Global 100 to 1 series
Third week:
Nemetschek SE ($NEM.DE) is a German software solutions company specializing in the construction industry. A weekly thread.
It IPOed in 1999 during the .com boom and declined 98.3% in 3 years, because of stagnant revenue streams and unprofitable years.
However, the company made great moves by reducing costs e.g. letting go of employees and restructuring. It rose from its ashes and is a real compounder.
It could have been a 10-bagger if you bought it during the IPO, endured the ~98% crash, and held on with balls of steel, this meant a mediocre CAGR of 10%. But if you caught the very bottom in 2002 and held until today, it would have returned a CAGR of a whopping 37% (dividends not calculated) and a 793x in 21 years overall! This means a net margin increase from 5% (1998) to 20.18% (2022) and of course an increase of evaluation (P/E or EV/EBITA).
Remember in 2008 the stock dropped another 80%, as the subprime crisis was a gigantic headwind to the construction industry. As a well-known investor has said, in order to have a 100-bagger, you must have the eyes of a hawk, the patience of a saint, and the resolve not to sell prematurely.
In the short term, the market is a voting machine and in the long term, it is a weighing machine.
Do you remember the quote from Buffett: “Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.” As you will see from other Internet companies that I will introduce in the future, 2002–2003 would have been those golden opportunities, in hindsight of course, but imagine you knew about Nemetschek, or you used Windows (MSFT) and bought stuff from (AMZN) and understood about their competitive advantages, then:
In annual letters of 2001 and 2002, you could find that management thought that the company’s stock was trading far below its net asset value (margin of safety).
In the last 24 years, the company’s revenue made a 9.2x, from $86.7M (1998) to $801.9M (2022), with a CAGR of 9.7%, and earnings a 38x, from €4.25M (1998) to €161.9M (2022), with a CAGR of 16.4%.
However, the company compounded its revenue by only about 4% and its earnings by 9% between 1999 and 2014. And it was not profitable during 2001–2002. This tells us that in most cases if a company does well, its stock will do well, if a company does horribly, its stock will attract fewer buyers.
If you bought $NEM.DE during the IPO and kept it until 2014 you would have a miserable return of 0%, 15 years later (it began paying dividends starting in 2014), comparable to the years of 2001–2013 for SPY where you could only gather the dividends and nothing more.
The company began with a large portion owned by family insiders and still has a high insider ownership of 51%.
This blog belongs to the Global 100 to 1 series that I post weekly, see you next time!
Disclaimer:
This article is for informational purposes only and represents the author’s own opinions. It is not a formal recommendation to buy or sell any stock, as the author is not a registered investment advisor. Please do your own due diligence and/or consult a financial professional prior to making investment decisions. All investments carry risk, including loss of principal.
