungary, Ireland, Luxembourg, the Netherlands, Norway, Poland, Portugal, Romania, and Sweden.

To download the data and build my own dataset, I needed to write a python script to download every single available stock.

The script acquires first a list of available stocks from every exchange in the European countries. Then it downloads the full share price history of each stock.

I decided on a historical period from 1980 to 2025. But stock price data for most stocks don’t go back this far.

Anyway, the process from collecting data to cleaning the data is a combination of automation and handwork. For anyone who would like to reproduce the results or conduct a similar study, here are the steps:

1. A (python) script acquired the list of stocks available on the stock exchanges in Europe. Then the script downloads the OHLC (Open, High, Low, Close and adjust Close) and company data from 1980 onward.

2. A second script processed the lows, highs, dates, returns and duration of returns for every individual stock based on the adjusted close. The script calculated the duration in days from the lowest share price till a 100x return was acquired. It also calculated the maximum return and duration between the absolute low and high of the stock. These statistics are stored in a CSV file.

3. A filter excluded all returns below 100x from the file.

4. Since all the OHLC was not consistent, I poured over the 600+ stocks to check and clean up the statistics by hand. Here, I looked for outliers and check them individually. Some OHLC data points were missing, thus got dropped from the list just to be on the safe side.

5. Some companies are listed on multiple stock exchanges throughout Europe. Thus, duplicates were eliminated too. It resulted in 336 100 baggers.

Download Dataset

The stock returns are based on the adjusted close which accounts for splits and dividends. Eodhd provided split data, but couldn’t verify all splits. Multiple sources had different split dates. Thus, for simplicity of the study, I chose the provided adjusted close.

In the original research in the book, “100 baggers”, the adjusted close accounted only for splits. (Maybe interesting for a future study)

Results

The study included 21 European countries. Italy is the only notable absentee. The study identified 336 100 baggers over the period 1980 to 2025.

The median duration of the multibaggers is 17.6 years. The choice of median over average is due to outliers skewing the average.

Countries

When you click (hover for desktop) on the countries in the chart below, you can see the number of 100 baggers per country. It also displays the median years for stocks to return 100x.

The Swedish and British stock market produced the most 100 baggers. The countries are followed by France, Germany, and Poland.

The countries, Ireland, Luxembourg, and Austria have no verified 100 baggers.

Years to 100x Return

In the bar chart below, we see the distribution of years required for companies to become 100 bagger.

What stands out is the 21 companies who only required a maximum of 4 years to have a 100x return.

As noted earlier, the return is calculated based on the adjusted close, which accounts for splits and dividends.

It shortens the time it takes to become 100 bagger. Because reinvested dividends acquire more shares, gaining more dividends and so on.

The adjustment for dividends and splits skews the results to a shorter amount of time needed. In the book, the author discussed a few stocks that actually grew very fast, and it only took around a decade.

I also noticed that some companies experienced favorable conditions for rapid returns. For example, some defense companies saw extreme share price increases due to excessive spending since 2022.

Then there are healthcare stocks, which experienced a significant boost during the covid-period. And in the countries Greece and Poland, the real estate development companies surged in the years leading up to 2008. But never recovered after the crash, the typical boom and bust cycles.

Adjusting for dividends allows a lot more companies to become 100 baggers sooner or to return 100x at all. For example, most Finnish stock prices stayed in a (relative) narrowband. Due to dividends for many decades, the country produced many 100 baggers.

As in long-term investor, we look for companies that put capital to work efficiently at high rates of return. And there are certainly companies who have experienced this. The share price reflected a beautiful exponential growth over a very long time.

Examples of such companies are the French companies Hermès and Moët Hennessy Louis Vuitton. Or the German software company SAP and the semiconductor equipment manufacturers ASML, ASM and BE Semiconductors in the Netherlands.

Share

Sectors

The sectors that produced the most 100 baggers are industrials or financials.

In the right column, we can see how long it took for companies to return 100x per sector. The sectors with less than 10 companies have duration outliers. 10 years for communication services and over 26 years for real estate.

It is not possible to draw conclusions that these sectors produce the shortest and the longest return a 100-fold. This may simply be due to the fact that the sample size is too small.

The other sectors hover around the median of 17.6 years.

As seen in the graph, the information technology sector takes only 14.7 years to 100x return. It is expected from this sector to have fast outsized returns due to their asset-light structure.

The difference with other sectors isn’t significant at first. Information technology companies tend to pay out fewer dividends to grow faster, also in Europe. However, European companies favor high dividend yields over buybacks.

Which can be a reason as to why the duration to become a 100 bagger gap isn’t so big between the information technology sector and the other sectors.

Maximum Return

The last chart, below, displays the maximum return from each stock and how long it took.

35% of the companies reached a maximum return between 100 and 150 within 22.3 years.

And the higher the returns, the less companies achieved that. If you turn the chart 90° to the left, you can see that the graph is a typical distribution skewed to the left.

The only bucket (returns >1000) has 21 companies included. It is a collection that otherwise would have spread out way further, as these are called long tails.

It is noticeable (although slightly) that the higher returns take more years to play out.

Subscribe now

Shortcomings

The study caught the basics of 100 baggers in Europe. There are many things that can be improved for future studies.

What first comes to mind is the stock data itself. It would be great to have two independent sources to compare the stock data to make sure it is reliable. Or obtaining the data directly from the stock exchange owners.

In the study, I used the adjusted close for splits and dividends. However, it is more interesting to only adjust for splits. This has to do with reinvestment of dividends. Every investor pays taxes over received dividends, and then said investor can’t always acquire the shares at the opening price. It creates slippage and skews the real results.

Another shortcoming of this research is the amount of work it takes to verify every stock. Right now, I only looked at the price and used my knowledge of the countries’ and sector’s conditions to draw some conclusions from it.

It lacks certain statistics to make the study applicable in the search for 100 baggers. If you prefer statistics on what makes a multibagger, then I would recommend the paper “The Alchemy of Multibagger Stocks” by Anna Yartseva.

I think we can all agree that it will be way more valuable to understand why stocks increased so drastically. What factors had to do with such increases? Is it just due to market circumstances? Was the company around just at the right time offering the right product or service? Or had management something to do with it.

The earlier-mentioned book shares some essential principles for finding 100 baggers:

1. You have to look for them. Don’t waste your limited time on stocks that might be a decent yield or that only rise 30 to 50%.

2. Look for value-added growth. You want the per-share value to increase.

3. Lower multiples are preferred. A growing company may also grow its low multiple into a high one. This makes the share price rise, even faster.

4. Economics moats are mandatory.

5. Smaller companies are preferred. It’s easier to grow 100 times from 100 million than from 10 billion.

6. Owner-operators are preferred because they take the shareholders’ best interests into account.

7. Time is your friend, it doesn’t happen overnight.

8. You need to filter out all the noise. With 24/7 market updates it’s easy to be tempted to sell.

9. Luck helps as you can always forecast the company’s growth or new avenues of growth.

10. You should be reluctant to sell.

I think that most are applicable if not all are also applicable to European multibaggers.

Other Angles

The data missed lots of additional information such as outstanding shares at all times. It would be cool to know at what market capitalization the companies were at the lowest adjusted close.

From there, we can draw conclusions about which market cap sizes to put our attention to. However, logic dictates it is more likely to find 100 baggers in small caps than in middle or large caps.

Maybe even having such data might not be as insightful as expected. Since 30 to 40 years ago, it was a different time with less money circulating. Nowadays, there’s much more money in existence in the world. It is now more likely that a $1 billion company can reach $100 billion.

Part II

While writing this study, some other ideas came up to pull the available data more apart (read: analyze further). Since the deadline for publishing is already over, and I am late with this one, I decided to keep these for part 2.

Thus, stay tuned if you would like to see more insights into European 100 baggers!

Subscribe now

Conclusion

This study is an introduction to 100 baggers in Europe. From a data analysis point of view, it was a fun study to perform. It gives some insight on 100 baggers in Europe. Often those studies focus on only the American markets.

It was certainly difficult to get the necessary information and verify its validity. That’s why I can’t be certain about every single stock.

Yet it is a clear indication that Europe also locates companies that produce significant market returns. It proves that Europe is also an attractive market to invest in for outstanding returns.

If I try to re-create or expand on this study, what other statistics or insights would you like to be proven? Please let me know in the comments!

Disclaimer
The information provided in this newsletter is for informational purposes only and does not constitute financial, investment, or professional advice. All opinions expressed herein are solely those of the author and are based on publicly available information as of the date of publication. Investments in stocks and other securities involve significant risk, including the potential loss of principal. Past performance is not indicative of future results. Readers are encouraged to do their own research and consult with a qualified financial advisor before making any investment decisions. The author and publisher of this newsletter assume no responsibility for any errors, omissions, or outcomes related to the use of this information.

By reading this newsletter, you acknowledge that the author is not liable for any decisions made based on the content provided.

• Consistent rising net income margin above 25%.

• Free cash flow yield of 7%

• P/E ratio is 11

• Management has a Value Investing mindset.

• Widening Margins

All currency is in Euro. Hover/click on charts for accurate number.

The Business

Jumbo S.A. ($BELA.AT) is a hyper-store retailer established in 1986 in Athens, Greece. The company started as a toy seller and later diversified into household goods, gift items, baby care products, home decoration and stationary.

The company is mainly active in Southeast Europe, better known as the Balkan region. It expanded operations into neighboring countries Bulgaria, Cyprus and Romania. And has franchising agreements in the countries North Macadonia, Kosovo, Albania, Serbia, Bosnia, Montenegro and Israel.

Customers

Jumbo caters to customers who prefer convenience and low pricing. The hyper-stores display a varied product mix with comparable items.

Many mom-and-pop stores in the Balkan region are small. They offer one product category. Meaning, there is little diversity in one store. Thus, customers find themselves frequently going from one store to another to compare items.

It is self-explanatory that this costs a lot of time and a hyper-store fixes such a problem.

Margins Development

Jumbo has a fairly steady revenue increase at a 7% CAGR over the last 10 years. There was one unusual drop in revenue in 2019. It looks unsettling at first, because the revenue was lower than in 2020, the Covid year.

As it turns out, the company changed the accounting period by 2019. At first, the accounting period was from July to June. And it is from January to December since 2020. This resulted in 2019 being accounted for only 6 months.

Looking further down the income statement, it shows Jumbo’s exceptional margins. The gross margins are now stable in the mid 50s. The operating and net income have increased 10% over the last decade with the net income margin currently hovering around 28%.

These margins are uncommon in the retail sector. So, how does Jumbo achieve this?

Foremost, they buy stores at distressed prices, instead of building them. Sometimes, they purchase a few next to each other to increase the floor size.

Second, Jumbo owns some leased stores. From time to time, the company gets a low offer to buy the store. This saves around 7% on operational margins per store in rent.

The balance sheet provides a clue about how much further Jumbo can save on leases in the future. The leases have been on a steady decline since the reporting of IFRS 16 “Leases” rule in 2019.

The decision to reduce leases, increases margins on the income statement and reduces liabilities on the balance sheet. Thus, the shareholder equity rises further.

Third, the distribution center overhead is partially paid for by franchisees. With every new distribution center, they invite some new franchisees. But management is very careful not to add too many at once. Because it will reduce the company’s margins.

Fourth, Jumbo pays no interest as it has no long-term debt on the balance sheet.

The conservative approach, outlined in the points above, increases margin but accounts for slower store growth.

Subscribe now

Free cash flow

Despite the slow revenue growth, the company throws off lots of cash. For every €1 earned, €0.12 is FCF.

The free cash flow provides a lot of room for management to return money to shareholders. In the past, they preferred regular & extraordinary dividends.

Since 2024, Jumbo started a buyback program which stopped in early 2025. Management looks for the best use of capital, hence the return of capital behavior looks inconsistent. The underlying metric, the per-share value growth, is steadily on the rise.

Management caps capital expenditures at 1/3 of the profits. In reality, it is closer to 28% per year. Warren Buffett defined CapEx as sustaining and growing a business under 25% a great business.

Jumbo reports the maintenance CapEx. From here we can figure out the growth CapEx and calculate an adjusted free cash flow.

The adjusted FCF is cash flow from operations minus the maintenance CapEx. Or as the chart states, the growth CapEx added to the FCF.

Growth CapEx is a part of reused FCF to grow the company to return more cash in the future. Obviously, this isn’t capital that can be returned directly to the shareholders, but has a compounding effect.

The adjusted FCF is a better representation for everyone who wants to make a discounted cash flow analysis.

The FCF yield often edges against the 7% in the last 10 years. While the adjusted FCF yield is somewhat higher, around 8-9%.

Management

Jumbo has a very active chairman, the founder, Mr. Vakakis, aged 72. He held the position since 1994. On shareholder meetings and earnings calls, he is the primary speaker, not the CEO.

Jumbo’s CEO has no public role. She doesn’t write a shareholders letter either. Which makes it difficult to understand her thinking. Usually, it is a bad sign that the company doesn’t communicate with shareholders this way.

Since the chair and founder dictate the direction of the company, it is more important to get to know his thinking. During the shareholder meetings, he communicates his view clearly.

Mr. Vakakis concerns himself with the long-term survival of the company. He studied Japanese companies that survived both world wars on how to overcome difficult times. He applies his learnings which likely helped him to steward the company through Greece’s almost bankruptcy.

Jumbo grows mainly by opening new stores in strategic markets. Instead of buying growth and opening new stores at high cost, he wants the company to wait for distressed pricing offers.

Mr. Vakakis is a patient man and conservative with his and the shareholders’ money. He follows a generic plan and takes the best opportunity presented to him.

I like to think as if we are a poor company.
Chairman Vakakis

Currently, some stores are still leased. When a distressed price for a store is presented, the chair likes to buy the store. It saves on leases and increases margins as explained earlier.

Whenever analysts ask Mr. Vakakis about world politics and conflicts, He has no perfect answer like most CEO’s do. He says the following:

If I could participate in this sort of complicated world in a productive way, I wouldn’t be selling toys.

He wants to stay in his circle of competence and answers humbly whenever competitors are discussed. Competition is a gift to the company to improve themselves and not to become arrogant.

It is unclear if the CEO has the same mindset as the chair. The CEO has a background in accounting is only 4 years younger than the Mr. Vakakis.

It would have been great if the chairman would prepare a younger CEO to take over the same mindset as he has. In a similar fashion as Buffett did with Berkshire. It isn’t clear if Jumbo has a successor plan.

Ownership

The company has only one known insider. It is the founder, Mr. Vakakis. He owns 16.6% of the outstanding shares.

In the Balkan region, it is less common to hold equity in general. It may be a reason for lower insider holdings.

On the other hand, it allows outside investors to have a say in the direction of the company. This isn’t always a guarantee with European companies, where founders prefer to have a majority share. (See my previous articles)

Subscribe now

Growth

Jumbo has multiple pathways to growth. The obvious one is expansion with more stores in existing or new markets.

Currently, the company focuses on store growth in Romania. The country has the same disposable income as Greece and twice the population.

Jumbo expands with around 2 to 3 stores per year in Romania. This is because they look for suitable locations where rent or buying outright is the lowest.

The other markets, Greece, Cyprus and Bulgaria are saturated. The prognose is around 1 new store per 3 years in Greece. Of the 4 operating markets, only Cyprus experiences population growth.

Management made known that there are other interesting markets for Jumbo to expand to. But right now, Romania makes the most sense.

Two less likely paths of growth for jumbo are an increase in disposable income and population growth. The economic prosperity in these countries is low. This resulted in a large part of the population moving abroad, a trend seen for decades.

The increase in disposable income might not be so likely either. When we look at Western Europe, the disposable income becomes lower as the cost of living increases while the salaries are stagnant.

Online Sales

It sounds unbelievable, but Jumbo treats online sales as a complementary service. In the Balkan region there is an inherent distrust of online purchases. The younger generation below 30 years is more accepting.

From first-hand experience, Bulgaria provides an unpleasant package delivery experience. There are service points by 2 providers to collect online purchases from. Both providers create friction for customers where it is very difficult to accept and return items.

It is nothing like Amazon deliveries to the doorstep. This delivery friction probably contributes to low online purchases.

Franchises

The company has partnerships with companies that operate franchisees. The franchisees pay an operational charge and 4% of the turnover regardless of profits.

The operational charge pays for the overhead in distribution centers. But selling inventory to franchisees eats into the gross profit margin.

There is no upside for the company taking on too many franchisees. The number of franchisees may only grow linearly with distribution center expansion.

Jumbo expects to open 2 more distribution centers in the next 2 to 3 years. Which will result in a few more franchisee openings.

The Fox Group, which operates the stores in Israel, wants to expand in the country and has an interest expanding to Canada.

Jumbo has made clear that there is also interest from other European countries. However, the company simply has no interest in expanding the franchisee network as it isn’t as profitable for investors.

Competitors

Jumbo has local and global competitors like Action & Amazon. In the Balkan region, the competition from locals is very fragmented. Many local retailers have small shops. Sizes depend on location, but 30 square meters is frequently seen.

Small stores restrict a broad product mix. Customers often move from shop to neighboring shop to compare items.

A hyper-store like Jumbo has many products in the same category to compare. Their distribution channels and sourcing directly from the Chinese manufacturer result in undercutting the local competition.

Then there are chains like Action. The Dutch chain has set foot on the ground in Romania, the same country Jumbo is expanding in for the coming years.

Based on observations during store visits, both companies have the same or similar products. The main difference is that Action often purchases goods from branded companies that can’t sell their older inventory for one reason or another. A similar strategy used by the American TJX Companies.

Jumbo gets mostly unbranded products from Chinese factories. Thus, Jumbo and Action don’t offer exactly the same products.

Amazon is a third competitor that operates online. Online purchases are only completed by the younger generation.

Some analysts have seen Pepco as another competitor. But a visit to the store shows little overlap with Jumbo. Clothing takes by far the most floor space in a Pepco store.

Unfair Competition

Jumbo welcomes fair competition such as Action and Amazon to become a better company. They don’t like unfair competition in the form of Shein and Temu.

These Chinese online retailers ignore European trade laws and are able to offer products far below Jumbo’s. The company believes that unfair behavior will eventually catch up to the likes of Shein and Temu.

For the time being, there isn’t much that Jumbo can do about that.

Moat

Jumbo has well-organized distribution channels compared to local stores. The company is also able to receive great pricing directly from Chinese manufacturers.

This is one form of network effect. It is only effective against local competition. Big retailers like Amazon and Action have their own distribution channels.

Jumbo has a cost advantage over other brick and mortar stores. The company’s mindset is thinking like a poor company. Thus, they only open a store when the location makes sense and the price is right. This mindset keeps the CapEx low.

The cost advantage is usually considered a moat. However, with Jumbo, the cost advantage comes from a mindset any company is able to acquire. Yet, for most companies it is proven very difficult to acquire.

The cost advantage moat is very weak at best. It is also unclear if the mindset is adopted company-wide. What if Mr. Vakakis retires. Will the company continue the same way? Or does Jumbo become less sensible with capital like most companies who pursue growth?

The Risk

In the past years, Jumbo experienced some unforeseen events. The Suez Canal got blocked by a large ship that went adrift and was stuck for 106 days. Maritime transport had to make use of other routes, resulting in increased transport costs.

Transport along the same canal has encountered more delays & rerouting since the war between Israel and Gaza. The Houthis in Yemen attack passing ships. Again resulting in increased transport costs.

Corporate culture

Chair Vakakis has a clear direction in mind for the company. He brings in the value investor mindset to the company. The earlier discussed margins show the effect the mindset has on the company’s financials.

However, it isn’t clear if other executives adopted the same mindset. When mr. Vakakis leaves the company, margins are likely to deteriorate if the mindset changes.

Then there is another risk within the corporate structure. In the Balkan region, people in management positions are frequently hired based on connections, regardless of education or skill. Often family, friends or acquaintances benefit from such actions.

Unfortunately, companies feel the effects of this: customer service declines, product quality deteriorates and a toxic culture takes over.

The bigger a company becomes, the less grip a founder has on the hiring process. It isn’t clear if this happens on a large scale within Jumbo.

Online sales

Currently, online sales are around 2 to 3% of the revenue. This is fairly low compared to European and American companies.

The risk here is that competitors are more focused towards online sales. When the younger population becomes the majority customer, then Jumbo might be in a disadvantage.

Because there are not focused on online stores. They do have online stores in the markets they are operating in. But for now the emphasis lies on brick and mortar stores. Can they switch on time to put emphasis on the online stores is the question?

Cyclicality

The discretionary retail sector is cyclical. Discount stores tend to have more stable revenue across cycles and traffic often increases during recessions.

Jumbo is an odd mix between the 2. It sells many discretionary items and offers many discount items.

The company’s revenue is either flat or increasing year-on-year. The flat period (2010-2013) experienced marginal revenue increase due to the close bankruptcy of Greece. Despite such difficult times, it hasn’t seen any revenue declines in at least the last 20 years.

Jumbo may experience some cyclicality, but revenue will grow nonetheless.

Conclusion

Jumbo grows at a conservative pace to ensure survival. Strict capital allocation and taking the best presented opportunities result in wide margins. The company is a cash generating machine which returns lots of money through extraordinary dividends and buybacks.

The expansion is slower than what most growth companies try to achieve. However, every investment is well worth it as the founder has a value investing mindset. The per-share value increases with every investment.

Disclaimer
The information provided in this newsletter is for informational purposes only and does not constitute financial, investment, or professional advice. All opinions expressed herein are solely those of the author and are based on publicly available information as of the date of publication. Investments in stocks and other securities involve significant risk, including the potential loss of principal. Past performance is not indicative of future results. Readers are encouraged to do their own research and consult with a qualified financial advisor before making any investment decisions. The author and publisher of this newsletter assume no responsibility for any errors, omissions, or outcomes related to the use of this information.

By reading this newsletter, you acknowledge that the author is not liable for any decisions made based on the content provided.

• P/E is around 15

• ROIC well over 20

All currencies in the article are in Euro’s.

Today’s company, Fope S.p.A. (FPE) is a company I follow already for a few years. Fope’s market capitalization is just above €200 million and considered a micro cap. Much of the value growth is attributed to the recent decade.

Doing some good ol’ scuttlebutt research (attributable to Philip Fisher), I visited their first boutique in Venice on my honeymoon no less. Am I dedicated or what?

The Business

Fope is an Italian fine luxury jewelry designer and producer. The company is close to celebrating its 100th birthday as it was founded in 1929. Fope started out as a specialist in extendable metal watch straps.

From the 70s, it transitioned to creating designs. In the early 1970s, the founder’s children (Umberto and Inis) became active at the company and quickly took management positions. Umberto laid the foundation for the mesh pattern what identifies the company’s collections.

The company started in the early 2000 to improve advertising and requested patterns for their unique mesh designs.

To improve the sales channels, the company decided to open their first boutique in Venice (Italy) in 2015. And a year later they became a public company.

Recently few more boutiques opened in London, Kuala Lumpur and Tokyo.

Customers

The company’s customers have typically a large disposable income. Bracelets, necklaces and rings range from €3000 to €40k. The collections for women are less for daily wear and more for formal dinners, gala nights etc.

Fope mainly designs for women. However, Fope has since 2021 also a product line for men. The target men who identified themselves as dynamic, safe, likes to travel, works, loves comfort & elegance, and is practical.

Margins Development

Fope as their headquarters in Vicenza (Italy) and designs develops and produces all jewelry in-house. Transportation, buildings and land are kept to a minimum because everything is al in one location.

The company only produces jewelry when they have orders. This keeps the inventory low. Especially with raw material price fluctuations, their liabilities are reduced to minimum when prices of raw materials decline.

Fope takes out loans to purchase the precious materials like gold. Then employees process it into a product and ship it off to the customer or the store. Afterwards they pay off the gold loan quickly.

Most of the long-term debt on the balance sheet are paid back the same year. This is a unique case where LT debt isn’t a bad thing. Here it indicates that the company has a higher order book.

The company hedges gold purchases to be unaffected by rising gold prices and to keep margins high. Over the year, Fope improved their margins more by updating their IT systems, new machinery and so on. Which is reflective in the margin growth.

In the chart above, it displays the revenue, gross profit margin and operating income margin over the last 10 annual reports.

The revenue grew 13.5% CAGR in this period, while the net income grew 23% CAGR over the same period. It is a clear display on the impact of improving margins throughout the income statement.

Free Cash Flow

In 2024, Fope expanded the headquarters by purchasing the building next doors to facilitate the future growth using free cash flow.

They also use the FCF to open new boutique stores and pay a dividend to the shareholders.

In the chart above, it is clear that the first 5 years had lower FCF margins. This was mainly due to a yearly increase in working capital. Also the net income was back then lower.

The capital expenditures are relatively flat every year. There is minimal growth in CapEx.

The recent change in work capital adjustments might create higher FCF margins for the coming years as it proved in the last few years.

Unfortunately, the company hasn’t shared any expectations on the development of the free cash flow or how to use the FCF in the coming years.

Return on Invested Capital

Fope has a high return on invested capital, hovering around 20%. Here ROIC is calculated as Nopat divided by Invested Capital. In Fope’s case, retained earnings carries the weight of the equity. Which has a huge influence on the ROIC metric.

In many cases, I find the ROIC being higher than 10% when the retained earnings grow year after year.

In general, the retained earnings growth is valuable when looking for GARP investments.

Management

The company doesn’t discuss the executives and CEO in their annual reports. By digging around in the company’s history and from other sources, we can learn a few things.

The children of the founder, Inis and Umberto Cazzola, have a management position since early 1970s. And to this day, both children sit on the board as chair, and vice chair.

It is interesting to know if their offspring would take over from them. Unfortunately, I couldn’t find anything about this playing out in the future or if any offspring works at Fope.

The appointed CEO is Diego Nardin. Previously, he worked at Deloitte and got a position as a board member for Fope. At the same time, mr. Nardin was tasked with a project for the company.

Fope enthusiastically received Nardin’s project results and appointed him CEO on the next opportunity. He holds the position since 2009.

Fope’s management likes to hire people from within and prefers candidates who will hold positions for a long time. Just like the chief marketing officer. She works in the company from 1970.

The news coverage or other sources around the company are scarce. Sadly, there is nothing known about the age of the board members, CEO and other executives.

Based on the information since when they work for a company, it looks like they’re older people closer to retirement age. Which might be a problem when they want to look for replacements.

Shareholder letters

I always like to read the shareholder letters written by the CEO. It always give some clue even when they are brief.

Mr. Nardin started 10 years ago with little information. I got the feeling that he isn’t writing them for outside investors who own shares.

I notice a trend developing where the letters include more information every year. So, the shareholder letters get more and more mature. But I am still missing additional explanation to decisions, future plans and shared numbers.

I hope this will change in the coming years.

Ownership

The company has a large insider ownership. Family members own together 69% of the shares and is majority shareholder. Also the CEO, Diego Nardin, owns 5 1/2% of the shares. Together insiders own an impressive 3/4 of the company.

This leaves a small stake for outsiders. Since becoming a public company, insiders have sold a few shares.

Outside investors have no opportunity to influence management. We can only ride on the curtails of the insiders.

I don’t think this is a problem per se. The company operates effectively and improves every year, thus why would outside investors need to interrupt a fine functioning machine?

Growth

Various industry reports expect the luxury jewelry market to grow around 5% year over a year for the coming decade. It is a medium growing industry being in lock step with the economy.

This sounds like a boring industry. However, Fope has the ability to grow even faster. They are building up their brand awareness. By improving their marketing communications and opening boutiques in major capitals throughout the world.

As seen earlier, their margins improve too. Thus it can out-earn many companies in the industry.

Fope opens shop in shops every year. These are cooperations with independent jewelry store where Fope has their own display. The company has no projection or shared a target of how many shop in shop they want to open.

The same goes for the company-owned boutiques. These boutiques only display the Fope brand. The company has a small cash flow and fewer loan and credit possibilities. Thus it is challenging to expand boutiques rapidly and thus the brand awareness.

Competitors

Just like any business, Fope has competitors. In the fine luxury jewelry, it is less easy to identify direct competitors. Every competitor has their own distinct style. And no one has a dominating position on the market. The luxury market is highly fragmented.

Companies like Cartier, Bulgari and Van Cleef & Arpels make unique designs for the wealthy. Then there are smaller design, houses, and boutiques similar to Fope. These are usually privately owned.

Moat

A typical moat is patents. Fope holds patents for their mesh designs with very small springs integrated. It is a design and style what isn’t seen anywhere else. It is not known till what year the patents will hold.

In this case, the patterns are not a strong moat or a moat at all. Amount is only relevant when the product is desired.

The brand is also very weak and thus the desire is for their collections jewelry is low and unpredictable. The company is working hard to increase their marketing to create more brand awareness.

The company has international presence in newspapers, online advertising and social media. The company grew the instagram following with 12 thousand from last September to December.

Gaining a following like this isn’t impressive growth, but it validates that potential customers are interested in Fope’s offerings.

With this, the brand awareness could improve over time. However, for now it is too early to conclude the company’s success. It is hardly a moat.

The Risk

The major risk is the brand awareness I mentioned just now. Through the various marketing efforts, they slowly create more awareness. But when the marketing isn’t successful for whatever reason, it will be reflected in their sales.

It is still a fairly small company and building brand awareness may take a long time. The designs are very niche. Which may be more difficult to be accepted by the market.

Cyclicality

The jewelry industry is cyclical. The industry is divided into two groups. Catering to the masses and to the wealthy. The masses tends to reduce spending significantly when the economy is souring.

Only the very cheapest jewelry might see a boost because of the lipstick effect. The wealthy continued their spending, may it be in reduced manner. Thus the cyclical effect for fine jewelry designers, like Fope, is flattened slightly.

Conclusion

Fope is very small based on its market capitalization. Therefore, there is less information public, and it is harder to investigate the company in a long-term perspective.

The signs for a growing company are definitely there. However, it feels too early to conclude on making a proper investment on a company dependent on their brand awareness. It is comforting to know that it is mainly owned by one family. All their wealth is tied up in this one company. So they will make safer decisions going forward to preserve their wealth.

Coming back to the question if a microcap company can be a GARP. It is definitely possible and I think this company is proving it. But personally for me, I think there is not enough information over a longer time period to make an informed decision.

I will definitely keep an eye out on the company and will evaluate it again in the future.

Disclaimer
The information provided in this newsletter is for informational purposes only and does not constitute financial, investment, or professional advice. All opinions expressed herein are solely those of the author and are based on publicly available information as of the date of publication. Investments in stocks and other securities involve significant risk, including the potential loss of principal. Past performance is not indicative of future results. Readers are encouraged to do their own research and consult with a qualified financial advisor before making any investment decisions. The author and publisher of this newsletter assume no responsibility for any errors, omissions, or outcomes related to the use of this information.

By reading this newsletter, you acknowledge that the author is not liable for any decisions made based on the content provided.

• P/E is around 14, historically above 20.

• ROIC is 21.6%.

• EPS CAGR over last 10 years is 24.9%.

• Expected industry growth 8% CAGR

All currencies in the article are in Euro’s.

The Business

Today’s business is Elmos, active in the automotive semiconductor industry. It is a fabless semiconductor designer founded in 1984 in Dortmund, Germany.

The company partnered initially with the local university and produced the first chip for a household appliance, the iron.

With a sales strategy and the involvement of BMW, the company made the decision to design and produce exclusively for the automotive industry.

Since BMW, Elmos added many car companies to its customer list. They developed an expertise in analog mixed-signal sensors. This allowed them to become major players in small automotive niches.

Elmos has several product families. These include ultrasonic parking sensors, thermal measuring integrated circuits (IC) and LED drivers for rear lights and grill lights.

The company’s workflow is as follows. The customer has a design request. Together with the engineers at Elmos, they create a chip design. Thereafter, a foundry fabricates wafers (layers of silicon, simplified). Elmos receives the wafers, assembles and tests them. Finally, the chips are shipped to the customer.

Fabless Transition

The company’s workflow used to be slightly different, but had a large financial footprint. Instead of finding a production plant, they used to do all the production in-house.

Owning a production plant or known as wafer fab within the industry, is capital intensive and a huge strain on the cash flows. The maintenance and keeping it clean is the burden.

Owning a wafer fab for a small product offering, increases the price of produced chips. It happened that the equipment was used for less popular chips. Because of lock-in contracts, it wasn’t easy to switch to more profitable chips.

As a relatively small player in the automotive semiconductor industry, it was harder to have competitive pricing.

Situation like this made Elmos decide to outsource the production of chips.

10 Years ago, Elmos decided to go fabless which means not owning the fabrication plant. Examples of such companies are Apple, Nvidia and Qualcomm.

Fabless companies have contracts with third-party fabrication plants, what are called foundries. A well-known foundry is TSMC, the Taiwanese Semiconductor Manufacturing Company.

The former CEO started the transition to what is called fab-lite. Elmos had multiple fabrication plants and sold them off in steps. This situation created a hybrid form where one part of the production is outsourced and to other part is produced in-house, hence fab-lite.

The current CEO continued with the plans and sold off the last fabrication plant successfully in 2023. Hereby, the transition had completed.

Why would Elmos go fabless?

As explained earlier, it is very capital intensive. Owning fabrication plants are a distraction for smaller designers and sellers.

Elmos is now able to focus on R&D, customer service and marketing.

Another great benefit is for Elmos to become more competitive as it reduces the cost per chip. As foundries spread the amortized cost over multiple clients.

It prevents using expensive machinery to produce competitive chips, the lock-in. It also gives the company more flexibility to scale up or down the production.

Customers

Elmos sells its chips to tier-1 car companies and original equipment manufacturers (OEM). It started with BMW and over the years Elmos gained trust and reliability within the industry.

Building a name as a supplier for car companies is a slow and painstaking process. Their approach to design on request helps significantly.

It is unclear who Elmos supplies. The car companies nor Elmos is transparent about the supply chains.

A little digging shed some light on the question. A recent press release in November stated that Elmos shipped the 2 Billionth ultrasonic IC. And “…Elmos ICs can be found in almost all common ultrasonic applications in vehicles…” Thus, we can conclude that Elmos sells to almost all major car brands.

I also found BMW owning a minority share in Elmos. It isn’t conclusive. However would they keep the shares when they aren’t satisfied with chips of Elmos? I don’t think so.

Margins Development

The earlier described transition from wafer fab to fabless changes cash flow within the company.

Starting with the income statement, the gross profit and operating income margins improved. The whole automotive semiconductor industry experienced a boost from supply chain shortages. Revenue and margins grew for many within the industry.

The boost ended in the latter half of 2023. Car manufacturer inventories were sky-high and needed reduction. 2024 and early 2025 saw less orders within the industry.

During this period, Elmos surprisingly managed to increase revenue marginally, while competitors experienced a decrease in sales.

At the moment, inventories are low and some car manufacturers might run inventories too low to cushion a supply shock. A real treat without an international pandemic is always around the corner.

Nexperia, located in the Netherlands, is an semiconductor company providing chips to Volkswagen and others. The company was taken over by Chinese in 2018. And since a few months, the dutch government seized control and has taken management control.

The Chinese owner shut down the production process place in china as retaliation. It was a precarious situation for Volkswagen as it was very close to closing a production line.

Situations like this raised awareness for manufacturers to increase inventory again and is expected to boost 2026 sales.

Operating margins

Operating margins improved because of enormous sales growth. Also, the sale of wafer fabs resulted in fewer employees. This in turn requires less managers, reducing much of the salary.

Depreciation of the wafer fabs is also excluded from the books. The income statement will show better margins because of it.

The flip side is added outsourcing production costs covering a part of the savings.

The operating margin increased in the last decade significantly. The transition effects haven’t materialized fully yet. Thus, it is hard to estimate what normal operating margins for Elmos will be.

If we compare the operating margins to other similar fabless semiconductor companies, we see that these operating margins are sustainable.

Gold price

The gold price has a stark influence on the companies increased raw material costs. Hence the lower gross profit margins.

Elmos changes legacy designs with gold traces into copper. It is a relatively slow process as engineers have to test the new designs, rewrite specifications for chips in manuals etc.

The soaring gold price increased Elmos’ costs by more than €10 million. They expect to replace all designs by copper in 2026. Saving them more than €8 million.

Free cash flow

The sale of the last wafer fab has an impact on capital expenditures. The high maintenance capital expenditures aren’t necessary anymore. It results in a higher free cash flow available for future growth investments or return to the shareholders (yay).

In the previous 2 years, Elmos made payments regarding the unwinding of the last fabrication plant. The upcoming 2 years are definitely lower CapEx years. The CEO made this clear in a recent earnings call.

He explained that CapEx in this business is cyclical. And the increased spending happens in 2 years.

Competitor Melexis provides us with an indication as to what FCF margins we can expect form Elmos. 90% of Melexis’ revenue comes from automotive semiconductors. They design less on request and have a different product mix with high profit margins.

It results in a staggering FCF of around 17% a year. (But unfortunately don’t tend to unvest it very wisely right now)

The different products and design process lower Elmos’ profitability. But higher margins are certainly possible. FCF margins around 10 to 12% are more likely.

However, analyzing the FCF of Elmos isn’t that easy. The CapEx is cyclical. Meaning that there are years with less investments and years of high expenditures.

For example, Elmos invested heavily in testing facilities in China the last 2 years. This indicates that they expect to scale up production or new chip designs.

As investors, we like these type of investments. They fall under growth CapEx. The FCF margin doesn’t go up.

However, the growth CapEx is a part of the FCF. It brings us future returns when company’s value increases. See it as a sort of hidden FCF. When you know the story, the numbers come to life and get a different meaning.

CapEx is the same of maintenance and growth capital expenditures. Maintenance costs keeps the company in the current state. Growth expenditures obviously grows the company’s capacity to make more sales and profit from it.

Earnings per Share

The further one goes down the income statement, the less real the numbers may be. It is tricky to make investment decisions solely based on the income statement. But, I would like to look at the exceptional earnings growth over the last 10 years.

The company delivered 25% EPS CAGR (compounded annual growth rate) over 10 years. Compared to others in the industry it is unusually high. As explained earlier, the growth has to do with the supply shock and the cost reduction of the company.

If Peter Lynch would look at the stock, he would come to the following conclusion. With a current P/E of 14 and an EPS growth of 25%, the PEG would be a 0.56.

This is far below the 1, were the price per share meets the past growth. It is slightly flawed as past growth isn’t a guarantee for future growth.

As Warren Buffett would say:

In the business world, the rearview mirror is always clearer than the windshield.

Management

The current CEO, mr. Schneider, is on the board since 2014. He started as the chief finance officer. And in 2021, he took over the role as CEO and his term ends in 2030.

The previous CEO, mr. Mindl, was originally an physicist and served as CEO for over a decade. It indicates that the company looks for serious hires looking with long term tenures.

Mr. Mindl started to move the company towards a fabless future. He couldn’t finish the plan within his term. The new CEO continued execution.

It demonstrates that the company as a whole decided on a direction and not some pride project of a sitting CEO. Definitely a plus for investors!

The founders of the company are still on the board as chairman and vice chairman. They are in their 70’s and usually I am not a fan of older people in such positions. Some tend to be to conservative and hold off on progression.

However, since they are the founders they want to build a long sustaining company. And it shows with moving away from wafer fabs.

Another positive is how the CEO, executives and the board handled the pandemic. The company was having a bad year filled with lockdowns. They decided to voluntarily to reduce their salary for the year. A great sign of leadership and alignment with the company.

While most employees worked on reduced hours with full pay, they had the brightness to let R&D work full hours. Because the future of the company is dependent on R&D.

Ownership

Approximately 59% of that outstanding shares are hold by insiders. This is unusually high for a public company.

The 2 founders on the board own together 37% of the shares. Another individual coming from an entrepreneurial family holds 17%. The family is affiliated with the founding of the company too.

Then there are various executives, the current and former CEO who own shares.

This distribution leaves just over 40% for outside investors. They have no grip on the direction the company is heading to.

Normally this can cause some friction. Yet, I think that it favors investors in this situation. Management is very well aligned with the investors. They have skin in the game too.

The founders built the company from 1984 and have faced many difficulties along the way. They seem to know what they are doing.

Growth

Industry reports from Mordor Intelligence and Global Market Insights report that the industry till 2034 is likely to grow around 8% CAGR.

They recognize Asia as the fastest growing market. China is expected to grow slightly above 10% and India even 11%.

These numbers outpace the typical economy growth of 6% annually.

Elmos has an presence in Asia since the early 2000s. In the last few years, they invested heavily in test facilities in China. Chinese companies love to buy chips from local vendors.

Knowing this, Elmos set up a subsidiary in 2024 and gained many sales fairly quickly. It goes at “China Speed” as the CEO likes to say. Germans are known for slow office processes with a lot of bureaucracy.

Thus seeing the CEO and management adapting quickly to a local market like that is a great for its investors.

Last year, Elmos also dipped its toe into the Indian market. Unfortunately, they have not yet elaborated on this.

I hear you thinking…

Why would the industry grow at such an incredible rate?

The automotive industry goes more and more electric. The current trends in the industry show the electrification and efficiency of passenger vehicles.

Drivers prefer more assistance systems, sensors and autonomous driving. They also want comfort premium features. These features are usually electric. Think about how you now adjust your seat with buttons instead of manually.

These trends require new and more chips. Something the semiconductor industry is happy to help with :)

Then there is the trend to go from the combustion engine to electric. Europe wants to prohibit the sale of new combustion engines. However this plan has changed a few times. Dates have changed and for who the rules apply exactly.

Car designers and manufactures want to move small local electric control units (ECU) to a central computer. Which is called software-defined vehicles. Future vehicle updates happen over the air then.

All these trends give support to a fast growing industry. Of course, markets like China and India, see an influx of drivers on the road. Prosperity allows for a larger part of the population to buy a. Car. The more cars sold, the more chips are required.

How can Elmos grow revenue?

The increasing product mix and new inventions, like the eFuse, grow sales over time. It attracts customers with new requests too.

They also move into new niches to create a larger product offering. In 2020, Elmos acquired a software company to offer a complete product of software-defined chips. Since car manufacturers move towards software-defined car designs, moving with them in the same direction creates growth.

The wafer fabs limited production and the number of offerings. The company is now free to increase both.

Competitors

Elmos has direct and indirect competitors. The industry is divided by company size. Industry giants like NXP, Infineon and Texas Instruments deliver to automotive and other industries.

They go after semiconductor productions that require larger investments and production quantities. Microcontrollers, battery management, motor control and telemetry are areas of interest to them.

The return on investment to break into small niches is too low. Such small niches are ideal for companies like Elmos, Allegro and Melexis.

Elmos has expertise in mixed-signal chip designs. They have over 40% market share in ultrasonic parking sensor ICs.

Other niches they have a meaningful market share in is LED drivers for rear and grill lights. Maybe you have seen the grill & logo lights on new models from Volkswagen. They also produce thermal sensors for EV cars. These tend to get hot and need proper sensors to control overheating.

The earlier mentioned competitors like Allegro and Melexis have other areas they excel in. But these companies also have revenue coming in from selling to other industries. Whereas Elmos is 100% focused on the automotive market.

Moat

Most semiconductor companies selling to tier-1 car manufacturers experience the same moat. The nature of the development process guaranties steady cash flow for many years to come. And once in production, no competitor can step in that easily.

The process starts with the request by the customer. The design team works alongside the customer to create a desired design. This typically takes 1 to 2 years.

When the car goes into production, the lifespan is typically 5 to 8 years before making alterations. Although it depends on the model. Afterwards, spare parts should be available for some years after the last production car rolls out of the factory.

During the model’s lifespan it is unlikely for another competitor to swoop in and become the new supplier. This protects many years of cash flow which every supplier experiences with their own products.

Elmos has another edge, which is operating in small niches and being the best. They excel in the mixed-signal expertise as explained earlier.

They developed the first ultrasonic parking sensor in the 1990s. Their 40% market share is protected by the small size and their expertise. The small size leaves less room for many competitors. Especially large companies find the return on investment low when they have to start from zero in a specific small niche.

Becoming fabless reduces the costs of their offerings. This allows them also to be more price competitive if needed.

In conclusion, I think Elmo has a narrow moat they can solidify by becoming more price competitive. Also keeping their R&D spending higher to maintain the expertise in mixed signal designs.

The Risk

Just like every company there are some standard risks related to cyber security, supply chain strains, tariffs wars and so on.

I would like to highlight the risks of going fabless as it introduces new risks for the company.

The reliance on suppliers becomes higher. During times of supply shocks, it might be harder to find available foundries to produce the chips. When producing small chip quantities, the prices are higher, than for larger quantities.

The production process in not entirely in-house anymore. The design schematics are shared with foundries. Which means an increased risk of counterfeits.

And we all know how China is a country of producing cheap copies.

It is unlikely for tier-1 manufacturers to purchase cheap copies. But another company can gets its hands on the design and start producing a competing product. This obviously reduces Elmos’ revenue.

The competing company Melexis is since the early 2000s fabless and has always managed to contain those risks. Thus it is certainly possible for Elmos manage to do the same.

Cyclicality

Everyone knows the cyclical nature of the car industry. People naturally change cars after many years of service. I recently learned, there are stark differences per European country in how long people tend to drive newly purchased cars.

Car manufacturers sell on average more cars every year. But there is a cycle where some years many cars get bought. Then there are slower years as well.

Logically, you would assume the automotive semiconductor industry experiences the same cyclicality. They are indeed not immune to it.

Yet, the industry as a whole is very resilient due to the growing number of chips required in cars, which offsets the cyclicality.

Elmos gets its revenue 100% from the automotive industry and seems to manage to grow almost every year. They do certainly better than competitors delivering to several other industries.

Conclusion

The deep dive was mainly building a case for Elmos move towards a fabless company. There is much potential for investors to profit from increased free cash flow in the coming years. It definitely allows the company to grow faster. Or return more money to the shareholders through dividends and share buybacks.

Apart from the special situation Elmos is in, the industry’s growth prospects look also promising.

Thus, I think that the coming years look bright. And think the company is an undervalued company at current prices when you take the growth potential into account.

Disclaimer
The information provided in this newsletter is for informational purposes only and does not constitute financial, investment, or professional advice. All opinions expressed herein are solely those of the author and are based on publicly available information as of the date of publication. Investments in stocks and other securities involve significant risk, including the potential loss of principal. Past performance is not indicative of future results. Readers are encouraged to do their own research and consult with a qualified financial advisor before making any investment decisions. The author and publisher of this newsletter assume no responsibility for any errors, omissions, or outcomes related to the use of this information.

By reading this newsletter, you acknowledge that the author is not liable for any decisions made based on the content provided.

• P/E is around 11.4, historically above 17.

• EV/EBIT is 7.8, Historically around 14.

• Growing retained earnings

The Business

Olvi Oyj (OMXHEX:OLVAS) is a brewery and beverage manufacturer in Finland. It is the third largest brewery in the country and is the market leader with over 50% market share.

Olvi also owns breweries and beverage manufacturers in Denmark, Estonia, Latvia, Lithuania and Belarus. The products sold in these countries besides beer are soft drinks, water, long drinks, energy/sports/wellness drinks juice, ciders and kvass. Kvass is a fermented drink with a lower alcohol content.

Olvi and its subsidiaries distribute the beverages to retailers and the hotel and restaurant channels.

The beverage industry, like the rest of the food and drink related industries, is a recession proof. The downside is limited growth for the industry. Olvi already has the largest market share in Finland and the finish population doesn’t grow fast.

To keep continuous growth for Olvi, they make strategic acquisitions from time to time. The last one was in 2021. They purchased a brewery in Denmark, named Vestfyn.

Other acquisitions in the past are A. Le Coq (Estonia), Cesu Alus (Latvia) and Volfas Engleman (Lithuania) completing the Baltic region. Olvi owns also Lidskoe Pivo in Belarus.

In Q3 of 2025, they announced three more acquisitions. A mineral bottler and a premium craft brewery in the Baltic region. The other is a brewery in Bosnia and Herzegovina expanding to Southern Europe.

Olvi owns at least 96% of every subsidiary. The Belarusian unit is the only one that operates standalone. That means that Olvi isn’t making any investments in the subsidiary. They support themselves with internal free cashflows. The unusual structure has to do with the Ukrainian war and will be discussed later.

Valuation

Competitors

I like to look at retained earnings for a long-term investment. Olvi’s retained earnings grew 6.2% annually over the last 10 years. Heineken, the International brewery, did marginally better with 6.4%.

Revenue, on the other hand, for Olvi grew 7.8% annually and Heineken only 3.8%.

Earnings per share CAGR is 9.3% over the 10 year period for Olvi. Heineken’s earnings are very inconsistent. It has negative growth over the same period.

Yet, Olvi’s P/E ratio is now hovering around 11. Heineken’s P/E is double that of Olvi.

It is a similar story with EV/EBIT of 7.8 and 14.6.

Comparing with other competitors like Anheuser-Busch InBev it is similar to Heineken. Olvi looks on paper undervalued compared to its peers.

Olvi’s price to earnings ratio used to be hovering around 20 before the Ukrainian war happened. The EV/EBIT was around 14-15. Now it is seriously lower.

And to consider that the market is projected to grow with around 6 to 7% per year till 20230 in northern Europe, according to statista.com.

Margins

In the last 10 years, Olvi managed an average gross margin of around 50. When Covid hit, it reduced to the low 40s. The cause was a price increase in packaging materials and raw materials like sugar.

The Ukrainian war continues to affect raw material pricing. But the gross margins made their move back up towards the 50s in the last two years.

The operating margins used to lie around 12.5%, but were lower the last 5 years. Management optimizes processes to reduce costs and get the margins back to 12.5%.

They are doing a good job, but they’re not back to the levels as before Covid so this is a great opportunity. The macro environment causes temporary headwinds for the company.

Moat

Olvi offers 421 drinks over various product categories. Management produces new drinks, according to the trends and listen to what the customers are looking for. The offerings reduced from +500 over the last five years to smoothen operations.

The beer brands they own have a significant market share in every country they operate in and make up most of their sales. It is hard for other companies to capture a large market share.

Every country has their own taste according to their taste buds. This makes it hard for beers brands to gain the largest market share in another country. Heineken, for example, is popular in the Netherlands and Guinness in Ireland.

The easiest way to for a foreign company to is to buy a local brewery in the targeted country. It is much harder to create a strong brand where competition exist for over 100 years.

So, I think it is save to say that Olvi has a moat for their beer brand.

Subscribe now

Risks

We mentioned earlier, the Belarusian subsidiary. Since the war in Ukraine broke out, Olvi decided to impair the Belarusian unit at the end of 2022. The government of the country did not approve at all of this impairment and a fine for Olvi followed in 2023.

This impairment and fine, made a dent in the earnings, and thus was also reflective in their retained earnings for those years.

The Belarusian subsidiary is self sustaining. The parent company only direct operations.

The major risk for Olvi is to loose the subsidiary to the Belarusian government.

You see, historically in Eastern Europe when democracies transformed to communism, many assets got confiscated by the government. Think about companies, land, houses. Everyone who was well off lost it all overnight.

The market prices the parent company with this fear in mind.

At first, it wasn’t sure if Belarus would do such a thing and nationalize Olvi’s subsidiary. Currently no such action has been taken. However they have put some other levels in place that obstruct all from completely benefiting as a parent company.

For 2024 and 2025 subsidiaries in Belarus, owned by western parent companies, aren’t allowed to pay full dividends. Olvi reports that dividends are capped for them at €3 million. The rest of the profits appear on the consolidated balance sheet but isn’t accessible by Olvi.

In the course of 2025, the Belarusian government extended the dividend limit to include 2026.

Unfortunately, this isn’t all. The government also introduced a law that prohibits Olvi from selling the subsidiary. So the company is currently caught in having the subsidiary fully consolidated on the balance sheet. There isn’t much they can do for now they only can carry on with operating the business as is.

Since the market prices Olvi so low, because of the fear of losing the subsidiary. It is like a hidden asset in plain sight. Everyone knows it is there, but doesn’t acknowledge the value.

Luckily, there is light at the end of the tunnel. Since 2025, there are numerous attempts to end the war or at least create a status quo peace agreement. When an agreement like that is in effect, investors may judge the risky subsidiary differently.

Obviously, when the market feels that the risk is falling away the price is likely to go up towards a P/E of 14.

Even when Belarus nationalizes the subsidiary, there is the expected market growth and acquisitions. In the past, Olvi has proven to grow smaller breweries faster than the beverage market grows. For example, in 2010 the beer Cesu Alus had a market share of 2-3%. Under Olvi’s wings, the brand gained a market share of 30% 12 years later.

The new acquired breweries are awaiting the same fate. With or without Belarus.

Conclusion

The prospects for the company are looking good in terms of growth through market growth and acquisitions. As discussed, the major risk is the nationalization of the Belarusian subsidiary. Which is also the hidden asset in plain sight. The market priced for the risk accordingly. But the new peace talks reduces the risk to nationalize. It means escalation.

It also looks like that the risk of nationalization of the subsidiary is being reduced. Obviously, this is more like a feeling than a fact.

When the new acquisitions are approved and they limited dividend law is taken away. These are major boost for valuation of Olvi.

I hope you liked the write up.

Disclaimer
The information provided in this newsletter is for informational purposes only and does not constitute financial, investment, or professional advice. All opinions expressed herein are solely those of the author and are based on publicly available information as of the date of publication. Investments in stocks and other securities involve significant risk, including the potential loss of principal. Past performance is not indicative of future results. Readers are encouraged to do their own research and consult with a qualified financial advisor before making any investment decisions. The author and publisher of this newsletter assume no responsibility for any errors, omissions, or outcomes related to the use of this information.

By reading this newsletter, you acknowledge that the author is not liable for any decisions made based on the content provided.