Great artcle! I think MELI is one of the most underrated reinvestment stories out there. The LATAM opportunity is masive and they're basically building a mini Amazon/Alibaba ecosystem from scratch in a region that's still digitizing. What really gets me excited is how they're layering in fintech with Mercado Pago, logistics infrastructure, advertising, and credit. Each of those creates its own moat while feeding growth into the others. The reinvestment runway here is probaby another 10 to 15 years minimum, maybe more if they expand beyond core LATAM markets. The fact that they can still maintain high ROIC while scaling this fast is pretty remarkable.
This framework really highlights why Constellation Software has been such an exceptional compounder - their decentralized M&A machine essentially creates endless reinvestmnt opportunities at high IRRs. The contrast with high-dividend businesses is instructive too. Companies that return 80%+ of earnings via dividends essentially force shareholders to find new compounding vehicles externally, where they're unlikely to match the original ROIC. Your point about Brookfield compounding twice (within funds AND at parent level) is particularly clever - they've essentially built a permanent capital structure that never has to realize taxable gains unless they choose to.
Great insight here - reinvestment rate is often overooked when everyone fixates on ROIC alone. A company might have stellar returns on capital, but if it can't deploy meaningful amounts at those rates, the compounding story stalls quickly. The examples you provided show how the combination of strong ROIC and high reinvestment creates the real magic. This perspective shifts how one should evaluate growth potential!
ROIC tells you how efficiently a company compounds, but reinvestment tells you how long it can.
Sounds like the real flywheel is when high returns meet long runways.
Bulls eye 🎯
Read this,
Link :
https://open.substack.com/pub/absolutetoal/p/growth-and-roic-relationship?utm_source=share&utm_medium=android&r=5g11d4
Great artcle! I think MELI is one of the most underrated reinvestment stories out there. The LATAM opportunity is masive and they're basically building a mini Amazon/Alibaba ecosystem from scratch in a region that's still digitizing. What really gets me excited is how they're layering in fintech with Mercado Pago, logistics infrastructure, advertising, and credit. Each of those creates its own moat while feeding growth into the others. The reinvestment runway here is probaby another 10 to 15 years minimum, maybe more if they expand beyond core LATAM markets. The fact that they can still maintain high ROIC while scaling this fast is pretty remarkable.
This framework really highlights why Constellation Software has been such an exceptional compounder - their decentralized M&A machine essentially creates endless reinvestmnt opportunities at high IRRs. The contrast with high-dividend businesses is instructive too. Companies that return 80%+ of earnings via dividends essentially force shareholders to find new compounding vehicles externally, where they're unlikely to match the original ROIC. Your point about Brookfield compounding twice (within funds AND at parent level) is particularly clever - they've essentially built a permanent capital structure that never has to realize taxable gains unless they choose to.
Great insight here - reinvestment rate is often overooked when everyone fixates on ROIC alone. A company might have stellar returns on capital, but if it can't deploy meaningful amounts at those rates, the compounding story stalls quickly. The examples you provided show how the combination of strong ROIC and high reinvestment creates the real magic. This perspective shifts how one should evaluate growth potential!