Effectively, American Express combines payment solutions, financing and consumption through its partnership network. That’s a strong moat. To determine whether or not the stock is a buy we have to look deeper.

What changed beneath the surface

At first we must clarify an important distinction. American Express cannot be compared to Visa or Mastercard as it also operates as a bank that assumes credit risk. Consequently we have to take a hybrid approach that evaluates banking and industrial metrics simultaneously.

• Growth: American Express has grown considerably faster than a mature financial company normally would. Revenue increased from $47.1bn in 2019 to $80.5bn in 2025.

  Excluding the pandemic disruption, growth remained above 8% every year. That matters because Amex is already a huge business: sustained high-single-digit growth at this scale is evidence that the franchise is still expanding rather than merely protecting its existing customer base.

  Growth above 20% in 2022-23 shows evidence of inflation resilience where customers spent right through inflation and Amex benefiting accordingly.

• Profitability has kept pace. Net income reached $10.8bn in 2025, versus $6.8bn in 2019. That’s a consistent growth of 8% which is high for Amex hybrid business model.

• More useful for a financial company is ROE which measures how effective the company generates profits on the shareholder capital. American Express has produced roughly 32–35% ROE since 2022 - a very strong return.

• FCF reached $15.4bn in 2025, while net debt/EBITDA was only 0.6x. Those numbers look attractive, but Amex is a bank holding company. Deposits, lending and debt are part of how it operates. Conventional FCF, EBITDA and net-debt ratios therefore tell us less than they would for industrial or tech companies. So we we put a little less weight on these metrics.

Instead, we need to look at the credit book.

And that is where the investment case gets stronger.

The bank inside American Express looks healthy

Q2 revenue increased 10%, while billed business (the amount customers actually spent on Amex cards) increased 9%. Card balances and other loans grew 8%.

Normally, growing lending deserves scrutiny. More loans can generate more interest income today while creating credit losses tomorrow. That isn’t what the current numbers show.

The technicalities: The 30+ day delinquency rate fell from 1.3% to 1.2%. Principal write-offs remained at 2.0%. Credit-loss provisions actually declined 23%. And Amex maintained a 10.4% CET1 capital ratio, inside management’s 10–11% target range.

In simple terms: Amex is lending more without yet seeing customers struggle more to repay it.

The card franchise may be even more interesting

The quality of American Express isn’t simply that people use its cards.

It is who uses them and how much Amex can earn from them.

Average spending per proprietary card increased 6% in Q2. Average annualized fee per card increased 12%, from $117 to $131. Net card-fee revenue increased 15%.

Amex is therefore getting two forms of growth from the same franchise: customers are spending more, while the company is collecting more membership revenue per card.

But there is a cost!

Card Member services expense jumped 50% in Q2 as customers used more benefits and Amex expanded its Platinum offering. That led to total expenses growing at 12%, while revenue only grew at 10%.

Premium customers are valuable but keeping them loyal isn’t free.

The pattern in a nutshell

There is no clear structural distortion case observable.

Instead, American Express requires a hybrid analysis of corporate signals and banking signals.

• Revenue & net income growth: ~8–10% above sector but slowing

• FCF: strong vs peers but volatile

• Capital efficiency (RoE): strong

• Capital base: strong with CET1 >10% (regulatory metric)

• Valuation metrics: attractive

The corporate numbers say the business is profitable.

The banking numbers tell us whether those profits are being created by taking excessive credit risk. Right now, they aren’t.

Why investors may misread the valuation

American Express trades at roughly 21x TTM earnings, compared with almost 24x based on 2025 earnings and based on an average of 20x over the past 7 years. Its FCF yield is around 6.8%.

Those numbers look inexpensive for a company producing ~10% revenue growth and >30% ROE. But comparing Amex directly with asset-light payment networks would be a mistake.

Amex deserves a lower multiple because it takes credit risk. A recession can simultaneously reduce card spending and increase customer defaults. Mastercard and Visa don’t carry that risk to the same extent.

A dividend discount model (DDM) is the most appropriate model to value American Express. Assuming an annual net income growth of 8-9% p.a (in line with history), a CET1 ratio > 10% (regulatory requirement), a discount rate of 8% (corresponding to it’s beta slightly above 1) yields a fair value of $ 220bn while the business is currently worth $ 225bn.

So does the current price level sufficiently compensates investors for the additional credit risk?

Today, the evidence says yes but not overwhelmingly so. The Financial X-Ray supports the results from the DDM above by taking the metrics discussed herein and by adjusting the valuation multiples accordingly. The result is displayed visually.

A transparent view on what the X-Ray does can be found on my website where I cover 800+ stocks using the exact same framework to see strengths and weaknesses in seconds.

X-Ray Methodology

The insight

American Express looks like a Buy, but not a deep-value one.

The investment case rests on an unusual combination: roughly 10% revenue growth, 36% ROE, increasing card spending, rising membership fees and currently healthy credit quality.

The risk is equally clear. Expenses are growing quickly, the company carries consumer credit risk, and its premium customer economics depend on continuing to offer benefits customers actually value.

The attraction is that investors currently get some of the economics of a premium payments franchise without paying a premium payments-network valuation.

At today’s price, that looks attractive enough.

Disclaimer: This is not investment advice to buy sell or hold any security.

They become much harder to evaluate when growth slows, losses persist and shareholders are diluted through stock-based compensation. We’ve seen this across many AI and software stocks recently.

The Financial X-Ray applies a consistent framework to evaluate financial health, management quality, growth and valuation together with a simple purpose.

To buy quality stocks at decent prices.

To outperform the market without loading up on risk.

I store the results across 800+ companies on my website, ready for you to inspect.

Stocks with an X-Ray score of strong have outperformed the S&P 500 by 50% over the past 3 years.

X-Ray platform

Today, one AI and automation company caught my attention. Its stock has fallen 81% over five years, yet the framework now rates the business Strong, with High upside.

Let’s look at the business underneath it and why it has finally become investable for the Financial X-Ray.

The numbers are changing

Revenue has grown from $336 million in 2020 to $1.61 billion in 2026. That’s an annual growth rate of 30%. Growth has slowed substantially from the early years, but accelerated slightly to 12.7% last year, and to 17% in the last quarter.

More important is what happened to profitability.

EBITDA improved from a $299 million loss in 2023 to a $118 million profit in 2026, taking the EBITDA margin from -28.2% to +7.3%. The recent quarterly report confirmed that trend bringing the margin above 8%.

That’s the transition I’m interested in.

Revenue is still growing, but increasingly more of that revenue is reaching the bottom line.

Let’s look at the convincing facts:

• Free Cash Flow: the company generated $292 million in 2024, $300 million in 2025 and $327 million in 2026. Historically that number was driven by larges amounts of stock-based compensation (a scenario where the company pays its employees with stock options to avoid a direct cash expense). Such a situation should not persist for a long time as it weakens the position of existing equity holder and eventually employees must be paid in hard cash. But the direction is encouraging: stock-based compensation is down to 53 million from 75 million in the first quarter, while share buybacks have increased.

• The business also holds substantial net cash, giving it financial flexibility while the AI market develops. A large amount of debt would be paralysing at this stage as it constraints the free allocation of capital.

So this is no longer a business promising that cash generation will eventually arrive.

It’s already here.

There is one number I’d largely ignore.

Net income jumped to $282 million in 2026, producing a 17.5% net margin. A large tax benefit contributed to that result, so I wouldn’t extrapolate the headline earnings.

Fortunately, the investment case doesn’t need it.

Positive EBITDA and three consecutive years of substantial free cash flow provide much cleaner evidence of improving underlying economics.

Stock-based compensation remains the biggest financial concern.

That’s something I’ll continue watching closely.

Why the X-Ray bought it

Put everything together:

• Revenue growth is reaccelerating.

• EBITDA has turned positive.

• Free cash flow has exceeded $290 million for three consecutive years.

• The balance sheet is strong.

• Stock-based compensation is moving in the right direction.

• And valuation no longer requires extraordinary future growth.

The stock currently offers a 4.7% free-cash-flow yield, while the Financial X-Ray rates its valuation Strong.

That’s why the algorithm selected it.

What could prove us wrong?

The transition is far from complete.

ROIC is only 3.4%. Profitability has a short track record. Stock-based compensation remains high. And the competitive position is only rated Medium.

Then there’s AI itself.

AI creates enormous demand for automation, but it also lowers technological barriers and increases competition.

So the question is whether this company can remain an important part of how enterprises deploy automation as AI becomes more capable.

That’s what I’d watch.

The Financial X-Ray simply tells us here:

The financial evidence has improved enough, and the valuation has fallen far enough, for the potential return to justify the remaining risks.

The stock is now part of the portfolio with a small 2% capital allocation. I see an upside potential but it comes at a certain risk worth taking.

Behind the paywall I’ll reveal the companies name and its moat.

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• Flagship articles highlighting stock ideas (like this one)

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Revenue split: iPhone 53%, Services 25% (App Store, iCloud, Music, TC) Wearables & iMac & iPad 22%.

The problem has not been profitability. It has been growth. But In Q3 2026 growth is back at 16% - is that a buy signal?

To answer that question let’s dive into the financials.

What changed beneath the surface

A short glimpse at the block at the bottom right reveals: This is not cheap. Stable compounders are expected to trade at a FCF yield of 3-4% (not 2.2%), a PE ratio of 25-30x (not 40x) and and EV / EBITDA of 15-20x (not 27x). Values closer to Apples historical levels.

→ A short recap on what these metrics mean and how to evaluate them HERE.

Apple’s historical financials explain why investors are willing to pay a premium.

Revenue increased from $260 billion in 2019 to $416 billion in 2025 - an annual growth of 8% - that’s decent but not impressive.

The more impressive numbers sit below revenue.

• Net margin increased from 21% to 27% showing that the business is getting more cost efficient while defending market share. Only companies with a strong competitive advantage can achieve that in such a stable manner.

• ROIC increased from 19.6% to 32.1%. In plain words: Every dollar invested generates substantially more value, a sign of efficiency. For comparison: a normal ROIC for such as business is only 12%.

• Net debt fell from $109 billion in 2022 to $76 billion in 2025 strengthening the balance sheet. Banks look at the Net debt to EBITDA ratio which is at 0.5x - an extremely strong value (below 1.5x is considered strong).

• And Apple generated approximately $100 billion of FCF in 2025 with a constant trend.

Apple requires surprisingly little physical investment. Only 3% of the companies sales are reinvested in the business. Amazon, Google or Meta use rates of above 20% during the AI boom.

That means management does not yet see a reason to commit tens of billions of shareholder capital to infrastructure before the economics of AI monetization become clearer.

The Financial X-Ray consequently rates management quality Strong, highlighting disciplined capital allocation and reliable forecasting.

But restraint only creates value if Apple is right.

That means for now Apple can generate enormous profits without continuously pouring a large share of its revenue back into factories and infrastructure.

Q3 2026

In Q3 2026, revenue increased 16% to $109.4 billion. iPhone sales reaccelerated sharply by 22%, with the Services segment expanding double digits as well. That’s an increase we haven’t seen in 4 years. Profitability and cash generation are equally strong.

Greater China is particularly relevant because weakness there had been one of the major concerns surrounding Apple.

That changes the investment discussion. A return to double-digit growth makes the premium easier to defend.

The pattern at work

Apple doesn’t fit one of the negative Financial X-Ray patterns we’ve discussed.

The financial picture is remarkably clean:

• Revenue: growth reaccelerating in Q3

• Net margin: strong at ~27%

• FCF: medium due to weak growth

• ROIC: strong >30%

• Management quality: strong

• Valuation: normal

The tension is the gap between business quality and the return investors can reasonably expect from today’s price.

Valuation & why investors may misread it

Look at Apples current valuation of $4.45T today. It generates approximately $100 billion of annual FCF = a yield of 2.2% ( below the historical average of 3-4%).

Investors accept that low current cash return because they expect Apple’s cash generation to grow substantially.

Now assume Apple’s valuation gradually normalizes and the stock trades at a still-premium 3% FCF yield in five years.

For you to make a 10% annual return on the stock for five years, FCF would need to grow at 17%. If the yield stays at 2.2%, FCF would have to grow by 10%.

Now compare that with history.

From 2019 to 2025, FCF compounded at only around 9% annually.

The Financial X-Ray does the thinking for you and visualizes the fair value in a chart.

With the stock trading near the upper end of the fair value band investors should expect a lower return from an investment.

The insight

Apple’s financial quality is difficult to fault.

Margins are around 35%. ROIC exceeds 30%. Capex remains unusually low. Debt is declining. The company generates around $100 billion of FCF annually, and Q3 suggests revenue and iPhone growth may be reaccelerating.

Management’s reluctance to join the AI infrastructure spending race may ultimately prove sensible. Apple has the financial strength to invest when the economics justify it rather than simply because competitors are spending.

But investors are already paying heavily for that quality.

At a 2.2% FCF yield, a 10% annual return becomes difficult if Apple’s valuation moves even modestly toward historical norms. At a 3% FCF yield five years from now, roughly 17% annual FCF growth would be required to support that return.

It is achievable, but not a free lunch.

The Financial X-Ray makes the distinction visible: the business has exceptional margins, capital efficiency and management quality. The investment case depends on whether future cash-flow growth can justify the valuation investors already place on those strengths.

Perform that a quick sanity check on financial strength, management quality and valuation across any stock in the X-Ray universe. Stocks with an X-Ray score of strong have outperformed the S&P 500 significantly.

Explore the X-Ray

A framework is only as good as the results it produces, that’s why I like to start with the facts first:

• Stocks that were selected by the Financial X-Ray have returned 141% since inception in June 2023. The S&P 500 has returned 85% over the same period.

• The portfolio consists of 40 stocks with no position larger than 3%

This is not proof that I found a magic formula because 3 years is not 20 years. But it is evidence enough that this framework deserves attention.

The approach

The Financial X-Ray approach is as simple as it can be - find quality stocks at attractive prices without chasing hype.

Therefore, I screen 800+ stocks for financial health, management quality, growth outlook and a fair valuation.

Each category contains several metrics that are tested for stability, evaluated over time and in comparison with peers. A low PE ratio means little if profitability breaks, growth is less important if debt accumulates and a strong margin can be deceptive if the capital spending is simply too high to maintain it.

The key: we have to read financials together as a system.

The Financial X-Ray was designed to interpret and balance hundreds of raw metrics for you and to return a simple traffic light assessment per category.

Details on what metrics were analysed (margins, cash flows, capital efficiency, share based compensation etc) can be found when you click on “view report” .

So basically anyone is welcome to sanity check a stock in seconds.

The tool is accessible to you on my website.

The selection

Now what companies are truly worth owning according to the framework? Of course, everyone likes to find the next 100 bagger, but the probability of finding these consistently is close to zero. Instead we can find quality stocks with limited downside risk trading at attractive prices.

So what’s inside the portfolio? I like to flag 3 positions here.

• Vertiv is up 80% since its addition about a year ago. The company provides digital infrastructure solutions such as power management, cooling, and monitoring for data centers and communications. It’s competitive position is outstanding and characterised by strong margins, high ROE, and stable revenue growth. Free cash flow aligns with sector averages, underscoring commercial strength and the importance of ongoing capital discipline.

• Trane Technologies up 210% since its addition in June 2023. It designs, manufactures, and services HVAC and transport refrigeration systems globally. While cash generation is only average, Trane’s strong ROE, stable revenue growth, strong capital efficiency and strong balance sheet support its position as a market leader.

• The Travelers Companies is up 130% since it was added in June 2023. It is a major property and casualty insurer, serving commercial and personal clients in the U.S. and internationally. Even though Travelers displays average net margins for the sector, its strong return on equity, high premium income growth stability, and operating excellence across all three business segments make Travelers stick out.

Closing words

In all cases you see that financial statements actually reveal a lot about an economic moat, a true strength. A company without pricing power cannot show superior margins over time. One without an efficient use of its capital will hardly grow over time.

It is intentional, not to focus on the most recent quarter, the next growth leg or news.

Eventually, quality sits in the numbers, and shows up consistently over time. That’s where I believe private investors can find better returns at reasonable risk.

You can see the entire portfolio of stocks and the ones that are rated “cheap” here:

See portfolio

Paid subscribers benefit from full platform access to sanity check more than 800 stocks, build and roast their portfolio and get full transparency on portfolio movements - all based on the same framework.

Thanks for reading.

Nick

The investment case looks straightforward: free cash flow has recovered, debt is falling and the stock trades at roughly 11.5x earnings.

But airlines have structurally difficult economics. Aircraft require continuous investment, margins are relatively thin, fuel prices are largely outside management’s control and demand is cyclical.

So what changed beneath the surface

Delta’s recovery since the pandemic is real.

Revenue reached $63.4 billion in 2025, up from $47.0 billion in 2019. FCF recovered to $3.6 billion, while net debt fell from $27.3 billion in 2022 to $16.8 billion.

Those are meaningful improvements. Delta is generating cash again and repairing its balance sheet.

But the quality of those earnings matters.

EBITDA margins have generally remained around 10–15% since 2022, versus 19.3% in 2019, while ROIC was only 3.1% in 2025. ROIC measures the operating profit per dollar invested and a level above the companies cost of capital (approx 8-10%) would be value accretive.

Why does that matter?

Airlines require enormous amounts of capital to generate their revenue. Aircraft need to be purchased, maintained and eventually replaced. A low return on invested capital therefore tells us that large amounts of investment have historically produced relatively modest economic returns.

That is very different from a capital-light business that can grow without continuously reinvesting billions.

Q2 shows the problem: Delta’s latest quarter was not weak from a demand perspective. Adjusted revenue increased 13.9%. Passenger revenue grew 13%, premium revenue 17% and loyalty-related revenue 19%, while capacity increased only around 1%.

That is strong commercial performance. But operating expenses increased 20%. Fuel expense increased 77%, while even non-fuel unit costs rose 6.8%.

The result:

• Revenue: +13.9%

• Operating income: -24%

• Operating margin: 13.3% → 8.8%

• Free cash flow: $733m → $209m

This is the central issue.

Delta sold substantially more, but kept substantially less.

Fuel prices were the largest driver, and Delta cannot control them. Higher ticket prices can compensate, but only to a point because passengers can switch airlines or reduce travel altogether. As a buffer against oil-price shocks and as a competitive advantage, Delta owns the Monroe refinery that generated an operating profit 350 million in Q2, however not enough to offset the risen input costs.

That makes future profitability inherently harder to predict.

The pattern that becomes visible

The Financial X-Ray let’s you identify strengths and pain points in seconds and shows a mixed picture for Delta:

• Revenue growth: slowing

• Margins: low and volatile

• Free cash flow: improving but unpredictable

• Net debt: improving

• ROIC: weak

• Valuation: attractive

There is no obvious financial red flag. This pattern reminds me of a Balance Sheet Mirage, where a strengthening balance sheet (improving debt and robust equity) mask a weakening operating engine.

The problem here is not weakness, it’s robustness.

Delta’s financial results depend heavily on variables management cannot fully control. That reduces confidence in any valuation based on a single year’s earnings or cash flow. In a nutshell, the X-Ray assigns a neutral rating to Delta, summarized below.

Why investors may misread the valuation

Let’s revisit the financial metrics table above. At roughly 11.5x earnings, Delta looks cheap. Most industrial businesses trade at 15-25x earnings.

But low multiples should be interpreted differently depending on the business behind them.

A company with recurring revenue, 30% net margin and predictable cash flows deserves a higher multiple because investors can place greater confidence in future earnings.

Delta has 10–15% EBITDA margins, significant capital requirements, volatile fuel costs and cyclical demand.

That uncertainty deserves a discount.

The historical FCF numbers make the point:

2019: $3.6bn
2020: -$7.8bn
2021: ~$0
2022: -$0.9bn
2023: $1.0bn
2024: $2.9bn
2025: $3.6bn

2026 guidance: $3-4bn

COVID explains the extreme years, but it also demonstrates how exposed airline economics are to external shocks. Right after the Pandemic, Berkshire sold all of its Airline stocks, not because of fear but because of a lack of visibility.

So the question isn’t: “Is 11.5x earnings cheap?”

It is: “Is 11.5x or 6% FCF yield cheap enough for this level of earnings uncertainty?”

Recall that investors who ask for a 10% annual return on their stock investment must also expect an annual 10% increase in FCF or earnings given the respective multiples stay at 11.5x and 6%. In 5 years, we’d have to look at a FCF of $6.8bn up from $3.5bn in 2026 (guidance) and earnings of $7.4bn up from $4.5bn.

Assuming that we’d expect a slightly higher earnings multiple of 15x and a FCF yield of 5% (optimistic airline assumptions) in 5 years, we’d still have to see 5% growth on both metrics per year.

This hasn’t been achieved over the past 7 years and judging by the variability of margins and capital spending, I do not feel comfortable making that bet.

The Financial X-Ray captures that thinking for you. The stock is cheap, but it’s balance sheet support is not enough to rate it “strong” on the X-Ray score.

The insight

There are reasons to like Delta.

Debt is falling. FCF has recovered. Premium revenue is growing faster than the main cabin, and loyalty-related revenue increased 19% in Q2. Management still expects $3–4 billion of FCF in 2026 despite the current fuel headwind.

But Q2 also provides a useful reality check:

Revenue +14%. Operating profit -24%.

That is why Delta trades at a low multiple.

The stock may still be undervalued. But this looks less like a wonderful business temporarily offered at a bargain price and more like an average business available at an attractive price.

For investors, those are two very different propositions.

The Financial X-Ray makes that distinction visible: not simply whether a stock is cheap, but whether the quality and predictability of the underlying business justify taking advantage of that price.

Stocks rated “strong” on the Financial X-Ray Score have outperformed the S&P 500 since inception. I track that performance on my website. Hit the button below and give it a look.

Thanks for reading.

Financial X-Ray

Good businesses make money. Good businesses bought at attractive prices can make considerably more - and that’s the journey I’d like to share with you

The difficult part is deciding when those two conditions actually meet.

A company can have an exceptional balance sheet and still be too expensive. A stock can look cheap while its underlying business deteriorates. And a falling share price tells us almost nothing about whether the expected return has actually improved.

That’s why I built the Financial X-Ray as a systematic framework.

Every month, it evaluates more than 800 companies across financial health, management quality, growth, valuation and competitive strength. A company only enters the Selection when those factors collectively become strong enough to justify allocating capital.

That discipline has mattered.

I don’t show this chart because I expect that gap to widen every year.

I show it because it illustrates what the framework is trying to achieve: attractive returns without needing to predict the next market winner.

And this month, the algorithm made two new decisions.

It added two businesses to the Financial X-Ray Selection.

One has fallen 22.8% this year.

The other is down 12.9%.

They operate in completely different industries. Their growth profiles are different. Their risks are different. Even the reasons investors have become cautious are different.

Yet the Financial X-Ray reached the same conclusion:

The price now compensates us sufficiently for those risks.

That makes them particularly interesting.

Two very different paths to the same conclusion

Before revealing the companies, let’s remove their names and look at what the framework sees.

Company A offers an attractive growth profile, strong cash generation, low debt and attractive valuation backed by the balance sheet.

There is no such thing as the perfect company. Every stock has a risk profile. The Financial X-Ray is build to show you these risks and it flags important trend signals. Cash flow is volatile, debt is rising and forecast visibility is limited.

It is important to be aware of these circumstances and to evaluate them in context. The green light does just that for you.

The company’s share price is down 22.8% this year. Underneath that decline, however, the financial picture has been moving in the opposite direction.

The Financial X-Ray currently rates the business Strong overall, with Strong financial health, Strong growth and Strong valuation.

The first reason is improving profitability.

EBITDA margin fell sharply from 56% in 2021 to just 24.2% in 2022. Since then, it has recovered to 41.3% in 2025, an exceptional level of profitability.

More importantly, margins aren’t recovering while the business stagnates. Revenue growth accelerated from 5.1% to 15.6% in the latest year.

That combination matters.

When revenue growth accelerates while margins expand, earnings can grow considerably faster than sales. The company isn’t simply getting bigger; the economics of each incremental dollar of revenue are improving.

Cash generation supports that picture. Free cash flow exceeded $22 billion in 2025. It has shown some year-to-year variability, but remains substantial, while net debt of only 0.9× EBITDA leaves the balance sheet with plenty of room to manoeuvre (when net debt divided by EBITDA stays below 2x, banks usually regard a business as financially flexible).

So far, we have a growing business, margins back above 40%, strong cash generation and manageable leverage.

The stock currently trades at around 17.7× TTM earnings, while its free-cash-flow yield is approximately 4%. EV/EBITDA stands at roughly 12.1×.

For context, comparable businesses in the industry currently tend to offer free-cash-flow yields below 3% while P/E multiples frequently exceed 25×.

In simple terms, investors are currently paying a lower multiple of earnings while receiving more free cash flow for every dollar invested.

That’s why the Financial X-Ray doesn’t merely see a good business. It sees an increasingly attractive risk/reward equation.

So why is the stock down?

Because the risks are real.

Regulation remains important. Geographic and product concentration are high, and free cash flow has historically been more variable than the headline 2025 number might suggest.

You can see why the Financial X-Ray flags these issues.

But you can also see why they aren’t enough to overturn the investment case.

The balance sheet isn’t signalling financial stress. Growth isn’t deteriorating. Margins aren’t collapsing. And the valuation isn’t asking us to ignore those risks.

The risks are present, but the price increasingly compensates us for taking them.

And that brings us to the conclusion:

Strong business. Strong financial foundations. And a price that has fallen far enough for the expected return to become attractive.

The stock wasn’t selected because it fell 22.8%.

It was selected because the price fell while the underlying financial evidence remained strong and in several areas continued to improve.

That’s the distinction that makes investing interesting.

Behind the paywall you’ll see the second company and the full names.

To see what companies the FInancial X-Ray flags as attractive investments (the portfolio) and where financial health, management, growth and valuation offer an attractive risk return profile explore the platform.

X-Ray platform

Read more

Its platform lets advertisers decide where, when and at what price to buy digital advertising across connected TV, video, audio and other channels.

Unlike Google or Amazon, it does not own the advertising inventory it recommends. It primarily earns fees based on the advertising spend processed through its platform.

That model has historically produced something investors value highly: growth without requiring large amounts of capital.

Investors once paid extraordinary multiples for that combination.

Today, they don’t.

Has the price deteriorated more than the business?

In order to answer that question and to see whether the current valuation level is justified we must take a look at the financials first.

The changes I see beneath the surface

The historical financials explain why the selloff deserves attention.

• Revenue increased from roughly $661 million in 2019 to $2.9 billion in 2025. That’s an annual growth of 28% over 7 years. Few companies in the technology field achieve that.

• EBITDA which reflects the profitability of the operating business increased to a new high of 26% after it fell in 2021/22. During that time the company invested aggressively in people, sales, technology and the infrastructure required to support a much larger advertising platform.

• Net debt has stayed negative throughout the entire time indicating full financial flexibility. This is a strong quality signal for a growing tech business.

• Free cash flow rose from only $20 million to $791 million consistently. That matters because growth alone does not create value. Companies can grow by spending aggressively or by accumulating debt. The stronger signal is when additional revenue produces more cash without requiring proportionally more capital. That’s exactly what The Trade Desk did.

• Return on invested capital (ROIC) shows an improvement to 8% over the past year. That figure measures the profitability on the capital spent and is a measure of efficiency. While improving, the level is not satisfactory yet and it must increase further to ~12%.

So what’s the point behind the recent selloff? Lets look at Q2 2026.

• Revenue growth decelerated to 7% (first 6 months) and to 3% in Q2 only (vs 18% a year earlier)

• Net margins decreased to 7.4% (first 6 months) and recovered to 9% in Q2 (vs 15% a year earlier)

That’s alarming! Even as operating cash flow increased by 20% in the first half, the increase is not entirely sustainable due to simple working capital working capital changes.

So this is not currently a story of financial deterioration. The cash machine still works. It is a story of predictability and certainty about how fast the business can grow and scale.

The pattern I see

The latest quarter changed the picture.

• Revenue growth: Sharp slowdown

• Operating margins: High but weakening

• Free cash flow: Strong

• Balance sheet: Net cash (strong)

• Capital efficiency: below expectations

• Valuation: Strongly compressed (cheap)

A company growing 20% can justify a much higher valuation than the same company growing 3%. At 20%, revenue roughly doubles every four years. At 3%, it takes more than two decades.

So the market is repricing the future growth embedded in the stock.

And we do not yet know whether that repricing has gone too far.

Why investors may misread this phase and valuation

For years, investors faced: Strong business + high growth + extreme valuation.

The Trade Desk repeatedly traded above 100x earnings. At those prices, investors needed years of exceptional growth simply to justify what they had already paid.

Today, the equation looks closer to:

Strong business with shaky margins + uncertain growth + compressed valuation.

That dramatically changes the return mathematics.

Say investors expect a 10% annual stock price increase over a decade and assuming The Trade Desk maintains its resilience as a business model in a stable market, it is straight forward to assume that such a business would trade at 30x earnings a decade from now. That implies a growth of only 5% per year, slightly more than the most recent quarter. But it also implies that margins do not weaken further.

That is a far easier hurdle than when investors were paying more than 100x earnings.

But this is also where the latest results matter.

Even if the investment case now considers the recent 3–7% growth as a new structural reality instead of a temporary slowdown, the numbers are achievable. Once growth returns to 10% per year investors can expect an annual stock price increase of 15% - an extraordinary return.

The stock does not need to return to its old valuation to generate attractive returns. But the business does need to recover some of its old growth and maintain profitability.

The Financial X-Ray captures the tension of declining growth and resilient fundamentals. The fair value band sits comfortably above current levels with a margin of safety but it is slightly declining to reflect the challenges of uncertainty.

The Trade Desk’s valuation has compressed sharply as growth expectations have fallen.

The insight

The Trade Desk is no longer difficult to own because of its valuation.

It is difficult to value because of its growth.

The company still generates substantial cash, carries little financial risk and has historically converted growth into increasingly attractive economics. Meanwhile, the collapse in the share price has substantially reduced the expectations investors must pay for upfront.

That creates potential upside. But it is not a free lunch.

If growth returns toward sustainable double digits, today’s valuation could offer an attractive combination of business quality and price.

If low-single-digit growth becomes normal, much of the apparent discount may simply reflect a business entering a slower phase.

The opportunity therefore isn’t that the stock has fallen.

It is the possibility that expectations have fallen further than the underlying earning power of the business.

These conclusions can be derived from a simple Financial X-Ray framework that analyses financial health, management quality, growth and valuation together and over time across 800+ stocks. Stocks selected by the framework have consistently outperformed the S&P 500.

Financial X-Ray

What’s the best stock to buy today?

The answer to that is simple: Buy exceptionally strong businesses at a decent price.

That’s exactly where long-term returns are made.

The Financial X-Ray isn’t designed to find the cheapest stocks.

Its job is much harder. It tries to identify the point where an exceptional business still offers an attractive long-term return.

Sometimes that means buying.

Sometimes it means doing absolutely nothing. In the current setup we see the Financial X-Ray selection (stocks with a strong X-Ray score) increasing their outperformance vs the MSCI world index.

That discipline often feels uncomfortable.

When a company is making new highs, investors naturally assume they’ve already missed the opportunity.

Equally, when a company continues delivering exceptional results quarter after quarter, it becomes increasingly difficult to stay patient.

Nobody likes watching a great business while waiting for a better opportunity.

This week I’d like to show you one example.

Not because it’s a bad company. Quite the opposite.

It’s one of the highest-quality businesses the Financial X-Ray currently follows.

Yet it isn’t in the Selection portfolio above which has performed so well over the past 3 years.

Let’s ignore the company name for a moment.

Instead, look at the Financial X-Ray executive summary that balances opportunities and risk for you.

Without knowing the company, what would you conclude? Strong financial health. Strong growth. Solid Management. A durable competitive position. Yet it still hasn’t earned it’s place in the Financial X-Ray Selection portfolio.

So what’s missing?

Valuation.

That’s one of the biggest misconceptions in investing.

People often believe valuation is simply about buying “cheap” companies.

It isn’t.

Investors must ask: Does today’s price still leave enough room for attractive long-term returns?

Sometimes the answer is yes.

Sometimes the answer is almost.

This is one of those cases.

The business already meets almost every requirement.

A modest improvement in valuation, or continued business progress while the share price stands still, could be enough for the Financial X-Ray to allocate capital.

That’s a very different mindset from chasing momentum or trying to predict the next earnings report.

It’s simply waiting for the odds to improve.

Paid subscribers get access to the entire X-Ray portfolio, every trade, the exact capital allocation and high quality investment ideas.

Explore the X-Ray

Read more

Revenue expanded rapidly, but profits remained elusive. The company burned billions of dollars in cash, relied heavily on external funding and faced constant questions about whether its business model could ever generate sustainable returns.

That story has changed.

Today, Uber is consistently profitable, generates billions in free cash flow and has strengthened its balance sheet. Yet despite this remarkable transformation, the stock continues to trade below its estimated fair value.

At first glance, the conclusion seems obvious.

Uber looks cheap.

Let’s focus on what the Financial X-Ray – a platform that covers 800+ stocks and helps you see strengths and painpoints in seconds –reveals.

What changed beneath the surface

The financial transformation over the past few years has been remarkable.

The biggest change isn’t that the company generates more revenue – it’s that the business has fundamentally changed how it earns money.

Revenue has grown from $13 billion in 2019 to more than $52 billion in 2025, but revenue growth alone doesn’t create shareholder value. Many technology companies can grow quickly by spending aggressively. The important question is whether that growth eventually translates into profits and cash generation.

This is where Uber’s transformation becomes evident.

EBITDA has improved from a $7.4 billion operating loss to almost $7 billion of positive operating earnings. This tells us the business is no longer relying on scale alone. As Uber has expanded, each additional ride and delivery has become increasingly profitable, demonstrating meaningful operating leverage (increased unit profitability).

The strongest signal, however, comes from cash generation.

Free cash flow has increased from negative $4.6 billion to almost $9.6 billion. Cash flow is ultimately what allows a company to repay debt, invest in future growth, acquire competitors or return capital to shareholders. A business that consistently generates cash has far more strategic flexibility than one that depends on external financing.

The balance sheet tells a similar story.

Net debt (total debt minus cash) has fallen steadily while return on invested capital (ROIC - that measure the profit per dollar invested) has turned positive after years of negative returns.

Together, these metrics suggest that Uber is not only becoming financially stronger, but is also generating better returns from the capital already invested in the business.

That is an important sign that growth is becoming more efficient rather than simply larger.

Taken together, the financials show a company entering a new phase.

For years, Uber’s investment case depended on whether its business model would ever produce sustainable profits. Today, that question has largely been answered. The discussion has shifted from whether Uber can generate cash to how durable that cash generation will prove to be and if today’s price reflects that accordingly.

The pattern at work

Unlike many previous Financial X-Ray case studies, Uber does not fit neatly into one recurring financial pattern.

Instead, the financials highlight a different analytical lesson.

• Revenue: Strong growth

• EBITDA: Strong improvement

• Free cash flow: Strong and improving

• Net debt: Declining

• Return on invested capital: Improving

• Valuation: More attractive than it appears

The operating business has clearly become stronger.

However, analysts should also examine how today’s valuation metrics are produced.

Headline valuation ratios can sometimes paint a more attractive picture than the underlying operating performance alone.

Why investors often misread this phase and what it implies for valuation

Uber currently appears inexpensive on several commonly used valuation measures.

Its P/E ratio has fallen sharply to just 13.8x, while its free cash flow yield has improved to 6.9% as profitability has increased.

At the same time, the business itself has genuinely improved. Cash generation is strong. Leverage has fallen. Returns on capital continue to improve.

On the surface, those metrics suggest a meaningful margin of safety.

The fair value band captures this balance well.

But wait, why is a company trading at these multiples and growing at 18% per year backed by strong fundamentals only slightly undervalued?

The Financial X-Ray encourages investors to look one step deeper.

A significant portion of Uber’s reported net income in recent years was supported by the release of deferred tax valuation allowances. These accounting benefits increased reported earnings and free cash flow by 5.7bn and 4.3bn in 2024-25 accounting for 40-50% of net income but did not reflect additional operating profitability. (You can easily spot these abnormalities if net income > free cash flow > EBITDA. That order should mostly be reversed).

As a result, the headline P/E ratio makes the business appear somewhat cheaper than its underlying operating earnings would suggest.

The adjusted and sustainable P/E ratio would rather sit at 25x instead of 13.8x. That is nearly twice as high and a normal level for a technology business.

If investors target a 10% annual stock price increase, what growth rate do they need to expect over the next decade?

In 10 years I’d expect Uber to be a mature and well established technology platform that is a leading player in the transportation segment and as such it could trade at 20x earnings. To achieve that and accounting for the tax valuation allowances that are going to fade away, Uber must grow at 12% annually – a realistic but not a certain assumption, given its current growth rate of 18%.

Uber is not a value trap.

Nor is it the deep bargain that headline valuation metrics might imply.

Although the shares trade below estimated intrinsic value, the discount is moderated by adjusted financial, limited earnings visibility, regulatory uncertainty, execution risk and the long-term impact autonomous vehicles could have on Uber’s business model.

In other words, the market is recognising both sides of the story.

A much stronger business.

But one whose future remains more difficult to forecast than today’s valuation ratios alone suggest.

The insight

Uber has undergone one of the most impressive financial transformations in large-cap technology.

The company has evolved from a cash-burning growth story into a highly cash-generative platform with improving profitability, stronger returns on capital and a healthier balance sheet.

That deserves recognition.

At the same time, disciplined investors should avoid relying on headline valuation metrics in isolation.

Reported earnings can be influenced by accounting items that do not reflect the economics of the operating business, making simple valuation multiples appear more attractive than they really are.

The Financial X-Ray therefore reaches a balanced conclusion.

Uber appears modestly undervalued, but not by the margin that headline P/E and free cash flow metrics might initially suggest.

Looking beyond a single ratio and understanding how those numbers are generated is often the difference between finding genuine value and simply finding an attractive-looking multiple.

The Financial X-Ray helps you arrive at these conclusion in seconds. Stocks that are flagged healthy across financial health, management quality, growth and valuation have outperformed the S&P 500 by 55% over the past 3 years. Explore the platform behind it.

Financial X-Ray

I rarely analyse financial metrics in isolation.

Strong margins don’t matter much if cash flow is deteriorating. High growth is less impressive if debt keeps rising. A cheap valuation isn’t attractive if the business is weakening etc.

Professional investors assess businesses as a whole and the same principle applies to portfolios.

Owning exceptional businesses doesn’t automatically create an exceptional portfolio.

So how can you be confident that you own high quality stocks and that these quality stocks form a strong portfolio?

That’s exactly what I built the Financial X-Ray Analysis Tool for.

A paid subscriber recently gave me permission to share the analysis that the Financial X-Ray performed on his portfolio.

The purpose is to share common pitfalls that most investors are not aware of. These pitfalls prevent the portfolio from beating the S&P 500.

At first glance, this is a good portfolio.

It owns high-quality businesses across several industries. Financial health is strong, growth catalysts are present and many stocks are fairly priced. The overall rating of 6.7/10 reflects that.

But one thing stood out immediately.

Several holdings share the same underlying risks.

That’s not obvious when you analyse each company individually – but it becomes clear when you analyse the portfolio as one investment.

The Financial X-Ray is designed to uncover your:

• Portfolio character

• Structural strengths

• Hidden risks

• Holdings to watch

Behind the paywall I’ll reveal a verdict explaining what I’d be comfortable owning – and what I’d question and what prevents the portfolio from outperforming.

For most investors, this isn’t about finding another stock to buy.

It’s about gaining confidence in the portfolio they already own.

Or discovering a risk they hadn’t considered.

Explore the X-Ray

Read more

It is one of the world’s largest pharmaceutical companies, owns a portfolio of globally recognized medicines and pays an attractive dividend. After the extraordinary COVID boom, the share price has fallen sharply while valuation multiples have compressed.

Many investors see opportunity. Using a different lens – the Financial X-Ray – to evaluate several financials metrics together and not in isolation, reveals an important tension beneath the surface.

Recall that low valuation only reflects an investment opportunity if the current price is based on temporary pessimism instead of fundamental deterioration.

Let’s dive into it.

What changed beneath the surface

The reason for the gradual decline of the stock over the past 4 years (post Covid) can not be found in the stock chart. We find the answer in the financial table.

During the pandemic, Pfizer became one of the most profitable pharmaceutical companies in the world. Revenue almost doubled from $41 billion to more than $100 billion, while EBITDA margins exceeded 40%. Those numbers were extraordinary – but they were also temporary.

Once COVID-related demand faded, the business changed dramatically.

Revenue fell back to roughly $63 billion, EBITDA margins almost halved and free cash flow became one of the most volatile metrics in the entire healthcare sector.

At the same time, net debt nearly doubled following the Seagen acquisition while returns on invested capital remained well below their pandemic highs.

For context, banks usually consider a constant Net debt / EBITDA ratio below 2x as solid. Pfizer has often exceeded these level peaking at 7.1x in 2023.

When debt levels rise relative to the operating performance, financial flexibility decreases which may impact future growth, investments and distribution of capital to shareholders.

To understand why this matters, investors need context.

Revenue growth tells us whether a business continues expanding. Margins show how much profit the company earns from every dollar of sales. Free cash flow measures the cash management can actually reinvest, repay debt with or distribute to shareholders. Return on invested capital tells us how efficiently every dollar invested in the business creates future profits.

High-quality businesses usually display these metrics at a high levels, consistently over many years.

Pfizer does not.

Instead, each of the company’s key financial drivers has swung dramatically within only a few years. Take a closer look at the financials in the table again and try to anticipate the next year.

And here is the part equity analysts don’t like. Pfizer makes forecasting considerably more difficult.

The pattern at work

To determine whether a stock is genuinely cheap, analysts evaluate financial metrics together and over time.

Pfizer displays a financial pattern that the Financial X-Ray framework calls a Valuation Comfort Trap. Read more here →

At first glance, the valuation looks compelling.

But valuation never exists in isolation.

When revenue, margins and free cash flow become difficult to predict, investors naturally demand a lower valuation multiple.

Low valuation does not necessarily signal hidden value.

It often reflects uncertainty about what the business will actually earn in the future.

Why investors often misread this phase and what it implies for valuation

Many investors assume valuation is determined by today’s earnings.

In reality, valuation is determined by the predictability of tomorrow’s earnings.

This is exactly what the Financial X-Ray visualizes through the fair value band.

Businesses with stable revenue, margins and cash generation tend to produce relatively stable fair value estimates.

Businesses with highly volatile fundamentals do not.

Pfizer illustrates this perfectly.

As COVID revenues surged in 2022, intrinsic value estimates rose sharply.

As those earnings disappeared, margins collapsed and free cash flow became highly volatile, the fair value band moved lower again.

The movement is not random.

It reflects changing confidence in the company’s future cash-generating ability.

Today Pfizer trades at roughly 18x earnings and slightly below the fair value band. On the surface, that appears inexpensive.

But valuation only becomes attractive if future earnings can be forecasted with confidence.

So what return do you expect from an investment in Pfizer today?

Let’s assume you want the share price to compound by 10% annually over the next decade – a rate slightly higher than the S&P 500 index – while Pfizer continues trading around 18x earnings. In that case, profits would also need to compound at roughly 10% per year.

Now let’s go back to the original problem: forecast visibility and predictability.

Does a business whose revenue has moved from $41 billion to $100 billion and back to $63 billion, whose EBITDA margins have ranged from 16% to 46%, and whose free cash flow has fluctuated from -$39 billion to +$30 billion provide that level of predictability?

That is why the stock appears inexpensive.

The market is not only pricing current earnings.

It is pricing the absolute level of earnings and uncertainty surrounding future ones.

The Financial X-Ray does that kind of thinking for you and flags just that:

• Financial health: weak – Volatile and falling financials

• Growth outlook: weak – with limited visibility

• Valuation level: weak – not supported by the balance sheet.

The insight

Investors often search for low multiples.

Professional investors search for predictable economics.

The Financial X-Ray does not conclude that Pfizer is undervalued or overvalued.

It highlights something more important:

Valuation is ultimately a function of confidence and balance sheet support.

When business quality becomes difficult to forecast, valuation naturally compresses – even if the company remains profitable.

That is why reading one ratio in isolation rarely leads to better investment decisions.

The Financial X-Ray evaluates business quality, financial health, management quality and valuation together, allowing investors to identify hidden strengths and structural weaknesses across hundreds of companies in seconds.

Because the best investment decisions begin long before looking at the valuation multiple.

Feel free to explore the Financial X-Ray platform covering 800+ stocks on my website.

FInancial X-Ray

Leave me a comment or share your thoughts and questions.

Thanks for reading.

Nick

Most investors assume successful investing is about buying companies before everyone else discovers them.

I don’t think that’s true.

When the Financial X-Ray was built, the idea was never to identify the next 30-bagger or predict the next market trend - not because I wouldn’t love to know it – simply because I can’t do it with confidence. Instead, I focused on a much simpler question:

Has this business demonstrated enough financial quality to deserve a place in a concentrated long-term portfolio?

That distinction matters.

Buying too early often means investing in hope. Buying too late means paying for perfection. The Financial X-Ray attempts to sit somewhere in the middle – waiting patiently until the financial evidence becomes compelling while the valuation still provides attractive long-term upside.

This week I’d like to show you exactly how that decision process works.

Not by discussing the algorithm itself.

But by walking through one company that eventually qualified for the Financial X-Ray Selection.

Every company entering the Financial X-Ray Selection must satisfy a demanding set of criteria.

• Financial health must be robust enough to withstand difficult markets.

• Management must demonstrate disciplined capital allocation.

• Growth prospects cannot be weak.

• Valuation must still provide sufficient upside despite the company’s quality.

Most importantly, the overall assessment must be Strong.

No single ratio determines the outcome.

A low P/E ratio alone doesn’t qualify a company. High revenue growth alone doesn’t qualify a company. Even excellent profitability isn’t enough if investors have already priced in years of perfection.

The Financial X-Ray weighs all of these characteristics together.

That is why relatively few businesses make the final portfolio.

The stock I’d like to discuss is up 450% since June 2023 and has delivered well on all criteria.

Let’s look at the financial evidence.

The first metric I always study is profitability.

Many industrial businesses generate EBITDA margins between 10% and 20%. Businesses consistently exceeding that range usually possess some combination of pricing power, operational efficiency or competitive advantages that weaker competitors struggle to replicate.

In this case, EBITDA margins steadily expanded over several years.

That tells us far more than “profits increased.”

It suggests management wasn’t merely benefiting from higher demand. They were improving the underlying economics of the business – earning more operating profit from every dollar of revenue through better product mix, stronger pricing and greater operating leverage.

The next characteristic is capital efficiency.

Return on Equity measures how effectively management converts shareholder capital into profits.

For many mature industrial businesses, returns above 15% are considered healthy. Above 20% generally indicates a business with durable competitive advantages.

The company consistently moved into that territory.

Importantly, those returns weren’t created by excessive borrowing.

The balance sheet strengthened at the same time.

Net debt declined steadily, reducing financial risk while improving flexibility for future investment.

That’s exactly the type of combination the Financial X-Ray rewards.

High returns are impressive.

High returns supported by a conservative balance sheet are considerably more valuable.

Cash generation also improved.

Accounting profits can fluctuate because of one-off adjustments or accounting assumptions.

Free cash flow is much harder to manipulate.

Growing free cash flow demonstrates that reported earnings are increasingly converting into real cash that management can reinvest, reduce debt or return to shareholders.

Finally comes valuation.

This is often the most misunderstood part of investing.

Many investors assume a low multiple automatically means a stock is attractive.

It doesn’t.

Equally, an expensive multiple doesn’t automatically make a stock overvalued.

Quality businesses frequently deserve premium valuations because they generate superior returns for many years.

The Financial X-Ray therefore doesn’t ask whether valuation is cheap.

It asks whether today’s valuation is still justified by the underlying quality of the business.

By June 2023, the answer had become yes.

The financial evidence had improved consistently across multiple years.

The company finally earned its place in the Financial X-Ray Selection.

An industrial company without hype, without market noise and with constantly improving financial quality - that is rare, but exactly the kind of business that performs well.

Behind the paywall I’ll reveal the company we just discussed. Paid subscribers get access to the full X-Ray Selection and get to screen more than 800 stocks for attractive investment opportunities.

Read more

Most investors assume successful investing is about buying companies before everyone else discovers them.

I don’t think that’s true.

When the Financial X-Ray was built, the idea was never to identify the next 30-bagger or predict the next market trend - not because I wouldn’t love to know it – simply because I can’t do it with confidence. Instead, I focused on a much simpler question:

Has this business demonstrated enough financial quality to deserve a place in a concentrated long-term portfolio?

That distinction matters.

Buying too early often means investing in hope. Buying too late means paying for perfection. The Financial X-Ray attempts to sit somewhere in the middle – waiting patiently until the financial evidence becomes compelling while the valuation still provides attractive long-term upside.

This week I’d like to show you exactly how that decision process works.

Not by discussing the algorithm itself.

But by walking through one company that eventually qualified for the Financial X-Ray Selection.

Every company entering the Financial X-Ray Selection must satisfy a demanding set of criteria.

• Financial health must be robust enough to withstand difficult markets.

• Management must demonstrate disciplined capital allocation.

• Growth prospects cannot be weak.

• Valuation must still provide sufficient upside despite the company’s quality.

Most importantly, the overall assessment must be Strong.

No single ratio determines the outcome.

A low P/E ratio alone doesn’t qualify a company. High revenue growth alone doesn’t qualify a company. Even excellent profitability isn’t enough if investors have already priced in years of perfection.

The Financial X-Ray weighs all of these characteristics together.

That is why relatively few businesses make the final portfolio.

The stock I’d like to discuss is up 450% since June 2023 and has delivered well on all criteria.

Let’s look at the financial evidence.

The first metric I always study is profitability.

Many industrial businesses generate EBITDA margins between 10% and 20%. Businesses consistently exceeding that range usually possess some combination of pricing power, operational efficiency or competitive advantages that weaker competitors struggle to replicate.

In this case, EBITDA margins steadily expanded over several years.

That tells us far more than “profits increased.”

It suggests management wasn’t merely benefiting from higher demand. They were improving the underlying economics of the business – earning more operating profit from every dollar of revenue through better product mix, stronger pricing and greater operating leverage.

The next characteristic is capital efficiency.

Return on Equity measures how effectively management converts shareholder capital into profits.

For many mature industrial businesses, returns above 15% are considered healthy. Above 20% generally indicates a business with durable competitive advantages.

The company consistently moved into that territory.

Importantly, those returns weren’t created by excessive borrowing.

The balance sheet strengthened at the same time.

Net debt declined steadily, reducing financial risk while improving flexibility for future investment.

That’s exactly the type of combination the Financial X-Ray rewards.

High returns are impressive.

High returns supported by a conservative balance sheet are considerably more valuable.

Cash generation also improved.

Accounting profits can fluctuate because of one-off adjustments or accounting assumptions.

Free cash flow is much harder to manipulate.

Growing free cash flow demonstrates that reported earnings are increasingly converting into real cash that management can reinvest, reduce debt or return to shareholders.

Finally comes valuation.

This is often the most misunderstood part of investing.

Many investors assume a low multiple automatically means a stock is attractive.

It doesn’t.

Equally, an expensive multiple doesn’t automatically make a stock overvalued.

Quality businesses frequently deserve premium valuations because they generate superior returns for many years.

The Financial X-Ray therefore doesn’t ask whether valuation is cheap.

It asks whether today’s valuation is still justified by the underlying quality of the business.

By June 2023, the answer had become yes.

The financial evidence had improved consistently across multiple years.

The company finally earned its place in the Financial X-Ray Selection.

An industrial company without hype, without market noise and with constantly improving financial quality - that is rare, but exactly the kind of business that performs well.

Behind the paywall I’ll reveal the company we just discussed. Paid subscribers get access to the full X-Ray Selection and get to screen more than 800 stocks for attractive investment opportunities.

Read more

Investors have rewarded that position with a premium valuation, betting that rapid adoption will eventually translate into exceptional profitability.

Let’s dive into it and see how snowflake performs under the Financial X-Ray - a structured lens to evaluate quality in seconds.

What changed beneath the surface

On almost every operating metric, Snowflake has delivered exceptional growth.

Revenue increased from $265 million to nearly $4.7 billion in just six years – equivalent to an annual growth rate of almost 60%. For context, most mature software companies grow between 10% and 20% annually, making Snowflake’s expansion extraordinary.

Free cash flow has also improved dramatically, rising from negative $206 million to almost $1 billion. At first glance, this suggests the business has become highly cash generative.

But the income statement tells a different story.

Despite almost $5 billion in annual revenue, Snowflake still reports negative EBITDA, negative net income, and negative returns on invested capital. A mature software business would normally convert this level of revenue into attractive operating margins and double-digit returns on capital. Snowflake has not yet reached that point.

This creates the central tension.

The cash flow statement appears exceptionally strong.

The underlying economics remain considerably weaker.

This is not an obvious financial pattern, it is an illusion of cash conversion.

The pattern at work

To determine whether the fundamentals shown in the table above reflect a healthy business, analysts must evaluate them together and over time.

• Revenue growth = Extreme

• Operating profitability = Still negative

• Free cash flow = Improving strongly

• Stock-based compensation = Very high

• Capital efficiency (ROIC) = Still negative

• Valuation = Premium

At first glance, these signals appear contradictory and this observation does not fit a textbook pattern.

How can a company generate almost $1 billion of free cash flow while still reporting large operating losses?

The answer lies in the construction of the cash flow statement.

Snowflake compensates many employees with stock rather than cash. Because stock-based compensation is a non-cash accounting expense, it is added back when operating cash flow is calculated.

Think about it this way: if a company pays your salary it incurs a cash outflow because that’s what you are paid (money). In order to avoid that outflow and keep the money inside the business, snowflake pays its employees with shares or the option to purchase shares at a lower price than the market price.

That way the company genuinely retains more cash today.

But existing shareholders pay for part of that cash through future dilution - if a company gives away more shares it is not creating wealth, it is deluting the existing equity.

The Financial X-Ray therefore separates reported cash generation from economic profitability.

Strong free cash flow alone does not necessarily mean the underlying business has become highly profitable.

That is why reading one financial statement in isolation can be misleading.

Why investors often misread this phase and what it implies for valuation

Many investors stop at one headline:

“$1 billion of free cash flow.”

The Financial X-Ray goes a bit deeper and answers the next question:

How much of that cash ultimately belongs to existing shareholders and how durable is that number?

Snowflake currently trades at approximately 67x earnings, nearly 100x EV/EBITDA, while its free cash flow yield is only about 1.1%.

Put differently, every $100 invested buys only about $1 of annual free cash flow today.

Investors therefore accept a very low current cash return because they expect Snowflake to become dramatically more profitable over time.

Another way to think about today’s valuation is this:

If Snowflake’s share price were to compound at 10% annually over the next decade - a number required to slightly beat the S&P 500 index – while eventually trading at a more mature software valuation of around 5% free cash flow yield, free cash flow would need to grow by roughly 28–30% per year for ten consecutive years.

That is an extraordinary requirement.

It assumes not only continued revenue growth, but also a successful transition from cash generation supported by stock-based compensation to durable operating profitability.

The investment case depends less on today’s free cash flow than on whether today’s accounting cash eventually becomes genuine economic earnings.

So what is a fair price to pay for Snowflake today?

The Financial X-Ray helps you answer that question in minutes. It calculates a fair value range based on financial health and growth. With the stock currently trading significantly above that range, the market appears overly optimistic leaving little room for upside.

This level of understanding becomes visible when looking at the right metrics and the right interpretation. I cover more than 800 stocks on my website, to help you find the right investment.

Financial X-Ray

The insight

Snowflake is not a weak business.

It is one of the fastest-growing software platforms in enterprise AI.

The Financial X-Ray simply highlights a distinction many investors overlook.

Cash flow and economic profitability are not always the same thing.

When free cash flow looks strong while operating profits remain deeply negative, analysts should ask where the cash is coming from and whether existing shareholders ultimately pay for it through dilution.

Sometimes the most important number is not the one that looks strongest.

It is the one that explains why.

If you enjoyed the article give me a thumbs up - it helps me to evaluate and improve my content. Thanks for reading.

The philosophy of the Financial X-Ray selection is simple: Strong businesses outperform when bought at the right price. 3 years is not 20 years and past performance does not guarantee future returns but the chart above shows that this framework deserves attention.

Today, the Selection consists of a concentrated group of 38 businesses that continue to clear a demanding set of financial hurdles. Portfolio turnover remains intentionally low. Great businesses rarely change overnight, and neither should a disciplined investment process.

That naturally raises an interesting question.

If I had fresh capital to deploy today, would I still buy the companies already sitting in the portfolio?

The answer isn’t automatically yes.

Some businesses remain exceptional but have become too expensive. Others continue to execute well, yet no longer offer an attractive balance between quality and price. Occasionally, however, the framework identifies companies where the market’s expectations appear to have drifted too far from business reality.

This month, two companies stood out.

They operate in completely different industries, face very different risks and serve entirely different customers. Yet both currently earn a place in the Financial X-Ray Selection for the same underlying reason.

Behind the paywall, I’ll explain why they still deserve fresh capital today – and what they reveal about how the Financial X-Ray separates great businesses from great investments.

As a paid subscriber you’ll get access to

• weekly portfolio discussions and fresh ideas

• the entire X-Ray selection that has performed exceptionally well

• the X-Ray platform covering 800+ stocks in detail,

• a portfolio roast function for your selection

• Ability to request stocks to be covered and uploaded to the platform

Read more

Its obesity and diabetes therapies have reshaped one of the world’s largest healthcare markets, driving one of the strongest financial turnarounds seen in decades.

Revenue is accelerating. Margins are expanding. Cash flow is recovering.

The Financial X-Ray agrees that the business is becoming exceptional.

The question for investors is different:

Has the market already priced today’s medical breakthrough as tomorrow’s permanent reality?

What changed beneath the surface

Eli Lilly’s transformation is real.

Driven by blockbuster obesity and diabetes therapies including Mounjaro and Zepbound, the company has entered one of the fastest-growing pharmaceutical markets in history. Demand continues to exceed manufacturing capacity, while analysts expect the global obesity treatment market to expand dramatically over the coming decade.

The Financial X-Ray reflects that success and evaluates the table below closely.

Revenue accelerated from $22 billion to more than $65 billion, EBITDA margins expanded from 31% to 43%, free cash flow turned sharply positive and return on invested capital recovered strongly after a temporary investment phase.

These are not accounting improvements.

They reflect a business creating enormous economic value way beyond average results.

The pattern at work

This situation reflects a recurring financial dynamic: Durability Overpricing

Exceptional businesses deserve premium valuations. But exceptional valuations require exceptional assumptions.

Today, investors are not simply valuing Eli Lilly’s current success.

They increasingly assume that:

• obesity demand remains structurally extraordinary,

• manufacturing capacity continues to expand without disruption,

• reimbursement remains supportive,

• competitors fail to meaningfully erode returns,

• and future therapies extend today’s economics well beyond the current product cycle.

Unlike technology companies, pharmaceutical businesses face an additional reality.

Every blockbuster drug eventually encounters patent expirations, regulatory scrutiny, pricing pressure or new competition.

Innovation creates extraordinary profits.

Time gradually challenges them.

Why investors often misread this phase and what it implies for valuation

Investors often believe that improving fundamentals automatically justify higher valuations.

Sometimes they do but to what extend?

The Financial X-Ray looks at financial health, management quality, growth outlook and valuation together and helps investors answer that question. For Elli Lilly the support is not enough to justify current valuation levels.

Eli Lilly now trades at approximately 56x earnings, more than 35x EBITDA, while the free cash flow yield has compressed to just 0.7%.

Put differently, every $100 invested buys less than $1 of annual free cash flow today. Investors are therefore accepting a very low current cash return because they expect that cash generation to multiply over time.

Another way to think about it is this: if Eli Lilly’s share price were to compound by 10% annually over the next decade while its valuation gradually normalized to a more typical 25x earnings, profits would still need to grow by roughly 20% per year for ten consecutive years.

That is an extraordinary expectation even for an exceptional business just to yield an average return.

Another way to visualise this is the the fair value band. It has continued to rise alongside stronger financial performance and growth.

But the valuation increasingly depends on maintaining today’s extraordinary operating conditions for many years.

The investment case has shifted.

The risk is no longer weak execution.

The risk is that normalization – even without deterioration – may prove enough to disappoint investors and cause the stock to decline.

The insight

Eli Lilly may become one of the defining pharmaceutical success stories of this generation.

The Financial X-Ray does not question that.

It highlights something different.

The greatest investment risks often emerge after businesses become exceptional.

When revenue accelerates, margins expand, cash flow improves and returns on capital strengthen simultaneously, markets naturally begin to extrapolate those conditions far into the future.

That is precisely when investors should become most disciplined.

For investors, the lesson is simple:

Great businesses create wealth.

Paying for perfection often does not.

How to spot stocks with better returns?

My conviction is simple: Financially strong stocks outperform when bought at the right price. The Financial X-Ray helps you find these stocks and builds a selection that has historically outperformed the MSCI world index.

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Which companies form the basis of the portfolio and survive the rigorous quality assessments year after year?

The Financial X-Ray Selection has outperformed the MSCI World since inception while maintaining a focused portfolio of 38 holdings.

I don’t see that as proof that the framework is infallible, markets have a habit of humbling anyone who thinks they have found certainty.

Instead, I see it as evidence that applying the same disciplined process to every business, month after month, can produce strong long-term outcomes.

The conviction is simple: I don’t focus on intense trading or on chasing hype. Instead, the approach is to buy quality stocks at decent prices - or put differently, buy stocks with an X-Ray Score of “strong”.

The 38 current portfolio holdings and weights are accessible on the website. The Financial X-Ray reports provide 100% transparency on the methodology and every metric analysed, so you understand why each stock deserves a seat at the table.

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The more interesting observation this month, however, wasn’t a new addition or a removal.

It was how little changed among several of the portfolio’s longest-standing businesses.

Every month the framework reviews every holding from scratch. Past performance carries no weight. A company stays only if its financial health, management, growth profile and valuation continue to justify its place.

That naturally raises a broader investing question.

What makes a business durable enough to become the foundation of a long-term portfolio?

Behind the paywall, I’ll explain why that question matters far more than trying to predict the next market winner, and why three very different companies –Visa, Procter & Gamble and Travelers – illustrate how the Financial X-Ray distinguishes between temporary quality and enduring quality.

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I didn't start my career in finance because I wanted to predict stock prices. I wanted to understand how businesses create value, why some companies compound for decades while others slowly deteriorate, and whether those differences could be recognised before they became obvious to everyone else.

Working as an equity analyst, I realised investors don't need more metrics. They need analysed conclusions they can base decisions on.

And we must be able to understand how these conclusions were formed. If a company gets a “balanced” score on financial health, we must understand that this message doesn’t mean “nothing is happening”. It means that certain forces offset each other. Revenue may grow while debt explodes, strong cash generation may come with declining capital efficiency or improving margins do not convert into cashflow.

As private investors we are left alone with isolated ratios, headlines and opinions.

That gap is what eventually led me to build the Financial X-Ray.

So instead of searching for the next winner and following headlines, reacting to earnings releases, comparing valuation multiples and constantly asking whether now is the right time to buy I’ve realised that investing is often made far more complicated than it needs to be.

My simple conviction is that financially strong businesses outperform the market when bought at a sensible valuation level.

Meaning: The businesses that create long-term wealth tend to share remarkably similar characteristics.

• They generate high returns on capital.

• They produce consistent cash flow.

• They are run by disciplined management teams.

• They maintain resilient balance sheets.

And most importantly they are purchased at prices that leave room for disappointment.

That simple idea became the foundation of the Financial X-Ray.

The problem with traditional stock analysis

During my time as an equity analyst I rarely looked at a single financial metric in isolation.

A low PE ratio means very little if margins are collapsing.

Strong revenue growth means little if returns on capital are deteriorating.

Excellent profitability becomes less attractive when investors have already priced in perfection.

Businesses are systems.

The financial statements have to be interpreted together.

The problem is that most investors never have time to perform that work.

So I built a framework that does exactly that.

Every company is evaluated across four areas:

• Financial health

• Management quality

• Growth outlook

• Valuation

Dozens of financial metrics are translated into one structured assessment and the most important ones are shown and interpreted in the full equity report.

Not to predict the future. But to answer one simple question:

Is this a financially strong business selling at a price that still leaves room for execution errors? I wanted to answer that question in a single word: the X-Ray score.

A framework only matters if it works

Anyone can invent a rating system.

The difficult part is applying it consistently.

Since June 2023, every month the Financial X-Ray has evaluated companies using exactly the same methodology.

Companies that satisfy the strongest Financial X-Ray criteria are added to the X-Ray Selection.

Companies whose fundamentals weaken or whose valuations become too expensive leave the selection.

There are no discretionary overrides. No market timing. No leverage. No trading based on headlines.

Just the same rules, applied every month.

Everything described above is fully transparent. You can explore the current X-Ray Selection, inspect individual company reports and see how the framework evaluates more than 800 companies on the Financial X-Ray platform.

Explore the Financial X-Ray

Three years is not twenty years.

It would be irresponsible to claim the framework has been “proven.”

But after three years something surprised me.

Simply owning financially strong businesses at sensible valuations produced a meaningfully different outcome.

Not because every stock became a winner.

But because avoiding weaker businesses matters just as much as finding exceptional ones.

That was my real lesson and after three years of tracking the X-Ray Selection I believe we see evidence that this framework deserves attention.

I don’t believe the result is magic.

I don’t believe it requires predicting the next AI winner.

And I certainly don’t believe investing requires constant trading.

Instead, the framework tries to do something much simpler.

Own businesses that repeatedly demonstrate financial strength.

Avoid businesses where the economics are deteriorating.

Only pay prices supported by those fundamentals.

Investing is still uncertain. But uncertainty becomes easier to manage when decisions are based on business quality rather than market narratives.

The Financial X-Ray is not designed to tell you what to buy tomorrow.

It does not guarantee outperformance. It will make mistakes.

Some companies that qualify will disappoint. Some companies outside the framework will outperform.

That’s investing.

What it does provide is a disciplined process. It offers reasonable confidence that the businesses you own are financially resilient and that the prices you pay leave room for execution error.

For me, that’s a far better starting point than chasing stories or reacting to headlines.

More than a newsletter

The Financial X-Ray isn’t just something I write about.

It’s something you can use.

Every company report. Every article. Every Portfolio Roast. Every screening result. Everything is built on the exact same framework.

Instead of screening thousands of raw financial ratios, you screen analyst-grade conclusions.

Instead of wondering why a stock receives a certain rating, you can inspect the financial signals behind it by clicking on the “View report” link.

The goal has never been to replace your judgement.

It’s to help you make better decisions with better information.

Final thoughts

The biggest surprise over the past three years wasn’t that the X-Ray Selection outperformed.

It was how uncomplicated the underlying idea turned out to be.

Buy financially strong businesses. Don’t overpay. Stay disciplined. Ignore most of the noise.

That isn’t a guarantee of success.

But I believe it gives investors a better foundation than constantly trying to predict what the market will do next.

Everything I publish on this Substack and everything inside the Financial X-Ray platform is built around that same philosophy.

Investors love certainty. And few companies appear more certain than ASML.

But even exceptional businesses face cycles, geopolitical risks and execution challenges.

ASML sits at the center of the global semiconductor industry, dominates a critical technology stack and continues to deliver strong growth, profitability and cash generation. Every advanced semiconductor – whether used in AI servers, smartphones, autonomous vehicles or data centres – must first be manufactured using lithography equipment, making ASML a critical supplier to the global chip industry.

ASML makes money in two ways: Net Bookings of hardware sales (i.e. lithography machines), and Installed Base Management (regular updates and software services).

The former makes up about 2/3 of revenues, while the latter represents about 1/3 of total revenues. This is a crucial distinction because the former represents lumpy machinery sales, while the latter is a smooth, recurring revenue stream that turns over come rain or shine.

What changed financially beneath the surface?

ASML’s financial performance has been remarkable.

Revenue has nearly tripled over the past six years, while margins and free cash flow have all improved substantially.

ROIC, which measures how effective a company can generate profits for every dollar invested, has surged above 20% proving consistent value creation for investors. Generally, a ROIC above a companies cost of capital (8-12% for most businesses) is considered excellent.

Free cash flow exceeds $10 billion and the company operates with a significant net cash position.

These are the characteristics of a world-class business.

At the same time, the financial data still reflects the reality of ASML’s industry.

Revenue growth slowed sharply in 2024 before accelerating again, and free cash flow remains more volatile than many investors assume.

The business is exceptionally strong. It is not immune to cycles.

The pattern we observe

• Revenue growing strongly ($12bn → $33bn)

• Margins expanding over time

• FCF growing strongly despite volatility

• ROIC improving to ~23%

• Massive net cash balance

• Near-monopoly position in EUV lithography

• Valuation multiples that keep expanding

ASML occupies a unique position within the semiconductor ecosystem.
Its EUV lithography systems are essential for manufacturing the world’s most advanced chips, creating one of the strongest competitive moats in global technology.

Replacing ASML’s position would require years of technological breakthroughs, billions of dollars of investment and the coordination of an entire semiconductor supply chain.

That moat deserves a premium valuation. But monopolies are not the same as certainty.

ASML remains exposed to semiconductor investment cycles, customer spending decisions and geopolitical restrictions that can affect market access and future demand.

Why investors often misread such a situation and what it implies for valuation

Investors often assume that an exceptional business automatically becomes an exceptional investment.

That assumption can be dangerous. ASML’s valuation already reflects extraordinary expectations.

The stock is currently trading at a whopping 60x PE. That represents a 1.6% earnings yield. Think about it this way. In order to yield 15% by year 10, that 1.6% would have to grow by approximately 9x within 10 years. That’s a required rate of return of 25% CAGR.

Historically, ASML has grown earnings by about 17% CAGR over the past 10 years, so it falls short by about 8% CAGR. That gap adds up substantially over time.

If we use the same 17% CAGR assumption, ASML would be yielding only roughly 8.2% by year 10. This would imply a fair value closer to 33x PE today, which is far lower than its trailing 60x PE.

The fair value range in the image below reflects the balance between quality, expectations and a cyclical industry. Strong growth, high margins, excellent returns on capital and a fortress balance sheet support higher valuation levels.

But cyclicality, geopolitical uncertainty and execution risk still exist and limit predictability of cash flows. Consequently, the fair value band shifts with the cycle.

With the stock trading well above its fair value range and the semiconductor cycle peaking, investors appear willing to pay a substantial premium for certainty in a business that remains exposed to forces outside its control.

Investor Take-Away

ASML may be one of the highest-quality businesses in the world. The company combines technological leadership, strong capital efficiency, robust cash generation and a balance sheet that most companies would envy.

Management has remained disciplined, acquisition activity is limited and dilution has been moderate.

The key question is not whether ASML is a great business. The key question is whether today’s valuation leaves enough room for the inevitable surprises that every business faces.

For investors, the lesson is simple:

The better the business, the more important the price becomes.

These are the stories dominating financial headlines today.

Investors naturally gravitate towards businesses with exciting narratives, rapid growth and seemingly unlimited opportunities. The result is often the same: expectations rise faster than the underlying business.

Meanwhile, another group of companies quietly disappears from the conversation.

They operate in mature industries. Growth is modest. Few investors discuss them on social media. Yet they consistently generate cash, strengthen their balance sheets and return capital to shareholders year after year.

The Financial X-Ray identified three companies that fit this profile remarkably well.

They offer something less exciting but potentially far more valuable.

Financial discipline.

1. Fox Corporation (FOX)

Fox Corporation provides news, sports, and entertainment content through its television and cable segments in the US.

Television may be losing viewers. Fox is not losing financial discipline.

At first glance, Fox appears difficult to love.

Traditional television faces structural pressure as audiences continue migrating toward streaming platforms. Advertising markets remain cyclical, while regulatory scrutiny continues to weigh on the media industry.

That narrative explains why many investors simply move on.

The Financial X-Ray tells a more nuanced story.

Revenue has grown from $11.4 billion in 2019 to $16.3 billion in 2025, despite a difficult industry backdrop. More importantly, EBITDA margins recovered to 23.6%, roughly in line with where they stood six years ago after several weaker years during the advertising downturn. For a traditional broadcaster, maintaining margins above 20% is evidence that management continues to control costs while protecting profitability.

Cash generation is even more impressive.

Free cash flow almost doubled to $2.9 billion in 2025, lifting the free cash flow yield to 12.2%. That means investors purchasing the business today receive one of the highest cash yields among large-cap media companies. At the same time, net leverage declined to just 0.5× EBITDA, leaving Fox with a balance sheet that is significantly stronger than many traditional media peers.

Management has also shown discipline.

Rather than pursuing expensive acquisitions to chase growth, the company consistently repurchased shares at attractive valuations while reducing debt.

The market sees a declining industry.

The Financial X-Ray sees a business generating substantial cash while trading at only 10.5x earnings.

Those are two very different investment cases.

Why should you care about quality stocks at fair prices? Here is why!

It’s been three year since I first tracked the performance of companies that are labelled “strong” by the Financial X-Ray.

The result: a 45% outperformance vs the MSCI world since June 2023.

The Financial X-Ray framework is a system that analyses raw metrics for you and returns analyst conclusions. Instead of filtering for EBITDA margins, growth and debt ratios you’d be looking at a single category outcome: “financial health: strong”.

Below the paywall you’ll find more businesses with excellent fundamentals, attractive valuations and little market attention. As a premium subscriber you’ll gain:

• weekly insights into attractive investment opportunities

• access to the Financial X-Ray framework covering 800+ stocks including the well performing X-Ray Selection.

• A portfolio roast on you stock selections

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