A splendid operational and stock market success story, Descartes has just published its annual results. This is an opportunity for us to take stock of the situation, putting current events into perspective with long-term financial dynamics, as usual.

Like many of its peers, the company is above all a "roll-up", i.e. a serial acquirer that relies primarily on external growth operations to sustain its rate of expansion. Unlike many of its peers, the organic growth rate remains very good - even if financial communication would benefit from more transparency in this area.

Let's look at the measures that matter. The income statement for starters: in ten years, from fiscal 2013 to fiscal 2023, revenues quadruple from $127 million to $486 million - in US dollars. The price increases passed just before the pandemic were well absorbed by customers, resulting in a very nice expansion of the operating margin over the last five years.

On the profit side, free cash flow - a more reliable measure of earning power than accounting profit, which is burdened by the depreciation inherited from acquisitions - will reach $186 million in 2023, compared with $27 million ten years ago. The net margin reaches 38%, compared to 25% five years ago.

Unlike Constellation, Descartes does not hesitate to carry out capital increases when the circumstances are right. There have been two in the last decade, for a total of $380 million, with the number of shares outstanding increasing by a quarter.

On the other hand, there has been no increase in debt: the $534 million raised in debt over the period has been religiously repaid to the nearest dollar, which has in no way hindered the insane return on equity.

In terms of value creation, and without failing to underline the imperfection of such an estimate, the billion invested in external growth generated an average ROI of between 15% and 20%, which is a slightly lower performance than Constellation, but nevertheless remarkable.

Free cash flow per share is growing at a comparable annualized rate:

2013: $0.4
2014: $0.7
2015: $0.6
2016: $0.7
2017: $0.9
2018: $0.9
2019: $0.9
2020: $1.2
2021: $1.5
2022: $2
2023: $2.2

At USD $76 per share, the valuation of the moment remains - on the face of it - high, at nearly x35 the last cash profit. However, let's assume that the annualized growth rate of free cash flow per share will remain at the same rate over the next decade. This would give us:

2024 : $2.6
2025 : $3
2026 : $3.6
2027 : $4.2
2028 : $5
2029 : $5.9
2030 : $7
2031 : $8.2
2032 : $9.7
2033 : $11.5

In this scenario, Descartes' stock is currently valued at x15 of the profit we could expect - all else being equal! - in five years.

Let's now project a free cash flow per share with an annualized growth rate that slows down significantly, and drops to an average of 10%, for example. We would then obtain :

2024 : $2.4
2025 : $2.7
2026 : $2.9
2027 : $3.2
2028 : $3.5
2029 : $3.9
2030 : $4.3
2031 : $4.7
2032 : $5.2
2033 : $5.7

Naturally, everyone can adjust the assumptions of this summary model as they see fit, depending on their risk appetite and their understanding of the Group's business.