Analog Devices, Inc. (ADI)

Total return at 5 years: -8.8%/year = -10.6% appreciation + 1.8% dividend. The target price ($232) is ex-dividend; the $28 in dividends collected over 5 years are added separately.

By both methods, the value today (DCF $332 · Multiples $210) is below the market price ($406).

Today — expensive, no margin of safety: at $406 trades ~93.0% above its value discounted to today (~$210); the expected return does not even reach the risk-free rate (4.5%).

At 5 years — Sobrevalorado: the expected total return is negative — the price already discounts a demanding scenario that, if not met, results in a loss.

The bridge: the return at 5 years falls below the risk-free rate (4.5%) — which is why there is not even a discount to today's value. To require a 15% annual return, it would need to be bought at ~$134.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($406) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The price discounts growth (10.6%/year) above our base case (6.0%/year) → it is priced for a demanding scenario and leaves little cushion against a slowdown.

That growth implies ~$9.5 bn of owner earnings in year 5 (vs ~$7.7 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). Cash accumulates the retained surplus —what is not returned as dividend or buyback—, so that EV falls and multiples compress going forward. The valuation is done on EV/NOPAT (semiconductor analógico). In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

The August 2026 rebase anchors year 0 to the TTM at 1-Aug-2026 (revenue $13.88bn, +33.6% year over year). The four quarters of the TTM accelerate steadily (+25.9%, +30.4%, +37.2% and +39.6% year over year), the expected shape of a V-shaped rebound and not of a structural change in pace. The pickup confirms the reading already established: the recovery is still the rebound from the FY2024 cyclical trough (inventory normalization at distributors), further reinforced by demand for artificial-intelligence data-center infrastructure in the Communications segment. The revenue path keeps its start at the multi-year trajectory average (~6.5% in year 1), not at the peak of the rebound, with the same smooth deceleration toward ~4.5% by year 5. The TTM operating margin also rose sharply, to 35.5% (from 32.5% in the previous rebase), while the operating cash flow margin barely moved (39.9% against 39.7%): the difference comes from the operating leverage typical of high-fixed-cost manufacturing on sharply recovering revenue, not from an isolated one-off charge. That level already reaches the ceiling the bull case itself had been using as a sustainable long-term margin, so it is treated with the same discipline as revenue: year 0 is taken real and unadjusted, but the trajectory ahead does not extrapolate the peak. In the base case, the margin eases smoothly from 35.5% toward the sustainable level already established of 34% (moderate operating leverage, without crediting the rest of the cycle rebound in advance). In the bear case, the margin retreats faster toward 31.5% (the same floor already defined, if the rebound turns out to be largely inventory restocking). In the bull case, the margin holds around the current level (~35.5%), without assuming further expansion beyond what has already been observed.

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $232 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $406, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $232 in 5 years plus $28 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $210. Against the current market price ($406), the margin of safety is -93.0% (trades above the maximum → a premium is paid) and the total return at that price would be -8.8% annually.

• Today's entry multiple. EV/NOPAT 49×, well above the 18-24× terminal band for the analog-semis archetype.
• Safety margin. Not even the 5-year bull scenario recovers the current market price.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✕ ROIC exceeds the cost of capital (~10%)
• ✓ CFROIC backs up the ROIC (140%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• Return on book capital. 9.0%, just below the 10% bar, weighed down by intangible amortization from Maxim.
• Cash-basis return on capital. 13.0% (owner earnings over invested capital), comfortably above the 10% bar.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

The 10-K only breaks down revenue by end market for the last two fiscal years (FY2024 and FY2025); no longer series by end market nor segment operating income is disclosed, so these indicators show the two available years in levels, without extending a third bar that is not in the filing.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (1-ago-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Recent pace. TTM +29.8% year over year, largely a rebound from the FY2024 inventory trough.
• Diversification of drivers. Four end markets at different paces; Communications accelerates on artificial intelligence.

• Product recurrence. Multi-year design-in cycles sustain durable customer relationships.
• Product diversification. More than 75,000 part numbers, none concentrated in a single dominant customer.
• Demand cyclicality. The analog semiconductor industry fluctuates with customer spending across each cycle.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• ✓Leverage (net debt / EBITDA)Net debt / EBITDA 0.7x
• ✓Interest coverage (EBIT / interest)15.5x
• –Liquidity (current ratio)no data
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 140% of ROIC
• ✕Value creation (ROIC − 10% bar)-1pp
• ✓Malinvestment test (capex vs incremental ROIC)Capex/D&A 0.2x — no over-investment
• –Float / working capitalNeutral WC
• ✓Dilution (SBC % of revenue + shares)SBC 2.4% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Debt coverage. Gross debt ~$8.1 billion covered several times over by TTM operating cash flow.
• Cash position. Cash and short-term equivalents of ~$3.6 billion against annual interest of ~$0.32 billion.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• Capital allocation. Returns close to 98% of free cash flow between dividend and buybacks; no material retention for acquisitions.
• Ownership transparency. The detail of directors' and executives' share ownership could not be verified in this import (proxy not available).

• No clear source of discount is identified under the missing-buyers or motivated-sellers taxonomy: the business is not uncovered by analysts, it is not undergoing a restructuring that distorts the accounting result, and there is no media noise unrelated to the business.
• The current price reflects optimism about the continuation of the cyclical rebound and about artificial-intelligence data center content, not a perception-reality discrepancy in the buyer's favor.
• The filing itself acknowledges industry cyclicality as the most relevant structural risk; the market appears to be extrapolating the upcycle phase forward.

At market price there is no evidence of a value opportunity: the entry multiple is already above the reasonable terminal band for the archetype, with no identifiable source of mispricing in the buyer's favor.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at -15%/year (-56% total): the margin of safety protects the downside. The bull (-3%/year, -16% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Distributor concentration. ~56% of FY2025 revenue passes through external distributors without broad contractual protection.
• Geopolitical exposure. Partial dependence on external foundries (TSMC) and exposure to trade restrictions with China.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  Fails the quality gate: ROIC 9% does not clear the 10% bar.

• Peter Lynch Growth at a reasonable price (GARP)

  A stalwart growing 6% at a multiple/growth of 8.2 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 2% (EBIT/EV) + ROIC 9% → falls outside the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts 11% vs our 6%: priced for perfection, no favorable mispricing.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -17%/yr over 5y (material loss) → risk of permanent capital loss.

• Pat Dorsey Moat strength (Five Rules)

  A wide moat, stable; sources: intangibles, switching costs, cost advantage, network effects, efficient scale → passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  The price implies 11% vs our 6%: coherent, but at the optimistic end of the range.