submitted by lurkingsince2006 to wallstreetbets [link] [comments]
tl;dr - Earnings is gonna be lit!PRPL earnings is tomorrow, 8/13, after hours. Any other date is wrong. Robinhood is wrong (why are you using Robinhood still!?!).
I'm going to take you through my earnings projections and reasoning as well the things to look for in the earnings release and the call that could make this moon even further.
I'm calling $244M Net Revenue with $39.75M in Net Income, which would be $0.75 Diluted EPS. I'll walk you through how I got here
Total Net RevenueI make the assumption that Purple is still selling every mattress it can make (since that is what they said for April and May) and that this continued into June because the website was still delayed 7-14 days across all mattresses at the end of June.
May Revenue and April DTC: The numbers in purple were provided by Purple here and here.
April Wholesale: My estimate of $2.7M for Wholesale sales in April comes from this statement from the Q1 earnings release: " While wholesale sales were down 42.7% in April year-over-year, weekly wholesale orders have started to increase on a sequential basis. " I divided Q2 2019's wholesale sales evenly between months and then went down 42.7%.
June DTC: This is my estimate based upon the fact that another Mattress Max machine went online June 1, thus increasing capacity, and the low end model was discontinued (raising revenue per unit).
June Wholesale: Joe Megibow stated at Commerce Next on 7/30 that wholesale had returned to almost flat growth. I'm going to assume he meant for the quarter, so I plugged the number here to finish out the quarter at $39.0M, just under $39.3M from a year ago.
Revenue Expectations from Analysts (via Yahoo)
My estimate of $244M comes in way over the high, let alone the consensus. PRPL has effectively already disclosed ~$145M for April/May, so these expectations are way off. I'm more right than they are.
Gross MarginsI used my estimates for Q3/Q4 2019 to guide margins in April/May as there were some one time events that occurred in Q1 depressing margins. June has higher margin because of the shift away from the low end model (which is priced substantially lower than the high end model). Higher priced models were given manufacturing priority.
Operating ExpensesMarketing and Sales
Joe mentioned in the Commerce Next video that they were able to scale sales at a constant CAC (Customer Acquisition Cost). There's three ways of interpreting this:
General and Administrative
A Purple HR rep posted on LinkedIn about hiring 330 people in the quarter. I'm going to assume that was relative to the pre-COVID furloughs, so I had June at that proportional amount to previous employees and adjusted April and May for furloughs and returns from furlough.
Research and Development
I added just a little here and straight lined it.
Other ExpensesInterest Expense
Straightlined from previous quarters, although they may have tapped ABL lines and so forth, so this could be under.
One Time and Other
Unpredictable by nature.
Warrant Liability Accrual
I'm making some assumptions here.
Earnings (EPS)I project $39.75M or $0.75 Diluted EPS (53M shares). How does this hold up to the analysts?
EPS Expectations from Analysts (via Yahoo)
EPS Expectations from Analysts (via MarketBeat)
These losers are way under. Now you know why I am so optimistic about earnings.
Keep in mind, these analysts are still giving $28-$30 price targets.
What to Watch For During Earnings (aka Reasons Why This Moons More)Analysts, Institutionals, and everyone else who uses math for investing is going to be listening for the following:
This factor is HUGE. If PRPL guides to higher margins due to better sales mix and continued DTC shift, then every analyst and investor is going to tweak their models up in a big way. Thus far, management has been relatively cautious about this fortuitous shift to DTC continuing. If web traffic is any indicator, it will, but we need management to tell us that.
Warrant Liability Accrual
I could be dead wrong on my assumptions above on this one. If it stays, there will be questions about it due to the drop in exercise price. It does impact GAAP earnings (although it shouldn't--stupid accountants).
Capacity Expansion Rate
This is a BIG one as well. As PRPL has been famously capacity constrained: their rate of manufacturing capacity expansion is their growth rate over the next year. PRPL discontinued expansion at the beginning of COVID and then re-accelerated it to a faster pace than pre-COVID by hurrying the machines in-process out to the floor. They also signed their manufacturing space deal which has nearly doubled manufacturing space a quarter early. The REAL question is when the machines will start rolling out. Previous guidance was end of the year at best. If we get anything sooner than that, we are going to ratchet up.
CACs (Customer Acquisition Costs)
Since DTC is the new game in town, we are all going to want to understand exactly where marketing expenses were this quarter and, more importantly, where management thinks they are going. The magic words to listen for are "marketing efficiencies". Those words means the stock goes up. This is the next biggest line item on the P&L besides revenue and cost of goods sold.
New Product Categories
We heard the VP of Brand from Purple give us some touchy-feely vision of where the company is headed and that mattresses was just the revenue generating base to empower this. I'm hoping we hear more about this. This is what differentiated Amazon from Barnes and Noble: Amazon's vision was more than just books. Purple sees itself as more than just mattresses. Hopefully we get some announced action behind that vision. This multiplies the stock.
Cashless Exercise of PRPLW Warrants
I doubt this will be answered, even if the question is asked. I bet they wait until the 20 out of 30 days is up and they deliver notice. We could be pleasantly surprised. If management informs us that they will opt for cashless exercise of the warrants, this is anti-dilutive to EPS. It will reduce the number of outstanding shares and automatically cause an adjustment up in the stock price (remember kids, some people use math when investing). I'm hopeful, but not expecting it. The amount of the adjustment depends on the current price of the stock. Also, I fully expect PRPL management to use their cashless exercise option at the end of the 20 out of 30 days as they are already spitting cash.
I'm not just holding, I added.
PRPLW Warrants: 391,280
PRPL Call Debit Spreads: 17.5c/25c 8/21 x90, 20c/25c 8/21 x247
Also, I bought some CSPR 7.5p 8/21 x200 for fun because I think that sucker is going to get shamed back down to $6 after a real mattress company shows what it can do.
UPDATESI've made some updates to the model, and produced two different models:
From the recent S-3 filing for the May secondary, I pulled the following:
I diluted earnings by the above share count.
Model With Warrant Liability Going to Zero
Model With Warrant Liability Going to $47M
A few people called me out on my assumption, that I also said could be wrong. My favorite callout came from u/lawschoolbluesny who started all smug and condescending, and proceeded to tell me about June 31st, from which I couldn't stop laughing. Stay in law school bud a bit longer...
One other comment he made needs an answer because WHY we are accruing MATTERS a lot!
Now that we have established that coliseum still has not exercised the options as of july 7, and that purple needs to record as a liability the fair value of the options as of june 31, we now need to determine what that fair value is. You state that since you believe that there is no logical reason that coliseum won't redeem their warrants "there is no longer a warrant liability where the company may need to repurchase warrants back." While I'm not 100% certain your logic here, I can say for certain that whether or not a person will redeem their warrants does not dictate how prpl accounts for them.
The warrant liability accrual DOES NOT exist because the warrants simply exist. The accrual exists because the warrants give the warrant holder the right to force the company to buy back the warrants for cash in the event of a fundamental transaction for Black Scholes value ($18 at the end of June--June 31st that is...). And accruals are adjusted for the probability of a particular event happening, which I STILL argue is close to zero.
A fundamental transaction did occur. The Pearce brothers sold more than 10M shares of stock which is why the exercise price dropped to zero. (Note for DS_CPA1 on Stocktwits: there is some conflicting filings as to what the exercise price can drop to. The originally filed warrant draft says that the warrant exercise price cannot drop to zero, but asubsequently filed S-3, the exercise price is noted as being able to go to zero. I'm going with the S-3.)
Now, here is where it gets fun. We know from from the Schedule 13D filed with a July 1, 2020 event date from Coliseum that Coliseum DID NOT force the company to buy back the warrants in the fundamental transaction triggered by the Pearce Brothers (although they undoubtably accepted the $0 exercise price). THIS fundamental transaction was KNOWN to PRPL at the end Q4 and Q1 as secondary filings were made the day after earnings both times. This drastically increased the probability of an event happening.
Where is the next fundamental transaction that could cause the redemption for cash? It isn't there. What does exist is a callback option if the stock trades above $24 for 20 out of 30 days, which we are already 8 out of 10 days into.
Based upon the low probability of a fundamental transaction triggering a redemption, the accrual will stay very low. Even the CFO disagrees with me and we get a full-blown accrual, I expect a full reversal of the accrual next quarter if the 20 out of 30 day call back is exercised by the company.
I still don't understand why Coliseum would not have exercised these.
Regardless, the Warrant Liability Accrual is very fake and will go away eventually.
ONE MORE THING...Seriously, stop PMing me with stupid, simple questions like "What are your thoughts on earnings?", "What are your thoughts on holding through earnings?", and "What are your thoughts on PRPL?".
It's here. Above. Read it. I'm not typing it again in PM. I've gotten no less than 30 of these. If you're too lazy to read, I'm too lazy to respond to you individually.
Thanks to Tesla the EV market has been getting a lot of attention in the past few months. Many retail investors are pilling into EV scams (NKLA) or overpriced SPACS like (SPAQ, HCAC, etc...). These companies don't have working vehicles, they depend on press releases to pump the stock and investors are constantly diluted for no reason.submitted by bearsgotoalaskanstfu to wallstreetbets [link] [comments]
Meanwhile, many institutional investors are securing positions in different companies that have a high chance in becoming big players in the EV revolution. Solid companies with defined plans, realistic goals, working products and real factories.
July 09, 2020: (BUSINESS WIRE) Arcimoto, Inc.®, (NASDAQ: FUV) today announced the entry into agreements with institutional investors relating to the sale of 1,370,000 shares of its common stock at an above market offering price, pursuant to NASDAQ rules, of $7.30 per share.
VARIETY OF PREMIUM VEHICLES
FULL Q1 CALL
Hi,submitted by Dr_Sargunz to CanadianInvestor [link] [comments]
This is my first attempt at writing a DD report. I hope it makes sense.
Just a few cautionary words:
IntroductionToromont Industries Ltd. (TSE:TIH) provides specialized equipment in Canada and the United States. The Company operates two business segments: The Equipment Group and CIMCO. The Equipment Group supplies specialized mobile equipment and industrial engines for Caterpillar Inc. (NYSE:CAT). Customers for this business segment vary from infrastructure contractors, residential and commercial contractors, mining companies, forestry companies, pulp and paper producers, general contractors, utilities, municipalities, marine companies, waste handling companies, and agricultural enterprises. CIMCO offers design, engineering, fabrication, and installation of industrial and recreational refrigeration systems.
The Company was founded in 1961 and operates out of Concord, Ontario. As at December 31, 2019, Toromont employed over 6,500 people in more than 150 locations across central/eastern Canada and the upper eastern United States.
The primary objective of the Company is to build shareholder value through sustainable and profitable growth, supported by a strong financial foundation.
Description of the 2 Main Business Segments
ManagementCEO, Scott J. Medhurst has been with the company since 1988. He was appointed President of Toromont CAT in 2004 and he came into his current position as President and CEO in 2012. He is a graduate of Toromont’s Management Trainee Program.
CFO, Mike McMillan joined the executive team in March of 2020. His predecessor, Paul Jewer is retiring this year and has been working with McMillan during the transition period.
VP and COO, Michael Chuddy has been with Toromont since 1995.
On average, leaders have 29 years of business experience and have served at Toromont for 19 years. Seeing long tenures, good stock performance, excellent business planning and execution is usually a sign of strong leadership. In addition, insiders hold more than 3% (~$175 million) of the company’s outstanding shares. Medhurst owns more than 170 thousand shares, Chuddy owns just under 100 thousand shares and the former CEO and current Independent Chairman of Board of Directors, Robert Ogilvie owns more than 2 million shares, making him the 4th largest stockholder. High insider ownership typically signals confidence in a company's prospects. Compare this to Toromont’s main Canadian competitor, Finning, where insiders own less than 0.4% ($12 million) of the company (this number varies depending on where you look, I just took the highest one I found).
Recently insiders have been selling stock (Figure 1). I cannot speak to the reasons why insiders are selling but the remaining position owned by the insider is sizable and demonstrates that the executive still has confidence in the company. Some of the reasons insiders sell are: they don't believe in the company’s future, they need money for personal use, they are rebalancing their portfolio, among others.
Figure 1: Buy and selling activity of insiders (the data is from MarketBeat, so take that for what it's worth).
On a somewhat unrelated but still related note, 50% of Toromont employees are also shareholders.
Growth StrategiesToromont has five growth strategies (expand markets, strengthen product support, broaden product offerings, invest in resources, and maintain a strong financial position). I chose to focus on the following two strategies, as they seemed most prevalent.
Growth Through AcquisitionRapid growth in this industry is generally driven through acquisitions. Toromont has gone through multiple acquisitions since the 90’s:
This acquisition allowed Toromont to make headway into the Quebec, Western Labrador, and Maritime markets, as Hewitt was the authorized Caterpillar dealer of these regions. Hewitt was also the Caterpillar lift truck dealer of Quebec and most of Ontario and the MaK marine engine dealer for Québec, the Maritimes, and the Eastern seaboard of the United States (from Maine to Virginia).
Toromont had total assets of $1.51 billion before the acquisition, the acquisition added $1.024 billion in assets, nearly doubling the balance sheet (look at Figure 2 for more details about the acquisition).
Figure 2: (all numbers are in thousands) The final allocation of the purchase price was as of Dec 31, 2018, Note 25 of 2018 Annual Report. $1.024 billion was added to the Toromont’s B/S
Large acquisitions like this one can be the downfall of a company. Here are some of the risks highlighted by management at the time of the acquisition:
The result of the acquisition and Hewitt’s integration with Toromont’s existing business produced a 39% increase in EPS in 2018 and 14% increase in 2019.
DividendToromont pays a quarterly dividend and has historically targeted a dividend rate that approximates 30 - 40% of trailing earnings from continuing operations.
In February 2020 the Board of Directors increased the quarterly dividend by 14.8% to $0.31 per share. This marked the 31st consecutive year of increasing dividends and 52nd consecutive year of making a dividend payment. The five-year dividend-growth rate is 12.09%.
Table 1: Information about the last eight dividends
Risks/Threats and MitigationDependency on Caterpillar Inc.
It goes without saying that Toromont’s future is heavily dependent on Caterpillar Inc. (NYSE:CAT). For those who don't know, Caterpillar is the world’s leading manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives. It has a market cap in excess of $68 billion. All purchases made by Toromont must be made from Caterpillar. This agreement has been standing since 1993 and can be terminated by either side with 90 days notice.
Given that the vast majority of Toromont’s inventory is Caterpillar products, Caterpillar’s brand strength and market acceptance are essential factors for Toromont’s continued success. I would say that the probability of either of these being damaged to an unrecoverable point are low, but at the beginning of this year, I would have said the probability of the world coming to a complete stop was very low too and look at what happened. Anything is possible. The reason this is a major consideration is because it's a going concern issue. Going conference is an accounting term for a company that has the resources needed to continue operating indefinitely until it provides evidence to the contrary. This term also refers to a company's ability to make enough money to stay afloat or to avoid bankruptcy. If there was irrevocable damage to Caterpillar’s brand, Toromont is no longer a going concern, meaning the company would most likely be going bankrupt or liquidating assets. The whole Company might not go under because the CIMCO, SITECH, and AgWest business units would survive but, essentially ~80% of the business would be liquidated.
In addition to the morbid scenario I laid out above, Toromont is also dependent on Caterpillar for timely supply of equipment and parts. There is no assurance that Caterpillar will continue to supply its products in the quantities and time frames required by Toromont’s customers. So if there is supply chain shock, like the one we just saw, there is the chance that Toromont will not have access to sufficient inventory to meet demand. Which in turn would lead to the loss of revenue or even to the permanent loss of customers.
Again, both of these threats have low a probability of occurring but either could single handedly cripple Toromont’s business. As of now, Caterpillar continues to dominate a large market share (~38% as per Gurufocus) in the industry against large competitors like John Deere, CNH Industrial, Cummins, and others.
Caterpillar's stock has been on a slow decline for a couple years but that is due to reasons beyond the ones that directly concern Toromont’s day-to-day operations. I would say if you don't believe in Caterpillar’s continued market share dominance, investing in Toromont is probably not for you.
Shortage of Skilled Workers
Shortage of skilled tradesmen represents a pinch point for industry growth. Demographic trends are reducing the number of individuals entering the trades, thus making access to skilled individuals more difficult. Additionally, the company has several remote locations which makes attracting and retaining skilled individuals more difficult. The lack of such workers in Canada has caused Toromont to become more assertive and thoughtful in their recruitment efforts.
To combat this threat, Toromont has/is:
Cyclical Business Cycle
Toromont’s business is cyclical due to its customers' businesses being cyclical. This affects factors such as exchange rates, commodity/precious metal pricing, interest rates, and most importantly, inventory management. To mitigate this issue, management has put more focus on increasing revenues from product support activities as they are more profitable than the equipment supply business and less volatile.
Environmental Regulations Affecting Customers
Toromont’s customers are subject to significant and ever-increasing environmental legislation and regulation. This leads to 2 impacts:
Impact of COVID19
While the company had been declared as an essential service in all jurisdictions that it operates in, Q1 2019 results were lower as a function of COVID19 reducing activity in many sectors that Toromont services. Decline in mining and construction projects lead to a decrease in demand for Toromont products in the latter part of the quarter. Revenues were trending for 5-7% growth for the quarter before the effects of COVID19 were felt.
Management cannot provide any guidance on how to evaluate the impact of COVID19 on future financial results. They are focusing on ensuring the continued safety of employees and working with customers and the jurisdiction they operate in to evaluate appropriate activity levels on a daily/weekly basis. Lastly, management is keeping a close eye on how this crisis has led to an increase in A/R delinquencies and financial hardship for customers.
The Executive Team and the Board of Directors have taken a voluntary compensation reduction. Wage increase freezes and temporary layoffs have been implanted on a selective basis. Management believes that expanding product offerings and services, strong financial position, and disciplined operating culture positions the Company well for continued growth in the long term.
Toromont competes with a large number of international, national, regional, and local suppliers. Although price competition can be strong, there are a number of factors that have enhanced Toromont’s ability to compete:
Main Competitor in Canada: Finning International Inc.Finning International Inc. (TSE:FTT) is the world's largest Caterpillar dealer that sells, rents and provides parts and service for equipment and engines to customers across diverse industries, including mining, construction, petroleum, forestry and a wide range of power systems applications. Finning was founded in 1933 and is headquartered in Vancouver, Canada.
I am sure there are some people looking at this table and thinking Finning looks rather promising based on the metrics shown, especially in comparison to Toromont. Finning’s dividend yield, P/E, and price/book look more attractive. Their top line is 2x. Not to mention it operates worldwide and is the only distributor in the UK, while Toromont only operates in half of Canada.>! Before you go off thinking “I need to use my HELOC to buy some Finning,” as some people on this subreddit are prone to do, ask yourself: do you see any cause for concern in the metrics listed above? !<
One glaring question I have is: why is Finning trading at half of Toromont’s market cap given that it operates internationally and has twice the number of employees and revenues of Toromont?
Q1 2020 Financial Results
Figure 3: Q1 2020 Income Statement
Overall operating income, net earnings, and EPS all decreased even though Toromont saw an increase in revenue for the quarter compared to Q1 of 2019.
Assuming the world does return to “normal,” many of Toromont’s customers (especially in mining and construction) may try to catch up for lost time with increases to their operational activity, leading to an increase in Toromont’s sales for the remainder of the year. Of course this is a major assumption but it’s a possibility.
Below is a comparison of the last eight quarters. You can see the clear cyclical nature of their business.
Figure 4: Last eight quarters of earnings
Sources of LiquidityCredit
Financial AnalysisAnalysis of Debt
Historically, Toromont has had very low debt levels. The spike in late 2017 was due to the acquisition of Hewitt. Management paid off the debt aggressively in 2018. At the end of December 2019 Toromont had $650 million of debt maturing between 2025 and 2027. As a result of COVID19 the company has taken on more debt. This additional access to debt accounts of the slight uptick in historical debt in 2020 (Figure 5).
Figure 5: Toromont’s historical debt, equity, and cash
The long-term debt to capitalization ratio is a variation of the traditional debt-to-equity ratio. The long-total debt to capitalization ratio is a solvency measure that shows the proportion of debt a company uses to finance its assets, relative to the amount of equity used for the same purpose. A higher ratio means that a company is highly leveraged, which generally carries a higher risk of insolvency with it.
The debt-to-equity ratio is at 47% and debt-to-capitalization ratio is 32%, Toromont has $388 million in cash that could be used to pay down debt by nearly 50% and bring the net debt-to-equity to 23% and net debt-to-capitalization to 18%. As mentioned before, management is holding on to cash to insure sufficient liquidity during these times.
The implication of these ratios is that Toromont does not take on large amounts of debt to finance growth. Instead the Company leverages shareholders equity to drive growth.
For comparison, Finning has a debt-to-equity ratio of ~100% (it differs between WSJ, 99%, and Yahoo Finance, 101%). The nominal amount of their total debt is ~$2.2 billion, which gives them a long-term debt to capitalization ratio 62%. Finning carries $260 million in cash.
Figure 6: Toromont’s debt-to-capitalization and debt-to-equity ratios
Return on equity (also known as return on net assets) measures how effectively management is using a company’s assets to create profits.
Toromont’s return on equity is generally around 20%. Go to Figure 6 to look at the ROE for the last 4 years. In comparison, Finning has had a ROE of ~11% for the last three years, about 3% in 2016 and a negative ROE in 2015 (as per Morningstar).
Return on capital employed (ROCE) tries to find the return relative to the total capital employed in the business (both debt & equity less short-term liabilities). Toromont’s ROCE (ttm) for March 31 2020 was 22%. This means for every dollar employed in the business 22 cents were earned in EBIT (earnings before interest and tax). Finning had a ROCE of 11% as of December 2019.
Working capital is the amount of cash and other current assets a business has available after all its current liabilities are accounted for. In the last ten years, Toromont’s working capital has fluctuated between 1.6 at its lowest (2018) to 2.8 at its highest (2016). At the end of 2019 it was at 1.8. Meaning current liabilities equate to 60% of current assets.
Interest coverage ratio is used to determine how easily a company can pay their interest expenses on outstanding debt. Toromont has an interest coverage ratio 15x (as per WSJ). Finning on the other hand is at 4x. At this point I feel like I'm just beating up on Finning.
For those of you who made it this far, I have to admit something to you. This whole post is just a facade to ask you a question that has never been asked on this subreddit before: Should I buy BPY.UN? It keeps going down and I'm worried if I buy it, it will keep going down and I'll lose money. I don't want to lose money. Although if you go through my post history, you'll see I've been looking at/buying penny stocks.
Key Performance MeasuresBelow is a chart with key financial measures for the last four years. A few things I want to highlight:
Price Chart ComparisonsI don't do technical analysis. To those who do, good luck to you because let's be real, you'll need it. This section is just to get an idea of past performance and evaluate the opportunity cost of investing in Toromont compared to a competitor or a board based index fund.
I thought it would be easier to look at pictures as opposed to reading a bunch of numbers off a table.
For the sake of not creating a picture album of screenshots, I just looked at charts for the last 5 years. If you're interested in looking at different time intervals you can do so on google finance.
These are the only two Caterpillar distributors on the TSX, making them direct comparisons. If I was looking for exposure to this industry, I would be choosing between these two companies (on the TSX anyways). There isn't really much to evaluate here. It's like they saying: “A picture is a thousand words,” or in this case, it's 128%. If you have time, go look at the graph from August 1996 to now. I can safely say it hasn't been much of a competition. Toromont has outperformed by ~2500% in stock price appreciation alone. If you're a glass half full kind of person, I guess you could look at this disparity as Finning having enormous upside. LOL
If I'm not buying individual stocks, I’m buying the S&P 500 and to a lesser extent a Nasdaq index fund. This gives me a second look at the opportunity cost of my money. The story is not as bad as the Finning comparison. If you had bought $100 dollars of Toromont stock 5 years ago, it would have turned into $207 today, whereas the same $100 dollars in VFV would have became $157.
Just a quick aside, you can see the volatility in Toromont’s stock is much higher compared to the VFV. VFV has a relatively smooth trend upwards while Toromont trends upwards in a jagged path. This is the risk of single stocks, they move up and down more erratically, leading inventors who don't have a grasp of the business or conviction in their pick to panic sell or post countless times on Reddit asking why their stocks keep going down. “I bought the stock last week and it's done 3% already, do you guys think it’s going bankrupt? I thought stonks only go up???”
The S&P/TSX Capped Industrials Index isn't my favourite comparison for Toromont because its constituents cover many industries ranging from waste management (WCN), to railways (CNCP), to Airlines (AC, lol, had to mention it. I miss the days when there were double digits posts about AC. I wonder where those people have gone, because I can tell you where AC stock has gone... absolutely nowhere). Regardless, I used TTIN because I deemed it a better comparison to Toromont than the entire TSX. The story is on par with the other two comparisons. Toromont’s out performance is significant.
I just threw this bonus chart in here because when I saw it, I was like BRUHHH (insert John Wall meme)… It's completely unsustainable but that's impressive given the vast differences between the two.
Now, of course, past performance does not dictate future results and all that good stuff, but it really gets you thinking about how the rewards disproportionately favours winners compared to the overall market. People are generally happy getting market returns (i.e. the just buy VGRO people) but being able to pick even a few winners really pays. This reminds me of the Warren Buffet quote: “diversification is protection against ignorance.” The context of the quote is that if you are able to study a few industries in great depth and acquire a wealth of knowledge, you can see returns astronomically higher than those who diversify across the board market. The problem then becomes you put yourself at risk of having all your eggs in one basket. Look at what's happening with Wirecard in Europe right now. This is why the real skill in investing is managing risk.
Analyst Price Targets and EstimatesThe prince targets set for by analysts range from $63-$81. The average price target is ~$72, with the majority of targets within the 70-$71 range. Given the current price of $65.66, there is a ~10% upside. These price targets haven't changed much due to COVID19 even though revenues and EPS forecasts have been downgraded for 2020. The consensus estimate on 2020 revenues is $3.36 billion, down from the actual revenues of $3.69 billion in 2019 and the consensus EPS for 2020 is $3.01 down from actual EPS of $3.52 for 2019 and $3.10 for 2018. The fact that revenues and EPS forecasts have been downgraded, yet price targets remain untouched, for the most part, indicates that the effects of COVID19 are expected to be short-lived.
Figure 12: Earnings and estimate ranges for Toromont. Note: EPS numbers in this graphic are diluted EPS numbers.
Assuming P/E ratio stays the same as it has been for the last 12 months (~19x) and EPS goes down to ~$3.00 (as per analyst consensus), the implied price would be $57.
Using the last 12 months of revenues, the EV-to-Revenues ratio is at 1.56x. Assuming that ratio stays the same and with revenues estimated to be ~$3.36 billion, enterprise value (EV) comes out to $5.2416 billion. Using Q1 2020 figures for shares outstanding (82.015 million), cash ($388.182 million), and debt ($745.703 million), the implied price for a share is $58.94*.
\Note: Enterprise Value is equal to market cap plus total debt minus cash.)
Dividend Discount Model
The dividend discount model (DDM) is a method of valuing a company's stock price based on the theory that its stock is worth the sum of all of its future dividend payments, discounted back to their present value.
The average dividend growth rate is 12% for the last 5 years is 12%. There is no way Toromont can increase the dividend at this pace in the long term, thus, I chose a long term dividend growth rate of 5%. This is the assumed rate in perpetuity. The required rate of return will equal WACC, 6.85% (averaged from 2019 Annual Report). The dividend over the last year is $1.16 (two payments of $0.27 in 2019 and two payments of $0.31 for 2020).
The fair value equals $65.84.
Figure 13: DDM calculation.
Closing ThoughtsThere is no doubt that Toromont trades at a large premium. The current P/E is 19x and the CAPE ratio (Shiller P/E) is 26x. The fair value of the Company as per Morningstar research is in the mid $60 range.
Based on all valuations I did and analyst price targets, I would start buying in the high $50 range or maybe the very low $60 range, but my belief in the company has to do with long term thematic trends and how the Company operates, rather than today's price. Although I have to admit, the price does look more attractive now than it did in the beginning of June when the stock hit new all time highs. It seems like the only companies hitting new all time highs these days are tech companies, so it's refreshing to find a non-tech company achieving the same feat.
Toromont is not going to double next year or the year after that. It is a relatively low margin business, with slow growth and a cyclical business cycle. I like that the Company has strong financials, low debt, and good management. They don't take shortcuts or unwarranted risk. Future growth will mostly be driven through acquisition, but management is cautious with acquisitions and don't overextend themselves. One of the biggest problems Finning has been facing for the last couple years is political and social turmoil in South American countries which is affecting their mining clients and thus affecting revenues/margins.
The Q2 earnings are reported on July 22 202. We should have a clearer picture on the prospects of the Company from management. Hopefully we have a better idea of the COVID19 situation by then too. Regardless, I think the company is in a position where its services will always be in demand so short term fluctuations are not something that shake my confidence in this pick.
Limitations and Further Areas of ResearchBy no means is this an exhaustive due diligence report. This is enough for me to feel confident in the business and its trajectory. Limitations/further areas of the research include:
>! I know I took a few shots at people in this post. It's all in good jest. If you're offended well.... maybe you should be. I don't know, you have to figure that out on your own or you could make a post on Reddit asking random people on the internet whether you should be offended or not. !<
Remember I'm not an expert, I'm just a random guy on the internet.
DisclosureI am long Toromont. This information is not financial advice. Please do your own research and/or talk to a financial advisor. All data provided is current prior to the market opening on June 29, 2020. Inconsistencies in data can be due to many reasons, the foremost being that data was spruced from multiple different websites.
What's up fuckers. TSLA fuckboy here writing a post about video games. Go figure. I posted the link about Daddy Elon and legalizing weed last weekend, and got fucking temporarily banned for it because I flaired it with DD. It definitely wasn't DD. Learn from my mistake and don't fuck around with flairs or the mods. In my defense, I have ADHD, was high af, and am likely retarded. I served my sentence, and am here to try to redeem myself with some real DD on Activison-Blizzard (ATVI). I actually wrote this a few days ago when ATVI was $68 (proof attached), but couldn't post it until now. That's ok though, I committed a sin and you all have to pay the price by getting this DD 4 days late (love you mods). Don't fret though (like the market this morning wtf), there is still time for tendies.submitted by tslatothemoon to wallstreetbets [link] [comments]
I'm long ATVI. They are going to steadily rise for the next 5-10 years. In the paragraphs below, you'll learn why. To be fair, I bought puts on BYND when it was trading at $70 in April, so, I'm pretty fucking smart. Do your due diligence (or fucking don’t, whatever). Obligatory this is not financial advice.
Pictures, positions and TL;DR at the bottom for those of you that don’t know how to read (and let’s be honest, most of you don’t know how to read. Most of you need crayons to eat while you look at pictures. Lookin at you 220p SPY bag holders lmao.) That or you have the attention span of the stock market in March. Either way, enjoy!
Long-Term thoughtsYou know that saying, the one that rich-fucks who inherited a bunch of money from their crazy aunt (they've never even met this Aunt obviously) say, “You gotta make your money work for you or you'll never be rich!” Yeah, well fuck those people. I got one better. I make ogres and trolls and wizards and guns (oh my) do the work for me, and it turns out they work really fucking hard, 24/7/365.
Activison-Blizzard is one of the biggest powerhouses of the video game industry and I think they have a tremendous opportunity for growth in the long term. They are also recession/virus/pandemic/protest proof. And in reality, most of these things actually make ATVI more attractive.
Can’t go outside because there's a fucking curfew (we have to be in a simulation), or your downtown is literally on fire from a protest and there’s a deadly virus just hanging out on every corner trying to murder your grandma? Cool. You don’t give a fuck because you’re sitting in your Lovesac (just fucking don't), playing COD while eating your BYND meat fake burger with a non-gmo, organic, gluten-free lettuce wrap with a 42oz Monster at 3 am. Why face reality when video games are so much more fun, AND you don't have to put on pants. Also, the gov is literally handing out money to people on unemployment.
Put on your thinking cap and think really fucking hard for a second. Really hard. Do you think there's a correlation between people that are unemployed (and getting insane unemployment payments + stimulus + more stimulus at the end of July and are basically being ENCOURAGED TO STAY HOME), and the likelihood of that person playing video games? Hmm. FUCKING MAYBE.
Earnings - They make lots of money lol
They have crushed recent earnings (and most other earnings), and they have really fucking solid financials. Boatloads of cash on hand and relatively low debt. They have rock-solid management that has been there for years, and they are devoted to the company. Here's some great info on how they make money.
Also, most importantly, u/fuzzyblankeet said "they are a great company" (proof attached) and that guy doesn't fuck around.
Current and upcoming games
E-Sports - The Future of 'sports' entertainmentE-Sports will largely replace real sports in our lifetime, and we’re just now really getting started. Disagree? Great, I don’t give a fuck. Go ask any 10 year-old this question. “Hey little Johnny-Sue. Would you like to watch some sweaty dudes smash into each other for 3 hours, or would you rather watch your favorite team play in their respective competitive E-Sport league on Twitch?” 9/10 times, Lil-fuckin-Johnny-Sue gonna pick video games, and that's a fact.
Teams and Orgs
Esports are also BOOMING in colleges, with lots of colleges offering significant scholarships to come play video games for their school. Let me help you draw a mental picture. Concentrate.
Remember Lil-Fucking-Johnny-Sue from above? If he/she gets good enough at whatever game he/she is playing, they could get a full-ride scholarship to college, and then possibly get a job afterwards as a professional Esports athlete (and make more money then a CPA makes their first few years of working). THEN, when he/she gets too fucking old and slow to play the game (25-30 years old typically) they can become an analyst, caster, coach, manager, scout, etc etc. Maybe they become the next N0tail (highest paid Esports athlete to date) and make a cool 6.8 million a year. Imagine making 6 figures a year to play fucking video games and rekt n00bs on stage. Fuck I want that life so bad.
There are literally stadiums being filled with fans to watch people play video games, while another 100 million people watch from home. Esports organizations are becoming bigger and bigger. TSM is a major Esports organization in the US and they are building a $50 million facility in LA. More words on other organizations to help put things into perspective. While these facilities are clearly impressive, this is nothing compared to major sports facilities.
Here's my point. Is it reasonable to assume that these facilities/teams/Esports stadiums/orgs will continue to get bigger? And if they get bigger, they will demand more attention from celebrities/rich folk because they want to get in on the action. As a result, the salaries of players/managers/staff/coaches/analysts will continue to go up and there will be more and more opportunities for jobs in this field. This then causes more young people to be more interested in video games, because not only are they fun af (and insanely addictive), but you could play pro someday! Schools/colleges will continue to develop competitive Esports teams because A: You better fucking believe that there are lots of kids out there that care about this and B: The school knows that it could lead to jobs (more like a dream job, but still something that's reasonable to consider if you are really good at a video game).
Still disagree? More words for you to look at and not understand.
Blizzard Esports Revenue
There are competitive (money generating) Esports leagues for 7 different ATVI games. (Overwatch, Hearthstone, WoW, COD, COD Warzone, COD Mobile, Starcraft). Here are some thoughts from Pete Vlastelica (head of E-Sports at Blizzard).
E-Sports will be 10x in 10 years. Bet your bottom dollar on it.
Technicals - (kinda, but only 1 cause fuck TA)Honestly, just fucking look at the 50-day moving average (image attached). They crashed and burned cause Rona (so did everything else you autist). But Rona has been canceled, and even if it hasn't, ATVI is gonna be better off because of it.
TL;DR - ATVI makes a lot of money and they are in a strong position to grow and make lots more fucking cash regardless of C19/protests/riots and they might actually do even better because of it. (3 -12 months = 80's) (12-24 months = 90's.)
Yolo 100c mid-2021.
EDIT: misspelled ATVI ticker one time in post and some autist called me out. Fixed. Also, fuck off.
**************submitted by lurkingsince2006 to wallstreetbets [link] [comments]
EDIT: At Top 100 Analyst at Oppenheimer just gave PRPL a price target of $19. Clearly, he reads wsb.
tl; drSeriously, just go away. If you can't be bothered to read for 5 minutes before putting money on something, you don't belong here. You're not an autist; you're just a full blown retard.
What you should do first is go read the post where I called the price of the stock pre-earnings and as a great COVID Recovery Play: PRPL to $12-$14 by 5/12 and $20-$24 by end of Q1 2021.
After that, you need to go read how I predicted the beat on earnings consensus over the weekend here: Purple (PRPL) Earnings is Monday After Hours: Here's What to Expect.
Only after reading and understanding those two things will you be capable of making tendies as described below because you will actually know what you are doing.
If I've already exceeded your maximum word count, go back to reading the memes on the sub so you can cool your overheated brain.
Note: all quotes below are paraphrased from the earnings call. I am not transcribing that thing.
2020 Q1 Earnings ReleaseEarnings could not have gone better. PRPL is literally a brand new business that should catch your eye for investment. I am solidly in the $19+ camp from my last post based upon results and the guidance given. You can still make tendies on this play because PRPL builds its price action over time, which I will cover below. Let's look at some numbers first.
PRPL has a large wholesale business which means it has significant exposure to bad debts due to retail brick and mortar locations closing and retailers who are obviously cash starved. Joe told us on the call that their wholesale accounts are "largely current on their receivables" and Purple is "continuing to get paid almost entirely across the board".
Awesome. This means very little bad debt and the revenue earned will convert to cash.
Warrant Liability Accrual
Yeah, I called this one. It was material to the shift in EPS, but you are an idiot if you care. This stuff is equity and should be treated as equity. Yes, GAAP requires otherwise, but the FASB doesn't always make the best decisions.
Our supply chain has not as yet been significantly affected by COVID-19. Currently, our domestic suppliers are able to continue operations and provide necessary materials when needed. Suppliers in China were temporarily closed as a result of the pandemic but we had sufficient inventory on hand. Many of our suppliers resumed production in March and are able to supply materials as needed. As a result, we don’t expect supply to have a material impact on our ability to meet anticipated demand.There you have it. Pretty much no supply chain risk.
Forward Looking GuidancePRPL did not provide formal guidance for the rest of the year, but the rest of the year is what they mostly talked about on the call, and the management team clearly wanted you to understand April with their "Second Quarter Preview". Let's look at what they said.
They ended Q1 with $26.4M in cash (down from Q4's $33.5M in cash); however, they ended April with $62.5M in cash! Management really wanted to call it out so they put the April cash number at the top with all of the Q1 numbers on the earnings release, which I thought was funny. In reality, they've done a fantastic job at managing expenses and converting inventory on hand into cash during the quarter. This should give you quite a bit of confidence in the management team. This is probably more cash on hand than they have ever had, which means they are well weathered to not just manage this storm (which is a storm that is cash flow positive for them), but to invest ahead of the competition for the future.
Hiring and Capacity
Joe confirmed that "the furlough is all but over" and Purple is "actually in hiring mode right now to bring people in fairly aggressively" in order to expand capacity. According to Joe, "demand has not waned at all". Purple is still selling very near capacity (they brought a new machine online and are expanding their hiring aggressively to fill the capacity).
PRPL announced previously, as a result of COVID, that they were deferring all capital expenditures.They've now done a 180 on that statement. PRPL is accelerating the completion of the Max 7 machine in order to increase capacity another 20% over last year, which should be done this quarter. The Max 8 & 9 machines are still happening, but because they are being built in their new east coast manufacturing facility, it is unknown whether they will get them done this year.
If you have been paying attention to my previous posts, you will remember that the Max 8 & 9 machines were not necessary to meet the pre-COVID guidance provided for the year. This is part of why PRPL is going to beat their original pre-COVID guidance this year. Read on.
Wholesale is down dramatically. Duh. 85% of wholesale doors were closed during April, but they have seen through April that sequential wholesale orders have been increasing. Believe it or not, we are happy for wholesale to stay closed longer for PRPL. What!?! Yep. We'll get into that more in a second, but let's talk about the hedge to revenue that wholesale provides.
I strongly inferred in a previously post that PRPL can simply expand wholesale doors to make up for lost same store sells. Joe just came out and said it on the call: if wholesale sales are slow to recover on a same store basis, the could just expand to more doors.
Additionally, their wholesale partners burned through their safety stock of Purple mattresses. As wholesale doors are opening up, large orders are coming in to restock their inventory. The trend for wholesale remains to be seen as doors reopen and Memorial Day weekend comes in. Wholesale doors are achieving up to 85% of demand at most right now and this is a good thing.
This means our worst case scenario is that PRPL will meet their pre-COVID guidance for the year by simply expanding wholesale doors. The hedge.
Direct to Consumer Sales
THIS is why PRPL is going to BEAT their pre-COVID guidance for the year. I'm calling it now.
April DTC sales were up 170% YoY for the full month. 170%!!! Not only that, Joe explained that:
It has been remarkebly consistent. Briefly saw DTC retract at the end of March. PRPL saw pretty consistent DTC performance at the beginning of April, but a retraction in wholesale as stores shut down. About the time the stimulus checks hit, we saw a pretty significant increase in our DTC business**.** We did some surveying and we don't think its entirely related to the stimulus checks themselves, but really some sentiment and people settle into the new normal. Since that time, we've seen a consistent but eleveated performance on DTC. It has really be pretty remarkable on how consistent it has been.This means the run rate exiting April was greater than 170% YoY for DTC (if the average of 170% includes half the month at a lower rate). Joe told us that this is more than offsetting the decline in wholesale.
PRPL will beat pre-COVID guidance for the quarter and for the year because:
PRPL management believes that unit demand never disappeared and that they've seen a shift of demand from their brick and mortar partners to online (which means PRPL makes more money per mattress).
Additionally, they've seen a decline in marketing acquisition costs as many competitors are struggling and overall advertising costs are dropping nationwide. The acquistion model online is much more simple than attempting to spend to get people to go into stores (for anyone who understands modern digital marketing, these means they will be able to scale their spend and revenue justifiably easier and faster). New customers as a % of all customers (in terms of traffic and purchases) has gone up as they have been able to cast a wider net digitally and had a higher conversion rate.
Joe's words about the boost in revenue caused by the shift to DTC are: "it is distorting revenue up". Joe, this is going to distort the stock price up too.
Lastly, Joe stated very clearly their plans for wholesale reopening offsetting DTC revenue in their manufacturing constrained world: "they would throttle their wholesale growth until they could continue to expand their capacity". DTC for the win!
A slow return to normal will benefit Purple by boosting per unit revenue and margin.
Like I said, this is a brand new business.
Forward Looking Price Action - More Tendies!There are still opportunities to make tendies with PRPL tomorrow and over the next quarter. Here is why.
PRPL Builds Price Momentum
Because PRPL is a mid-market stock with not a lot of following and mid-market volume, its price actions are not immediate. The typical pattern after earnings is that the price adjustment builds slowly over the next day to whatever direction earnings dictates. Then, the price action continues to build over the next quarter. Look at the price action after the Q3 2019 earnings call if you want the most pronounced example of this.
Wherever we start tomorrow, I'll bet money that we end much higher.
PRPLW warrants do not behave like your typical CBOE options where market makers have algorithms changing the bid/ask on every strike with every movement of the stock. Typical market makers accept those prices at every level because they are delta hedging with your play.
PRPLW warrants are OTC and there is no options chain currently, which means not a whole lot of market making. While this makes them less liquid, it also means that PRPLW warrants typically lag the price of PRPL stock on the way up as you are trading against other people. Plenty of scalping opportunities on big price movement days if you know what you are doing. If you don't know, it means you can usually get a good deal if you buy into a longer-term hold.
SHORT INTEREST INCREASED!!! The 4/30 numbers are out tonight and short interest increased a whopping 33.5%! That means we have a short float of 10.72%.
If you recall my weekend post, only 16.44% of float is left with non-institutionals. Those 2,439,121 short shares are going to get squeezed. The shorts got hurt today with ER and they are going to want to slowly exit their position over the next day or so, which is another reason why we may see momentum in the stock tomorrow. If there is a push behind it, we may see a much more dramatic squeeze.
We still saw a significant amount of short volume through today. As the stock gaps up, margin calls are going to happen. As shorts cover and new buyers buy in, this will accelerate. Depending on your broker, margin calls could have days to cover, which means we will see upward pressure over a few days.
PRPL is still not a well known stock. It will likely get some better press coverage over the next few days for two reasons:
PRPL gapping up and growing will only increase the number of indexes it gets added to and therefore funds that are required to buy in. More cash investment required over the next few months will only support a growing stock price.
Lastly, this stock had great fundamentals before this huge earnings beat, and fundamentals always win in the long run.
Good luck tomorrow and let's get some tendies!
PositionsI have one share of PRPL. I made $2 on it today and am up $1.91 since open. In great wsb tradition, I'll probably do a gain post on that.
The PRPLW warrant prices don't update AH. That's where I ended the day. I had a steak dinner tonight to celebrate. The wife tried to give me a chicken salad from Panera, but I wasn't having it.
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