Transcription
Hello everyone, and welcome back to the world's best investing podcast. I just finished reviewing a company which I think is likely to evolve into the next 100 bagger.
100 baggers are often the result of a company that's actually extraordinary, that's being priced as if it were not a great company, and a company that then goes on to execute over time. So, this company I find has something like 30 to 40x potential on multiple expansion alone because it's trading at just 0.15 times sales, as if it were quite a bad company. And in my opinion, it's not.
Then, excuse me, this company is essentially positioned to take its whole market, the whole market that it's pointing at right now, because no one has such a scalable, efficient infrastructure powering its business as HelloFresh does in the food business. So, you can see in the graph on the screen now, you can actually synthesize the thesis in this graph very quickly.
The purple line, which is revenue, has been essentially flatlining since the year 2022. So, HelloFresh obviously saw an expansion, a boom during the period of time that I can't really mention the actual term here on this platform because, you know, but it saw a boom, and then after that, it's been flatlining. So, ever since, uh, cash from operations, which is the blue line, and free cash flow per share, which is the orange line, had, you know, they declined a little bit after that period of time, and then they've been flatlining too. But now you see they're starting to tick back up, and that's because they've performed a series of efficiency measures which have ultimately reduced costs, and so now you have cash from operations and free cash flow per share ticking upwards.
You'll remember, maybe from my original deep dive, that I was talking about how these guys operate what is potentially the most complex supply chain on earth, together with, say, Amazon. So, they deliver cooked food to millions and millions of individuals. And what's special about this supply chain is that obviously the raw materials are perishable. So, the margin for error is very small. I, I think I had quite a striking, uh, measure of just how small the error, the margin of error is in the deep dive. Anyways, it's impossibly small. You, you can't get cooked food to millions of people like that unless you operate at this tremendous level of efficiency. What they've demonstrated with cash from operations and free cash flow per share ticking up now is that they are capable of sort of revisiting that complexity and taking it to the next level.
It's true that they had a quite a meaningful tax refund in the first half of 2025. So, this is not that much of a strong signal just yet, but it doesn't quite invalidate it because if you look at the margins and stuff, they're going up across the board, except for a few exceptions. You can go and and look at all the data on the written form of the update, but basically the margins are going up, and that's because these guys are saving money.
Now, what's interesting is that they are, they are positioned. I mean, if you look at the graph, um, cash production is positive. So, whatever additional money they make now by increasing the top line is likely to be highly accreted. And then you have this valuation, which is 0.15 times sales, and so it's, uh, it's actually looking very, very symmetric. Um, however, the, the nature of the top line to me isn't clear just yet. So, I've been talking to people that use this service, and they say, well, sometimes I use it, sometimes I don't. And then I have some friends that were on it and now they're not, and, and they say stuff like, you know, it's, it doesn't, I don't know if it makes that much sense for me, but I kind of liked it.
So, the bottom line is these guys haven't yet, uh, hit a value to price ratio wide enough for this to become a no-brainer for customers. The moment this becomes a no-brainer for customers is when they make the supermarket redundant. So, essentially, when you get access to the highest quality food, or quite high quality food, and you get it prepared, delivered to your door, uh, in a way that sort of checks all the health boxes that people are now concerned about. So, you know, gluten-free, lactose-free, maybe, uh, no preservatives, you know, uh, like E200, and, you know, that kind of stuff. At that moment, when they make the supermarket look silly, then this thing really does, I think, become a much, much larger company. And then combined with the sort of coiled valuation and the asymmetric nature of the cash flow, I think that produces a marvelous success story, maybe if they manage to to fix the top line.
Now, and going back to my original deep dive, I talked about how in order to get the whole supply chain right and produce cash, which is really formidable, that they can do this even though they're flatlining, among other things. Apart from doing the whole sort of supply chain, operating it with tremendous efficiency, they also need to have a very, very accurate LTV machine, lifetime value machine. You guys will know, if you've been following my work for some time, that is the primary asset that actually powers shareholder returns for companies like Spotify. When I reviewed Lemonade recently, that's one of the things I was zeroing in on, which is they, they have this sort of built-in intelligence which is systematic, right? Driven by data largely, which enables them to predict how lifetime value is going to evolve per every potential tweak that you could think of. And so these guys actually have a very, very good LTV machine. And therefore, now that after Q2 2025, they've decided to shift their focus increasingly towards actually delivering more value to end customers instead of getting more efficient, I think the odds of them getting that right are actually quite meaningful.
So, here are some of the measures they actually already implemented in H1 2025 before now focusing on the bulk of measures which they term under a program called the refresh. So, that's kind of the branding, the internal branding and external they have of this new face of the company. But here's some of the things they did in Canada. They doubled weekly meal options and enabled customers to combine HelloFresh meal kits with Factor ready-to-eat meals. In the UK, they redesigned the unboxing experience with fresh packaging, larger vegetable portions, and seafood. A lot of people were complaining there was no seafood in this thing. In Germany, they launched organic proteins and dairy. They switched to grass-fed beef, which really resonated with me. That's really the only kind of beef I like to eat, and added street food specials. Quite interesting. In the US, they expanded the meal kit menu by 50% to over 100 weekly options, improved portion sizes and menu variety, and refreshed packaging. Then, Factor US, which is a brand they have for the RT division in the US, which is ready-to-eat, also doubled its menu with premium proteins and seafood, with further enhancements planned for GLP-1 offerings and delivery options later in the year.
So, qualitatively, what they're doing is moving in this direction in which effectively they might be able to render supermarkets obsolete. Now, if from a very kind of grounded approach, if I mean making supermarkets redundant is very hard because it means you're going to have to operate at a much higher level of efficiency than the supermarkets themselves do because you take the whole, you take the whole market the moment you essentially sell for the same price supermarkets do, but you actually deliver the end product cooked and at a higher quality or similar quality that you could produce yourself in your house. But I don't think it's impossible for these guys. I think they can actually do it. I think the CEO is really smart. Um, the complexity they've had to deal with in order to get to produce cash and everything, I think it's just extraordinary. I don't think I've seen something like this for a long time. Um, I mean, you could argue the level of complexity they're dealing with is similar to stuff like Iron and Rivian and and companies like this, and so pretty much on par. But these guys are producing cash. Yet the story has been absolutely left for dead by the market because of the flatlining revenue since this period of time in which we know everyone was locked in the house. And so actually, the, the value to price ratio was a lot wider back then than it is now because people can now actually leave the house.
But, um, so as I was saying, now that their focus is on delivering incremental value to customers per dollar spent, and they're sort of doing these things which to me as a potential customer resonates a lot, especially the grass-fed beef and the seafood and the fresh vegetables and stuff like that. Now that they're focusing on that, because of the infrastructure they have underneath, which is really quite efficient, producing cash, and, and this LTV machine, which, by the way, they say they have, but I'm just particularly sure they do, because otherwise they wouldn't be printing a single euro in cash. I think it's fairly likely that they actually get this right.
Now, one thing, a word of caution, uh, RTE, ready-to-eat, actually didn't grow much this quarter, and that's because the, the quite ambitious push to deliver more value to customers per dollar spent. So, all these examples I was just giving you guys of, uh, Canada, the US, UK, actually led to some operational mistakes which declined, which led to a decline in customer satisfaction on the RTE side. Now, over the past few years, the flatlining has been due to two factors, which is the revenue from meal kits contracting because they just don't make as much sense, uh, after that period of time that we lived through, and then RTE growing really quickly. So, are ready-to-eat. Ready-to-eat makes a lot of sense for busy professionals that don't have time to cook, and that's what they've been focusing their marketing on over the past year or so. Um, that is what has aided them to make, to produce better unit economics. So, previously, this business actually relied on heavy incentives on behalf of the business, which wasn't great, and obviously, this is how they got to this valuation multiple. But marketing has been a very important part of the efficiency metric. The thing is, if RT is not growing now, and that's not really a great sign. I tend to take the word of this management team seriously because tracking them over time, I realize these guys are very, very, very good at their job, and they're actually, to me, they, they essentially say they, they essentially do what they said they were going to do, and so I quite like them. But anyway, it's not a great sign to see RT declining when that's the thing that has essentially been holding up the top line.
So, the thesis is not quite at the stage where I would say I'm going to bet heavy on this thing. But you, you might agree with me, probably, that this is quite extraordinary, in that you just, you just don't have scenarios like this very much. As I said, extraordinarily complex supply chain. Essentially, no competition at that level, because you have other companies that do this, but they have, they don't have an infrastructure that's anywhere near this thing. And so asymmetric in terms of the valuation. If they can fix the top line, and, and then if they do fix the top line and have this ability to to essentially widen the value price ratio enough that they make supermarkets seem like a silly thing for a growing volume of demographic pockets. It doesn't have to be everyone at the same time. Then this thing really goes on to take an entire market of its own. I'm not saying people are just going to eat from, uh, HelloFresh, but you know what I mean. Like anything that's cooking at home, this thing is likely to take a meaningful chunk off, if, if they can fix the top line thing. And that's not only the actual quality of the food, but how they marketed and stuff.
So, for me to be a customer of this thing, I need to know everything I'm eating is absolutely organic, antibiotic-free. If it's beef, grass-fed. If it's fish, I need to know it's not full of heavy metals, plastic. So, you know, the kind of fish that's good. The vegetables, I want it to be non-GMO. I want everything to be non-GMO. No seed oil. So, no canola, no sunflower oil, just olive oil, butter, grass-fed, worst-case scenario if it's not olive oil. That's the kind of customer I am. And, and so that's why qualitatively these measures resonated with me, because now I think they're moving in that direction. Then also, I've seen HelloFresh ads around the places I spend time in here in Madrid and, and London, and, and stuff like that, and I see people using this thing. So, I'm, I'm fairly bullish on their ability to distribute, and I think this is a brand that's, it's somehow increasingly present in my life.
So, just, just to give you some context of how I put this in terms of, uh, an allocation matrix, when I looked at Spotify and I went all in, it was like this, but the top line, um, was actually growing quite healthfully, and everyone was using this thing around it, and it was a question of why do these guys not make profits. Remember, everyone was talking about how they have to pay 75% of the money they made to labels, and then I saw, I saw the potential, the high likelihood of operating leverage increasing with the deployment of subsequent audio and now video verticals, and all of that. And if I were to see that kind of traction around me of everyone using this thing, that would be basically a pseudo confirmation that they're fixing the top line thing, that their infrastructure now is so efficient that they, I mean, they are. They are positioned for a kind of slam dunk here.
So, I was talking about the overarching supermarket made silly thesis, but they don't have to quite get there to to do very well. They just have to nail the pockets. The question is, can they do it? I'm not 100% sure of this, which is why I'll continue tracking the company going forward, but I really like this setup. Um, and this is the sort of thing that I think I might be able to make 100x my money on. And, uh, I mean, you guys know, for now, I'm delighted with my portfolio, but I continue studying these companies because you never know. I'm very attracted, um, by the idea of, you know, one of these high-performing investments that I've made, uh, over the past decade, like say, even AMD right now. Imagine reinvesting all of that into a high conviction opportunity of this grade. This thing is trading at peanuts. I don't think it's even trading at a few billion dollars. Let me just check for you guys. So, just imagine it's, it's, I mean, it's kind of like catching AMD back at $4.20, but doing so with millions of dollars instead of with, uh, with less capital. That would literally be a dream. Uh, you guys wouldn't see me, uh, making another video again. No, I'm kidding. I love making videos. I love being here, uh, because it accelerates my learning curve primarily. Yeah.
So, it's trading at 1.23 billion euros. That's literally peanuts. I'm sure if they were to sell the, the infrastructure they have, uh, the actual infrastructure would be worth a lot more than this, because just, it's just pretty extraordinary. So, anyways, guys, uh, I'm going to continue studying this company. If you enjoyed this update on this thesis, and if you enjoyed the original, uh, deep dive, could you please share this with one friend whom you think will enjoy it? These deep dives and updates are for free, and so the only way this grows is with y'all. So, thank you very much in advance. Take care, and see you next.