Sortino Research

Written by Andrej Pajovic, CFA Level III Candidate. Trying to figure out what businesses are actually worth. Long term investor.

[Sortino Research @SortinoResearch]

The gap in one table:

[Sortino Research @SortinoResearch]

ServiceNow $NOW is down roughly 50% in the SaaSpocalypse. Thus I decided to do something I don't see enough of: instead of building a forecast, I ran the model backwards. I took today's share price and solved for the the FCFF growth rate the market is actually implying.

The answer: 11.2% a year, for a decade.

This is a company that grew free cash flow at 27% over the last five years, and 40% over ten. On every time frame in its history, it has grown faster than what's now priced in.

So it comes down to one question: do you think ServiceNow's cash flow growth can beat 11.2% going forward?

[Sortino Research @SortinoResearch]

Full piece here - how the reverse DCF works, and what happens to the price if ServiceNow's FCFF growth reverts anywhere near its historical rate:
https://t.co/4zFaNEOOJT

[Sortino Research @SortinoResearch]

Every analyst covering $QXO rates it a buy.

I rebuilt my valuation now that the deals are real and landed somewhere odd. My base case is above the price, so I’m bullish on the company. But the $17B TopBuild deal makes QXO worth more without it than with it, in every scenario I ran.

It may be proof of one of Damodaran’s oldest lessons: pay fair value for an acquisition and however strategic it sounds you create no value for your own shareholders. You hand it to the seller’s.

https://t.co/E35N1WW52Q

[NEW YORK KNICKS @nyknicks]

job’s done ✅

[NEW YORK KNICKS @nyknicks]

THE GREATEST COMEBACK IN NBA PLAYOFF HISTORY.

[Aswath Damodaran @AswathDamodaran]

I valued SpaceX for its IPO a few weeks ago, with minimal information and a promise to revisit the valuation, when the prospectus was made public. The prospectus is public, the offering price has been set and my update is up and running. https://t.co/zRjpD1C0wv

[New York Yankees @Yankees]

Go New York Go 🗣️

Wishing the best of luck to the @nyknicks in the NBA Finals!

[Sortino Research @SortinoResearch]

Nothing to do with finance. Just a genuinely good read.

https://t.co/hdaNlxFHEy

[Sortino Research @SortinoResearch]

Statistically, a regression reported Beta of 1.6 with a standard error of 0.5 means the true Beta could be anywhere from 0.6 to 2.6. That range alone can swing your cost of equity by several percentage points.

New piece on why regression betas might be unreliable and how to build an alternative from the ground up using Prof. Damodaran's framework.
#CAPM #Finance #Investing #Beta #Valuation
https://t.co/apCX8wzZqh

[Sortino Research @SortinoResearch]

I’m proud to say I passed all three CFA levels on my first attempt.

The CFA Program is, with good reason, one of the most difficult exam series out there. Having something to compare it against, I can say this with full confidence.

Each level is a different kind of hard.

Level I filters fast. The material is broad, the volume is heavy, and it tells you very quickly whether you’re truly up for this or not. I took it in February 2024 — only 44% of candidates passed.

I sat Level II in November 2024, and only 34% of candidates passed — one of the lowest pass rates in recent memory. The depth of the material, derivatives, fixed income, formulas, item set after item set, tests you in ways that feel almost unfair.

Level III tests your practical knowledge. You must know how to think and write like a portfolio manager. Everything from Level I and Level II comes together at this level. I took it in February 2026 — 50% of candidates passed.

What the curriculum doesn’t prepare you for is everything around the exams.

It’s a test of discipline, persistence, of showing up on the days when the material feels impossible and the finish line feels invisible. My studying was far from perfect — unstructured at times, messy, human. But it was enough.

For now, I’m going to enjoy this moment.

And then, on to the next one!

#CFAInstitute

[Sortino Research @SortinoResearch]

The equity risk premium is the number inside every cost of equity estimate. Most people calculate it by averaging historical stock and bond returns.

That approach has one specific, mechanical flaw that most practitioners never talk about: when the market crashes, the historical ERP goes down. The model tells you equities just became safer — at exactly the moment when every investor in the world is demanding more compensation to hold them.

New piece covers how to estimate it the right way. Forward-looking, market-implied, derived from what today's price is actually telling you. Plus how to adjust for country risk when a company's headquarters and its actual business are in different places.

Current implied ERP on the S&P 500 as of April 1: 4.77%. Implied expected market return: 9.09%.

#Investing #Valuation #EquityResearch #DCF

Link below.

https://t.co/fQslC3HxTb

[Sortino Research @SortinoResearch]

A government bond from an emerging market isn’t risk-free. It looks like one. It has the word “government” in it. But embedded in that yield is a default spread, an extra return investors demand because that government could, and sometimes does, fail to pay.

Use it without adjusting and your discount rate is too high before you’ve typed a single assumption.

New piece on how to find the true risk-free rate, even in markets where it isn’t obvious.

https://t.co/SvZe42htxA

#investing #valuation #riskfree

[Sortino Research @SortinoResearch]

Not invested in SoFi myself, but for anyone who is or considering it worth looking into their securitization mechanics. SoFi pools consumer loans, sells the debt to investors, and earns the spread. The problem is when cumulative net losses on those loans breach a certain trigger. Then SoFi stops receiving its cut of the cash flows entirely, and at least one of their 2025 securitizations has already breached that threshold. So basically if investors lose confidence in SoFi paper, SoFi loses its ability to fund new lending altogether. Just smth worth examining more.

[Sortino Research @SortinoResearch]

Great analysis! I ran the same reverse DCF with slightly different assumptions, using the risk-free rate (4.2%) as terminal growth and FICO's actual cost of equity (9.65%, derived from CAPM with current ERP of 4.3% and beta of 1.28) as the discount rate.

With these inputs, the implied FCF growth rate the market was pricing in at $995 comes out to 14% annually over 10 years.

When you compare that to FICO's actual 6-year FCF CAGR of 22%, the market was essentially asking you to believe the business would grow at roughly 60% of its historical rate going forward, for a company that scores every American's creditworthiness.

This deserves a deeper look.

[Sortino Research @SortinoResearch]

Deep value isn't dead, agreed. But I believe we're in an era of cult investing, where retail-driven narratives push prices well beyond what any fundamentals-based model would justify. The businesses aren't worth that price by the book, but the crowd doesn't care about the book. I'm actually okay to have a small position in one of those names just to be along for the ride. What I wouldn't do is size it like a conviction investment, the volatility and downside risk when the narrative breaks are too severe.

[Sortino Research @SortinoResearch]

Not invested in SoFi myself, but for anyone who is or is considering it, worth looking into Steve Eisman's recent breakdown on his podcast. His concern isn't the business model in principle, it's the securitization mechanics. SoFi pools consumer loans, sells the debt to investors, and earns the spread. The problem is that when cumulative net losses breach a preset trigger, SoFi stops receiving its cut of the cash flows entirely — and at least one of their 2025 securitizations has already breached that threshold. If securitization investors lose confidence in SoFi paper, SoFi loses its ability to fund new lending altogether. May be worth stress-testing that in any valuation before sizing a position

[Sortino Research @SortinoResearch]

Good post, but I'd push back on one thing, the 10% discount rate. That's not how the discount rate works in intrinsic valuation. You don't plug in what you want to earn. The discount rate is the cost of equity (if you're discounting FCFE) or WACC (if you're discounting FCFF) derived from CAPM, anchored to what the marginal investor requires given the risk of the asset. First you find what KO is worth to the marginal investor. Then you compare that to the market price. Then you decide if the gap is enough for you.