What is Margin Funding and How does it work exactly?

PRPL Q2 2020 Earnings Expectations

PRPL Q2 2020 Earnings Expectations

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.

Earnings Estimates

https://preview.redd.it/w3qad4gb9ng51.png?width=854&format=png&auto=webp&s=7a88656a9867d0e40710736f61974a22b5f4a631
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 Revenue

I 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)
https://preview.redd.it/notxd6hhbng51.png?width=384&format=png&auto=webp&s=aa0453414f467aa6c5bf72ce8a8046c0ae6e62a5
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 Margins

I 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 Expenses

Marketing 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:
  1. Overall customer acquisition cost was constant with previous quarters (assume $36M total, not $93.2M), which means you need to add another $57M to bottom line profit and $1.08 to EPS, or
  2. Customer Acquisition Costs on a unit basis were constant, which means I'm still overstating total marketing expense and understating EPS massively, or
  3. Customer Acquisition Costs on a revenue basis were constant, which is the most conservative approach and the one I took for my estimate.
I straightlined the 2.2 ratio of DTC sales to Marketing costs from Q1. I am undoubtably too high in my expense estimate here as PRPL saw marketing efficiencies and favorable revenue shifts during the quarter. So, $93.2M
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 Expenses

Interest 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.
  1. We know that the secondary offering event during Q2 from the Pearce brothers triggered the clause for the loan warrants (NOT the PRPLW warrants) to lower the strike price to $0.
  2. I can't think of a logical reason why the warrant holders wouldn't exercise at this point.
  3. Therefore there is no longer a warrant liability where the company may need to repurchase warrants back.
  4. The liability accrual of $7.989M needs to be reversed out for a gain.
This sucker is worth about $0.15 EPS on its own.

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)
https://preview.redd.it/o2i1dvk6hng51.png?width=373&format=png&auto=webp&s=27e63f7934d85393e1f7b87bf2e2066c28047202
EPS Expectations from Analysts (via MarketBeat)
https://preview.redd.it/psu5rajfhng51.png?width=1359&format=png&auto=webp&s=0612d43777c644789b14f8c5decbe36f41925f5e
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:
  • Margin Growth
  • Warrant Liability Accrual
  • Capacity Expansion Rate
  • CACs (Customer Acquisition Costs)
  • New Product Categories
  • Cashless Exercise of PRPLW warrants

Margin Growth
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.

Positions


https://preview.redd.it/tho65crvkng51.png?width=1242&format=png&auto=webp&s=6241ff5e8b26744f9d7119ddef7da86f163c741d
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.

UPDATES

I've made some updates to the model, and produced two different models:
  1. Warrant Liability Accrual Goes to Zero
  2. Warrant Liability Accrual Goes to $47M
I made the following adjustments generally:
  • I reduced marketing expenses signifanctly based upon comments made by Joe Megibox on 6/29 in this CNBC video to 30% of sales (thanks u/deepredsky).
  • I reduced June wholesale revenue to 12.6M to be conservative based upon another possible interpretation of Joe's comments in this video here. It is a hard pill to swallow that June wholesale sales would be less than May's. The only reasoning I can think of is if May caused a large restock and then June tapered back off. The previous number of $19.0M was still a retrenchment from the 40-50% YoY growth rate. I'm going to keep the more conservative number (thanks again u/deepredsky).
  • I modified the number of outstanding shares used for EPS calculations from 53M (last quarters number used on the 10-Q) to almost 73M based upon the fact that all of the warrants and employee stock options are now in the money. Math below. (thanks DS_CPA1 on Stocktwits for pointing this out)
Capital Structure for EPS Calculations
From the recent S-3 filing for the May secondary, I pulled the following:
https://preview.redd.it/qw7awg8w7sg51.png?width=368&format=png&auto=webp&s=66c884682ddb8517939468ab1e6780742f55d427
I diluted earnings by the above share count.

Model With Warrant Liability Going to Zero
https://preview.redd.it/cz2ydomi4sg51.png?width=852&format=png&auto=webp&s=53cc457a3143cabb16bfff9a1503054a9a8c0fca
Model With Warrant Liability Going to $47M
https://preview.redd.it/o2hltrgf5sg51.png?width=853&format=png&auto=webp&s=41cbe73a7aa0894a86a09ccc9179b100e9d3372d
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...
https://preview.redd.it/dd4tcdue4sg51.png?width=667&format=png&auto=webp&s=d27f3ad40c702502ee62f106b6135f0db2c1e7be
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.

submitted by lurkingsince2006 to wallstreetbets [link] [comments]

ARCIMOTO. The perfect EV play (LEAPS or FDs, your choice).

ARCIMOTO. The perfect EV play (LEAPS or FDs, your choice).
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.
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.

https://preview.redd.it/72r2hivr8tg51.jpg?width=700&format=pjpg&auto=webp&s=146bdfbff1dcb25ab76d32c83affe7fb03dbaceb
VARIETY OF PREMIUM VEHICLES
  • Fun Utility Vehicle (FUV). Designed for individual transportation (two-seat). Mark Wahlberg recently bought one and he loves it. VIDEO He liked so much that he also got a delivery fleet for his restaurants "Wahlburgers".
  • DELIVERATOR. Designed for delivery. The vehicle has tons of space and can be used by restaurants do deliver large meals, by supermarkets to deliver groceries or by individual drivers that participate in the growing "GIG ECONOMY". VIDEO
  • Rapid Responder. Designed for first responders, law enforcement and campus security. Improving response times and reducing carbon emissions all at once. VIDEO
BASIC INFORMATION
  • Located in Oregon. MADE IN THE USA
  • Started trading in the NASDAQ 3 years ago at $6.50 a share. The company was founded in 2007. Currently the stock is trading at $7.75
  • The company officially launched production and delivery on September 19, 2019.
  • World’s first premium FUV, the Evergreen Edition, has an affordable MSRP of $19,900 before gas savings, available tax credits, and rebates
  • Company reported a backlog of more than 4,000 pre orders ($75M in revenue).
CURRENTLY WORKING WITH SANDY MUNRO TO GO FULL SCALE PRODUCTION
  • Munro and Arcimoto. PREVIEW
  • For those who don't know Sandy Munro: https://sandymunro.net/bio.html. Basically he is the go to guy for big automobile companies, he's highly respected in the automobile industry.
  • Munro & Associates are evaluating the program to determine how much will the vehicle cost to produce at large scale so they can know the exact cost and avoid production problems.
  • Define a clear path to make Arcimoto vehicles profitable.
Q1 2020 HIGLIGHTS
FULL Q1 CALL
  • They have applied for a federal ATVM loan (ADVANCED TECHNOLOGY VEHICLES MANUFACTURING LOAN PROGRAM). They plan to scale up with the proceeds of those funds with non diluting funding and become profitable in the next 18 months. AVTM LOAN PROGRAM (they worked very hard to meet all of the requirements)
  • They wanted to have production experience before going big. With 6 months of real production under their belt and a much clear picture of what capital expenditures and additional space will take to scale up manufacturing they finally completed the ATVM draft, they are in the review process and are planning to submit the draft to the Department of Energy in the coming weeks. This is from 11 June 2020
  • According to Inside Evs the loan could reach $100M. This would be a game changer for the company because this loans are very generous with financing terms.
  • Max daily output with the current facility: Around 3,000 vehicles. They want to focus on the high margin vehicles and become profitable.
  • If they get the ATVM loan they want to achieve a yearly output of 17,000-20,000 vehicles. Given the current economic situation and stimulus money going everywhere, the CEO believes they have a high chance of getting the loan relatively quickly.
FINAL HIGHLIGHTS
  • The company is loved by the current shareholders. Companies with cult following can be very profitable. Long term investors reduce the float because they hold for the long term giving the company a lot of momentum when positive news happen because nobody sells.
  • The company has been working very hard for over a decade to have a perfect working vehicle once they go into full scale production. The CEO is very smart and transparent.
  • They tested the production line with low volume (low thousands per year) to avoid unnecessary costs and production problems. Now they are ready for the next step.
  • Having someone as Munro planning the production and preventing mistakes once full scale production starts is extremely bullish. MUNRO & ARCIMOTO
  • They are focusing on the DELIVERATOR given the growing trend of deliveries and many people joining the "GIG ECONOMY"
  • They only have 6M in debt.
  • 24% short interest
  • They raised money in June above market price (investors are willing to pay a premium to buy large blocks of shares)
  • 40% owned by insiders
  • Q2 2020 in 6 days
TL;DR: Premium EV company with virtually no competition in the FUV space with different WORKING vehicles (personal transportation, delivery and first responders). Planning on going full scale with an ATVM loan they applied and waiting for approval. Ideally they want to raise production to 17,000-20,000 vehicles once they get the loan. I think we can expect big news during the Q2 call.

submitted by bearsgotoalaskanstfu to wallstreetbets [link] [comments]

Due Diligence: Toromont Industries Ltd. - Building Together For An Exciting Future

Due Diligence: Toromont Industries Ltd. - Building Together For An Exciting Future
Hi,
This is my first attempt at writing a DD report. I hope it makes sense.
Just a few cautionary words:
  • Grammar (and English in general) is not a skill of mine. There will be a few parts that you might have to decipher, good luck.
  • I tried not to provide too much commentary and stick to the facts. I know you are spending your valuable time reading this and you probably don't want to listen to some random guy on the internet pontificate.
  • For those of you who are easily offended/triggered, can't take a joke, or sarcasm isn't your taste, DO NOT click the spoilers.
Lastly, the following is just my findings, by no means is it a representation of all the information out there. It is just the baseline for me to have confidence in becoming an owner of the Company. Do your own due diligence or talk to a financial advisor to find what is best for you and your financial situation.
Happy reading!

Highlights

  • Over the last 5 years the stock price has more than doubled.
  • Toromont dominates market share over everything east of Manitoba in Canada.
  • Customer base is heavily diversified, giving the Company many opportunities to expand into multiple industries.
  • Dividend has increased for 31 consecutive years. It has been paid for 52 consecutive years
  • The management team is extremely knowledgeable and have a good track record

Introduction

Toromont 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

  1. The Equipment Group includes the following 6 business units:
  • Toromont CAT: one of the world’s largest Caterpillar dealerships which supplies, rents, and provides product support services for specialized mobile equipment and industrial engines
  • Battlefield Equipment Rentals: supplies and rents specialized mobile equipment as well as specialty supplies and tools.
  • Toromont Material Handling: supplies, rents, and provides product support services for material handling lift trucks
  • AgWest: an agricultural equipment and solutions dealer representing AGCO, CLAAS and other manufacturers’ products
  • SITECH: provides Trimble Inc (NASDAQ:TRMB technology products and services. Trimble is a SaaS company that provides positioning, modeling, connectivity, and data analytics software which enable customers to improve productivity, quality, safety, and sustainability. Target industries: land survey, construction, agriculture, transportation, telecommunications, asset tracking, mapping, railways, utilities, mobile resource management, and government.)
  • Toromont Energy: supplies, constructs, and operates high efficiency power plants up to 50 MW, using Caterpillar's leading power generation technologies. Toromont Energy operates plants that supply energy to hospitals, district energy systems, and industrial processes.
  • Performance in this segment mainly depends on the activity in several industries: road building and other infrastructure-related activities, mining, residential and commercial construction, power generation, aggregates, waste management, steel, forestry, and agriculture.
  • Revenues are driven by the sale, rental, and servicing of mobile equipment for Caterpillar and other manufacturers to the industries listed above.
  • In addition, Toromont is the MaK engine dealer for the Eastern seaboard of the United States, from Maine to Virginia.
  • MaK engine is a marine diesel engine manufactured by Caterpillar
  1. CIMCO is a market leader in the design, engineering, fabrication, installation and after-sale support of refrigeration systems
  • Performance in this segment is dependent on the activity in several industries: beverage and food processing, cold storage, food distribution, mining, and recreational ice rinks.
  • CIMCO has manufacturing facilities in Canada and the United States and sells its solutions globally.
  • CIMCO services the ice rinks of 23 out of 31 NHL teams. So if you are watching a game and the ice is shitty, you know who to blame… the Ice Girls, obviously.
  • For those of you who live in the GTA and have skated on The Barbara Ann Scott Ice Trail at College Park, the trail was created using CIMCO proprietary CO2 refrigeration technology.

Management

CEO, 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 Strategies

Toromont 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.
  1. Expand Markets
  • Toromont serves a wide variety of end markets: mining, road building, power generation, infrastructure, agriculture, and refrigeration. This allows for many opportunities for growth while staying true to their core competency. Further expansion into new markets doesn't require Toromont to build a whole new business model or learn the intricacies of the new industry because their products stays the same. Thus, the main concern is the application/selection of the products for the customer.
  • Expansion is generally incremental. Each business unit focuses on market share growth and when the right opportunity presents itself, geographic expansion is archived through acquisitions.
  1. Strengthening Product Support
  • In an industry where price competition is high, product support activities represent opportunities to develop closer relationships with customers and differentiate Toromont’s product and service offering from competitors. After-market support is an integral part of the customer's decision-making process when purchasing equipment.
  • Product support revenues are more consistent and profitable.

Growth Through Acquisition

Rapid growth in this industry is generally driven through acquisitions. Toromont has gone through multiple acquisitions since the 90’s:
  • Acquisition of the Battlefield Equipment Rentals in 1996
    • Toromont grew Battlefield from one location to 82 locations
  • Acquisition of two privately held agricultural dealerships in Manitoba to form AgWest Equipment Ltd
  • Acquisition of Hewitt Group of companies in Q3 2017 for a total consideration of $1.0177 billion
    • $917.7 million cash ($750 million of which was finances through unsecured debt) plus the issuance of 2.25 million Toromont shares (equating to $100 million based on the 10 day average share price)
Acquisition of Hewitt Group of companies
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:
  • Potential for liabilities assumed in the acquisition to exceed our estimates or for material undiscovered liabilities in the Hewitt Business
  • Changes in consumer and business confidence as a result of the change in ownership
  • Potential for third parties to terminate or alter their agreements or relationships with Toromont as a result of the acquisition
  • Whether the operations, systems, management, and cultures of Hewitt and Toromont can be integrated in an efficient and effective manner
In 2018, the Company started and successfully completed the integration of the Maritime dealerships acquired through Hewitt under Toromont’s decentralized branch model (bottom up approach). Under a decentralized model, regional leadership make business decisions based on local conditions, rather than taking top down mandates. A bottom up approach is an advantage in businesses like Toromont where the customer mix can vary vastly from region to region. It allows for decision-making that is better aligned with customemarket needs and more attuned to the key performance indicators used to manage the business. In 2019, the integration of the decentralized branch model was implemented in Quebec after its success in Atlantic Canada in 2018. Successful integration of Hewitt into the Toromont family shows the depth of industry and business knowledge possessed by the management team. Being able to maintain inherited customer relationships and ensure low turnover is no easy feat. Many companies have completely botched these kinds of acquisitions. One that comes to mind is Sobeys (the second largest food retailer in Canada) acquiring Safeway for $5.8 billion. Three years later, they wrote off $2.9 billion as a loss because they did not anticipate the differences in consumer habits in Western Canada vs Eastern Canada, among other oversights.
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.

Dividend

Toromont 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 Mitigation

Dependency 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:
  • Recruited 303 technicians to achieve growth targets
  • Created 208 student apprenticeship programs
  • Working with 19 vocational institutions in Toronto to teach about best practices and introduce the Company as a future employer to students
As a result of these initiatives and others, Toromont saw their workforce grow by ~8% 2019. Growing the workforce is one of the primary building blocks for future growth.
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:
  1. Technical difficulty in meeting environmental requirements in product design -> increased costs
  2. Reduction in business activity of Toromont’s customers in environmentally sensitive areas -> reduced revenues
Threats such as these come with a business of this type. As an investor in Toromont, you can't do much to mitigate these kinds of threats because it's out of your hands. Oil and gas, mining, forestry, and infrastructure projects are major drivers of the Canadian economy, so I think there will always be opportunity for Toromont to make money, regardless of government action.
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.
Competition
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:
  • Range and quality of products and services
  • Ability to meet sophisticated customer requirements
  • Distribution capabilities including number and proximity of locations
  • Financing through CAT Finance
  • E-commerce solutions
  • Reputation
  • Financial health

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.

Toromont Industries Ltd Finning International Inc.
Market Cap $5.84B $3.02B
Price $65.66 $18.49
Dividend Yield 1.87% 4.36%
Number of Employees >6,500 >13,000
Revenues (ttm) $3.69B $7.57B
Trailing P/E Ratio 19x 11x
Price/Book 3.71x 1.35x
Profit Margin 7.71% 3.54%
Places of Operations Manitoba, Ontario, Québec, New Brunswick, Prince Edward Island, Nova Scotia and Newfoundland & Labrador, most of Nunavut, and the Northeastern United States British Columbia, Yukon, Alberta, Saskatchewan, the Northwest Territories, a portion of Nunavut, UK, Ireland, Argentina, Bolivia, and Chile
Table 2: A quick comparison between Toromont and Finning.
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.
  • All of these decreases were contributed to COVID19, as the pandemic lead to increases in costs
Historically, Q1 has always been Toromont’s weakest quarter. Q1 accounts for ~20% of yearly earnings and is consistently the least profitable quarter. Toromont’s profit margin generally ranges from 5%-9% progressively increasing into the later half of the year. This is good news for investors with the thesis that the economy will return to "somewhat normal" in the latter half of this year. The majority of the earnings for 2020 are still on the table for Toromont to earn. If current conditions persist, or there is a second wave and lockdown later in the year, we will most likely see a regression in Toromont’s growth to last year’s levels or even lower.
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 Liquidity

Credit
  • Toromont has access to a $500 million revolving credit facility, maturing in October 2022
  • On April 17 2020 they secured an additional $250 million as a one year syndicate facility
Cash Position
  • Cash increased by 22.6 million for the quarter
  • Cash from operations increased 13% Q1 2020 compared to Q1 2019
  • The company also drew $100 million from their revolving credit facility
  • $4 million dollars of stocks were repurchased during Q1 2020
Given their access to $750.0 million dollars of credit and cash on hand equaling $388.2 million, the Company should have sufficient liquidity to operate if COVID19 and its aftermath persist for an extended period of time.

Financial Analysis

Analysis 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
Profitability 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.
Liquidity Ratios
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 Measures

Below is a chart with key financial measures for the last four years. A few things I want to highlight:
  • Toromont had large capital expenditure last year (most of it went to increasing inventory) so they have the choice to keep capital expenditure down this year and preserve cash
  • From the start of 2018 (aka end of 2017) to the end of 2018 Toromont stock was down about 3% while the TSX Composite was down more 12% and S&P was down 7%. This stock has a history of out performance not only on the upside but also on the downside. I'll go into a bit more detail in the next section.
Figure 7: Summary of key financial measure for the last four years

Price Chart Comparisons

I 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.

  1. Toromont Industries Ltd v. Finning International Inc.
Figure 8: Five year price chart of TIH v. FTT
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

  1. Toromont Industries Ltd v. S&P 500 Index
Figure 9: Five year price chart of TIH v. VFV
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???”

  1. Toromont Industries Ltd v. S&P/TSX Capped Industrials Index
Figure 10: Five year price chart of TIH v. ^TTIN
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.
  1. Toromont Industries Ltd v. NASDAQ-100
Figure 11: Five year price chart of TIH v. ZQQ
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 Estimates

The 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.

Valuation

Multiples
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 Thoughts

There 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 Research

By 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:
  • Looking into the growth of each sector Toromont services and extrapolating that growth to calculate Toromont’s future growth opportunity.
    • As per IBIS Research the heavy equipment rental market in Canada is ~$8.3 billion. It grew 1.1% yearly for the last 5 years.
    • The US market is estimated to be $47 billion, with an average growth of 2% for the last 5 years
      • Sorry but I couldn't get my hands on future projections as each report is $750
  • More research into competitors
    • I chose to include Finning only for simplicity’s sake. But there are many other competitors like:
      • United Rentals (NYSE:URI) provides similar services to Toromont/Finning in 49 U.S. states, 10 Canadian provinces, Puerto Rico and four European countries. The only thing being they aren't distributors for Caterpillar.
      • Rocky Mountain Dealerships Inc (TSE:RME) sells, leases, and provides product and warranty support for agriculture and industrial equipment in Western Canada
      • Holt Cat, N C Machinery, Ziegler CAT (none of these companies are publicly traded)
  • Further analysis can be done on the B/S and accounting treatments.
  • The effects of automation in the industry
    • Distributors in the US have started working with industrial automation companies to provide autonomous construction equipment on rent to contractors
      • Sunstate Equipment Co.'s partnership with Built Robotics
  • I was not able to do a discounted cash flow, which would be critical to finding the intrinsic value for Toromont and having true confidence in the company and its trajectory.
  • Further analysis of CIMCO and prospects of future growth
    • Based of the financials, CIMCO seemed like a small part of the business, which is why I mainly focused on the Caterpillar dealership side
These are not all the limitations or areas of further research, they are just the glaring one that came to mind.
>! 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.

Disclosure

I 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.
submitted by Dr_Sargunz to CanadianInvestor [link] [comments]

Purple Redux – Cash is King Part II – Carnage of the Robinhood Trader Clouding a Great Quarter

As I got a comment snarkily saying “good call” from u/should_have_RAN in response to my post on Purple on 6/29 (at the time PRPL was trading at $18 - current price now is $21-$22), I thought it would make sense to provide an update on the results.
The original post: https://www.reddit.com/investing/comments/hi3m1y/prpl_cash_is_king_significant_upside/
Note in the original thread I had estimated EBITDA to come in at around $35-$40MM to base my assumption on upside to a $35-$40 share price. Purple released earnings yesterday and reported an adjusted EBITDA of $35.2MM despite sales being lighter than what I thought and an implied adjusted, diluted EPS of about $0.57 / share. On the heels of that, Wall Street firms have upgraded their price targets: KeyBanc ($22->$26), Raymond James ($19->$28), B. Riley ($23->$26). You will note that from the prior post, this EBITDA level is supportive of a $2-$2.5B TEV assuming a $140-$150M annualized EBITDA figure and $2-2.50 of annualized EPS (mid teens TEV EBITDA multiple and a 15-20x PE ratio, in line or lower than peers despite the growth and margin story).
For those following the story, the shares are trading ~10% lower today following the news release. Well, gee, if everyone’s raising their estimates and people congratulated them on a great quarter in the call, why the hell is it trading lower? In my view, this is driven by a few things: 1) revenue came in lighter than estimates 2) people are not understanding the earnings story due to nuanced GAAP accounting and 3) they did not provide any guidance or perspective on 2H outlook, which is creating uncertainty. I will take each of these in pieces and follow up with some other observations from the release and the call that should further support the upside case.
1) Revenue was lower at $165M vs. the $175M consensus estimate. What happened here was that estimates increased on the heels of commentary PRPL released on orders data for DTC and wholesale. As I indicated in my earlier post, you can’t assume this is pure revenue as there is a revenue recognition delay between order and booked sale. Sure enough, this is what happened even though orders trends maintained momentum through the full quarter. There was a substantial runup in the share price over the last two weeks, including a crowd from WSB and Robinhood, who were banking on a blowout due to not understanding this difference. On the earnings CC, mgmt cited a backlog going into July that has now been filled, all the while, there still is a one week day lead time on DTC orders and wholesale orders are continuing to grow month over month with all 1800 partner stores now open. Net net, this means that the demand picture is still as good if not better than advertised and Q3 will have the benefit of 1) backlog from Q2, which could be upwards of $10-$20MM (Q2 implied orders were close to $230MM, less the $165MM of booked sales, less 10% reserve for warranties and cancellations, less wholesale orders which will always carry a backlog). I would also note that Q2 included the month of April, which was peak COVID. Monthly runrate revenues exiting Q2 were likely around $70-$80MM, implying a $200-$250MM quarterly runrate. Per mgmt on the earnings call, they are shipping every mattress they can make and are working fast to expand production in Georgia. Q3 could likely end up between $210-$270MM of revenue assuming they maintain the Q2 runrate and have shipped the backlog, which they said they did by the end of July. Note that the top end of this revenue range is likely difficult to execute with current capacity.
2) The company reported negative EPS of ($0.11) a share as a headline number. The problem with this figure is that it includes a couple of major non-cash expenses: the first is the warrant expense. PRPL has 14MM warrants with a strike price of $11.50. From an accounting perspective, when the value of the shares increase, the warrants then require you to increase the liability on the balance sheet as they have become more valuable and are viewed from an accounting perspective as a liability to the company (this is very similar to non-cash expense related to stock options – the warrants are dilutive, but that is already a fixed, known quantity). Secondly, the company had changes in its Tax Receivable Agreement which compensates the prior sellers for the tax basis they contribute to the company by converting their shares to from founder shares to common stock. Note that this has no economic impact to the business. These were the two major expenses contributing the gap between what was a GAAP $(0.11) EPS to a positive $0.57 EPS. Put differently, excluding the non cash charges that don’t matter, EPS is really $0.57 in one quarter, and in a quarter that included the impacts of COVID in April. Adjusted EBITDA was reported at $35.2MM which is the best proxy for apples to apples cash flow and how businesses are valued. This is why the company’s cash increased from $26MM to nearly $100MM in three months even though GAAP earnings were negative. Cash is King.
3) The company provided no guidance for the rest of 2020. Usually this is a sign of uncertainty and an unclear demand outlook – the market does not like this. When you sift through the conference call, you will appreciate that on the contrary, demand up through the date of the call has remained as robust and if not more so than what was the case in Q2. Note that we are 50% through Q3 already. Mgmt mentioned on the call accelerating and investing in its Georgia facility and ramping up SG&A expenses and hires. The logical question would be why do this if you think your demand will be weak or uncertain for the next 3-6 months. Mgmt mentioned on the call that there is still one week lead times on DTC orders (meaning there’s not enough inventory to ship next day), that competitors are struggling to source spring coils for mattresses due to shortages, and that DTC channel remains strong while wholesale is increasing relative to Q2. Take all these together and this provides support that Q3 will match the runrate of Q2 (the $200-$250M I mentioned before with June monthly sales around $70-$80MM based on the runrate orders adjusted for returns, etc). Separately, they mentioned that they have capped retail stores at 1,800 due to capacity constraints (meaning demand is more than they can meet at this time).
Assuming a $225-250MM revenue quarter, this means they will likely hit $40-$50MM of EBITDA in Q3 assuming gross margins of 45-50% (compared to 49% in Q2) and SG&A % in line with Q2. This would translate into EPS (excluding warrants and non-cash) approaching $0.65-0.85 / share, so nearly 1.20-1.40 in just two quarters. Let that sink in a bit. The performance still supports a much higher share price with TPX at a 23x PE ratio and 14x EBITDA multiple and lower growth. That’s how you get to a $35-$40 share price or greater.
Note that $250MM hits and exceeds the upper limit of their traditional capacity, though DTC has allowed them to drive a higher $/unit expanding how much they can sell per manufacturing line. There is a risk that capacity constraints keep the quarterly revenue to the lower end of this range.
A few other observations from the quarter that may have been missed: 1) the company has increased pricing during COVID with no demand drop off 2) wholesale is now growing in line or above PY despite retail traffic being lower 3) DTC demand holding firm and thus showing it is sustainable (the company is managing to capacity that is now growing by holding off on promotions) 4) gross margins and operating margins drastically increased due to fixed cost leverage (and some COVID cost containment) – “the story we’ve had on demand outpacing our ability to manufacture continues to be more true than ever” per the CC transcript
Resources for DD:
https://finance.yahoo.com/quote/TPX/key-statistics?p=TPX
https://investors.purple.com/press-releases/news-details/2020/Purple-Innovation-Provides-Business-Update-Ahead-of-Participation-in-Oppenheimer-20th-Annual-Consumer-Growth-Conference/default.aspx
https://investors.purple.com/press-releases/news-details/2020/Purple-Innovation-Reports-Record-Second-Quarter-2020-Results/default.aspx
CapIQ for information on analyst targets
submitted by SanitysLastRefuge to investing [link] [comments]

LOW (Lowe's Companies Inc.); A dd

Disclosure; I DID NOT WRITE THIS, but why should I, what do you think I am, smart? No, no I am not, so that is why I used the words of people who actually went to college for this shit.
157.5c 8/28
Hello again fellow retards and autists, I have another fundamentally backed DD, which seemed to work for the last time to forecast if an earnings announcement will beat estimates.
Today, the DD is for LOW (Lowe's Companies Inc.)
Background; Lowe's Companies, Inc., together with its subsidiaries, operates as a home improvement retailer in the United States, Canada, and Mexico. The company offers a line of products for construction, maintenance, repair, remodeling, and decorating.
Fundamentals;
CFRA;
Home improvement should benefit from a significant shift in consumer spending, in our view, to the home from travel, live events, and restaurants. We think the new normal from Covid-19 could be households investing more in their homes, whether they be the backyard, or remodeling a kitchen or bathroom, or finishing a basement. The Do-It-Yourselfsegment showed strong sales in Apr-Q, and we think the PRO segment (contractors) is picking up. Another catalyst for LOW, in our view, is the housing market, which may have more substantial sales growth in the second half of 2020.
Risks to our recommendation and target include a severe recession, a decline in home improvement projects, and reduced consumer confidence.
LOW, with new management, is still in the middle innings of transforming the company with improved sales execution, inventory controls, better supply chain, and revamped stores, in our opinion. With better operational performance, we think LOW can deliver improved sales growth in FY 21 (Jan.). We see7.0%-9.0% same-store sales growth in FY 21, as we see LOW divest unprofitable stores, especially in Canada, and invest in its operations from supply chain to store operations. Same-store or comp sales for U.S.stores were up 12.3% in Apr-Q.
LOW is moving to staff outsourcing to reduce costs while improving new merchandising and investing in its supply chain system, which will likely boost sales with the PRO segment for local contractors. We expect FY 21 operating margins to widen to 10.5%-11.0%, from 9.1%in FY 20.
We believe LOW is executing better, especially on supply chain processes and store management. New investments for lowes.comis showing positive sales traction with digital sales up 80% in Apr-Q. The company is moving its decade-old platform to Google Cloud. DuringCovid-19, we think it has enabled LOW to compete as an omnichannel retailer with a user-friendly website.
CORPORATE OVERVIEW. Lowe's Companies, Inc. (LOW) is the world's second-largest home improvement retailer. As of January 31, 2020, Lowe's operated 1,977 home improvement and hardware stores, representing 208.2 million sq. Ft. of retail selling space.
CORPORATE STRATEGY. The company has brought on a new management team that is executing a new strategy with a sharper focus on its core business, divesting non-core units such as Orchard SupplyHardware stores with a $230 million non-cash charge, and aligning its goals with shareholder value. The market opportunity is to accelerate its progress to capture a healthy and growing home improvement market in the U.S. market, in our opinion.
COMPETITIVE LANDSCAPE. LOW is second only to the market leader, Home Depot. While it is never good to be behind, LOW has upside potential to regain market share with better execution on its business plan to improve customer service, store availability of the most widely sold 1,000 items; and efficiencies in purchasing, supply chain, and store management, in our view. LOW has a home center exclusive on Craftsman products, meaning you can't get them at Home Depot or other stores.
LOW's management acknowledges that the company has a disadvantage to Home Depot, the market leader, in real estate locations in the metro areas in the Northeast and West Coast markets. Besides the physical store locations, LOW will work hard on targeting the do-it-yourself customer and its Pro segment. From our perspective, LOW's operational outlook is tied more to better execution than the competitive dynamics it faces with Home Depot in select U.S. regions.
LOW can be a better omnichannel retailer, whereby it can connect and align its systems and processes to drive an improved customer experience via online and in-store shopping. In our view, the home improvement segment has been resilient to substitution by online providers such as Amazon, as professional and consumer customers prefer to shop or pick up items in the stores. LOW states that 60% of its e-commerce purchases are picked up at local stores.
MARKET PROFILE. The company serves homeowners, renters, and professional customers (Pro customers). Individual homeowners and renters complete a wide array of projects and vary along the spectrum of do-it-yourself (DIY) and do-it-for-me (DIFM). The Pro customer consists of two broad categories: construction trades; and maintenance, repair & operations.
The U.S. market remains LOW's predominant market, accounting for 95% of consolidated sales in FY 19. From a market tracking perspective, the company's revenues are included in the Building Material and Garden Equipment and Supplies Dealers Subsector (444) of the Retail Trade Sector of the North American Industry Classification System (NAICS). This is the standard used by Federal statistical agencies in classifying business establishments to collect, analyze, and publish statistical data related to the U.S. business economy.
Many variables affect consumer demand for home improvement products and services LOW offers. Key indicators to monitor include real disposable personal income, employment, home prices, and housing turnover. We also track demographic and societal trends that shape home improvement in industry growth. We are positive on home improvement spending with home equity increasing from rising home prices for 96% of U.S. households that do not move. Affordability of purchasing a new home or resale is becoming an issue for most families that are recognizing the value of staying put in their homes. With rising home equity values, the opportunity shifts to higher spending for home improvement, where LOW is a direct beneficiary.
MANAGEMENT. The new CEO has brought senior executives for the CFO, merchandising, supply chain, and store management, and continues to look for a new chief information officer (CIO). In progress is a new strategic focus that enhances its resources, performance, and return of capital. The risk with new management, in our opinion, is distilling its strategy and operational excellence to the store manager level.
FINANCIAL TRENDS. At the end of Apr-Q, LOW has total liquidity at $9.0 billion: $6.0 billion in cash and cash equivalents and $3.0 billion in undrawn capacity on its revolving credit facilities for any unanticipated liquidity risk. During the Apr-Q, the company raised $4 billion in senior unsecured notes, suspended the share repurchase program, and paid $420 million in cash dividends by quarter-end. In Apr-Q, total days inventory outstanding improved to 94.9 days versus 103.2 days in the same period a year ago, while average days payable declined to 59.0 days in Apr-Q versus 61.5 days in the year-earlier quarter. Total debt to total capital was 93.9% in Apr-Q compared to 87.2% in the year-earlier quarter, as the company undertook actions to boost corporate liquidity during uncertain market conditions due to Covid-19.
TheStreet;
The revenue growth came in higher than the subsector average of 11.3%. Since the same quarter one year prior, revenues rose by 10.9%. Growth in the company's revenue appears to have helped boost the earnings per share.
Powered by its strong earnings growth of 34.35% and other important driving factors, this stock has surged by 54.40% over the past year, outperforming the rise in the S&P 500 Index during the same period. Turning to the future, naturally, any stock can fall in a major bear market. However, in almost any other environment, the stock should continue to move higher even though it has already enjoyed nice gains in the past year.
LOWE'S COS INC has improved earnings per share by 34.4% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, LOWE'S COS INCincreased its bottom line by earning $5.47 versus $2.80 in the prior year. This year, the market expects an improvement in earnings ($6.89 versus $5.47).
The same quarter one year ago, the net income growth has significantly exceeded that of the S&P 500and the Building Material, Garden Equipment, Supplies Deal subsector. The net income increased by 27.8% compared to the same quarter one year prior, rising from $1,046.00 million to $1,337.00 million.
The company's current return on equity significantly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Building Material and Garden Equipment and Supplies subsector and the overall market, LOWE'S COSINC's return on equity significantly exceeds that of both the subsector average and the S&P 500.
TL;DR Although LOW has direct competition with HD (Home Depot), there are some upsides it has (see COMPETITIVE LANDSCAPE)
157.5c 8/28
🚀🚀🚀 and smd🌈🐻
Sources;
https://research.ameritrade.com/grid/wwws/research/reports/viewreport?id=20034&documenttag=LOW&c_name=invest_VENDOR
https://research.ameritrade.com/grid/wwws/research/reports/viewreport?id=72&documenttag=54866110&c_name=invest_VENDOR
Edit 1: With IV coming up in question a lot, it should be noted that, historically, around earnings, IV has crept to a high of ~70%, while with no news expected, the IV remains at a stable ~30%; so at most, a ~40% drop in IV wouldn't qualify it as a crush.
Edit 2: (shortened TL;DR) Recently (Aug. 12) Lowe's announced that they were adding fulfillment centers, large-appliance sites for faster delivery, meaning they have money to improve supply chain efficiency, which means they must be having more cash flown into the company 7 out of 3 stars deep for calls.
Edit 3: Completely forgot to mention a lumber shortage since early July that has been increasing in demand ever since, meaning increased revenue for LOW as LOW is a direct beneficiary of increased lumber prices - (sneaky edit here) The commodity ticker LBS for Lumber has had a nice run-up of 106.83% from 6/11 til now, and it is not showing signs of exhaustion.
Edit 4: My play(s); See where IV takes us and if it gets too high (70%+), I will close all my positions, if 50-60%+, will close 2/3 of my positions. After the earnings report, which they will beat (and that's a fact), I'll see where technicals stand, historically, if the stock is above the 200 and 21 MA after earnings, it moons to new highs, see 20 May '20, 20 Nov '19, 21 Aug '19 earnings, so calls are dirt cheap at the bottom of these post-earnings reversals, and buy back 8/28 or 9/4 calls and ride this train to tendie town.
Edit 5: Post seems ded now, but if you post something, at least be right or retarded.
submitted by Zentryl to wallstreetbets [link] [comments]

I strongly recommend that you not cuck yourself by betting against Zillow $Z $ZG

OK you autistic fucks, let's gather around and hash this Zillow bullshit out once and for all. I have been employed as a data scientist at Zillow in Seattle for several years (and still am currently)...using an old throwaway here for obvious reasons. We're gonna start with why Zillow got into iBuying, bounce off why neither iBuying nor Corona is not even going to come CLOSE to killing us, and finish with why you should probably buy some fucking LEAPs.
(This post is in response to some recent grade-A retard bullshit going around this sub about Zillow, namely: https://old.reddit.com/wallstreetbets/comments/gdbzyn/home_sales_to_fall_up_to_60/ and https://old.reddit.com/wallstreetbets/comments/gdkvqf/dd_from_5254_zillow_next_leg_down_oil_reminde)
WHY ZILLOW OFFERS
Everybody wants to be so quick to act as smart as fucking Jim Cramer and bash us for getting into iBuying a few years ago. "Oh you are a media company, why are you trying to fuck with physical assets." Anyone who said this is a moron who was not capable at seeing the writing on the wall regarding our "media" business. In short, it was plateauing, and we knew it. There is a hard ceiling for what agents are willing to pay for a lead, and when you multiply how many "online" agents there are by how many transactions they do per year, a fucking 6 year old could calculate what our topline revenue was going to cap out at. We did that calculation about 4 fucking years ago, and we were like "hey maybe we should do something else before our growth fucking goes to zero and everyone gives up on us as a tech company". In this scenario, iBuying is a natural evolutionary step for us to open up revenue growth.
Importantly, it gives us access to a revenue stream up the experience and competency curve for home buyers. The vast majority of our ad revenue comes from connecting first-time home buyers to the first agent they have ever worked with. Once they develop that relationship, they are highly likely to use that agent again without us being able to trim another slice of revenue off. So we needed to get access to repeat buyers, and through the selling process is the best way. I will come back to how this is important later, but having something on your website to engage with repeat buyers is the key here to unlocking Zillow 2.0.
WHY THE CORONA SHUTDOWN AND FALLING HOME VALUES OF ZO-OWNED HOMES IS NOT GOING TO KILL US
ZO is financially engineered to be impossible to kill our parent company (Zillow Group). I know amped242424, Matth3wlim, and expander2 think they are the HOT SHIT for having the 3rd-grade-level ability to read the "Total Liabilities" line on a balance sheet, but they obviously know nothing about real financing for a competent company. If you are having trouble wrapping your brain about how this works, why don't you fucking start by googling "nonrecourse debt" and come back to the table when you understand. Basically, the loans that we took out for these properties are contained inside special-purpose financing vehicles that are tied ONLY to the underlying homes. If we wake up tomorrow and decided that holding all these properties was going to fuck us, we could walk away from every single home we own and tell our creditors to shove those houses up their collective assholes. These facilities were designed this way ON FUCKING PURPOSE FOR EXACTLY THIS KIND OF FUCKING DOOMSDAY SCENARIO because we have a wicked smaht group of finance people and executives.
We also have a gigantic pile of cash that we are sitting on, mostly from a set of financing that our previous CEO (rockstar Spencer "S-Money" Rascoff) got nailed down right before we put ZO into hyperdrive. This cash came from a combination of selling new stock and new convertible bonds. Most of you fucking autists are only capable of comprehending dumbassery like you see over at $TSLA, so you see convertible bond and you think "well if the stock isn't >420.69 the bond holders will just demand the money back instead" but you would be so so so fucking wrong. Unlike every other death-cult-tech-company bond out there, this conversion is at OUR option, not the note holders. So if we blow all our cash on hookers before the note comes due, we just run the Xerox machine for a couple hours and hand out some newly minted common shares. Again, all this information is available to you if you fucking read our SEC filings and investor reports instead of just skimming the Company Statistics page on Yahoo Finance.
So we had to pause buying ZO houses for the 'Rona...who gives a fuck? Unlike oPenDoOr and oFFerPad, we have a cash-flow-positive media business that is continuing to hum along quite nicely in the background. We aren't slaves to the VC cycle where if you haven't shown 100% revenue growth in 18 months, you can't raise your next round, and are fucked because you aren't cash flow positive. (And lets be absolutely crystal clear...nobody gives a FUCK if you are profitable or not...CASH IS KING and if you are cash flow positive as a tech company then you never have to raise another round of financing ever again..........OD and OP are not cash flow postive: get shrecked assholes, and your investors with you. Especially Keith Rabois. Fuck that guy.)
WHY ZO IS GOING TO TAKE Z/ZG FROM ~40/share TO THE FUCKING MOON
I told you I would come back to why ZO is important: for its ability to engage repeat buyers. So lets fucking go.
For a home owner who wants to buy another house, selling a home FUCKING SUCKS ASS, and experienced sellers know this. ESPECIALLY when you have to sell your starter home to a first time buyer; I cannot stress enough how much of a PAIN IN THE FUCKING ASS it is to sell a house to a fucking first time home buyer. They are LITERALLY THE FUCKING WORST PEOPLE IN THE UNIVERSE, wanting everything in the world on this starter house to be spic and span. Like, fucking learn to repaint a room, you fucking children. Let me summarize a typical ZO customer: "This house is worth 100k more than I paid for it...I think I would give up 20k of that to not have to deal with the WHINY ASS CHILDREN [and their shitty agents...who are always 55+ Karens with fucking Comic Sans in their email signature and who STILL haven't figured out how to use e-signature software yet, it's fucking 2020 bitch, get with it] who want to buy it." So we have someone who has significant motivation to sell asking us what the zero-hassle selling price is for their house. I am sure that even among the special group of retards we have assembled here, it will not surprise you to learn than >90% of people who initially press the sell to Zillow button on our site see our renovation-adjusted lowball offer and tell us to fuck off. HOWEVER, we have now had an opportunity (which is a parallel part of the ZO evaluation process) to have a conventional real estate agent present a comparative market analysis to this highly motivated seller, and this agent has already agreed to pay us a significant referral fee if the seller ends up listing and selling in the open market instead. If you are not educated on the real estate industry (LOL of course you aren't you fucking retard, you are 5 paragraphs deep in some rando's post on WSB) then you don't know how much that lead is worth...so I'll tell you. On a 200k house, an industry standard value for a consummated seller lead is ~$2k. (We do not charge even CLOSE to this yet, b/c ZO is still under construction.) Keep in mind that we have had to do almost NO WORK to get this lead into our funnel. Unlike Opendoor or Offerpad or PimpMyHouseUP or whatever flashy VC-funded iBuyer is in vogue this week--who has to spend GOBS AND GOBS of money on broad spectrum media to get sellers on their site and into their funnel--Zillow has FUCKING TENS OF MILLIONS OF HOME-OWNING VISITORS A MONTH on our site already, because we have already built a monster consumer media machine. So eventually we can pass off that seller lead WHICH WE PAID NOTHING FOR to an agent for several thousand dollars in pure ">90% gross margin like only a Software Company can do" fashion.
But wait, what if Susan (the seller) really wants out now, and is willing to pay a fee (usually the difference nets out to 300 basis points of her home value, $400k house this is ~$12k) for a service (not having to deal with any listing shenanigans, she picks a closing date and we show up with cash) so that she move on with her life and into her new house? Remember, these are REPEAT home BUYERS...they have to go somewhere after they sell. Then ZO is there, with certainty and cash. And (and this is the BIG and, the ABSOLUTE biggest of ands, the FUCKING AND YOU HAVE BEEN WAITING FOR) we are right there with ASSOCIATED HOME AND MOVING RELATED SERVICES LIKE A MORTGAGE.
DID YOU FORGET THAT ZILLOW BOUGHT A MORTGAGE COMPANY? Of course, you fucking never knew in the first place, because you never actually read any of our SEC filings, we established that earlier. It has definitely taken longer than we anticipated to modernize, but eventually we will be offering best-in-class incentives to use our mortgages and associated services, which will allow us to capture HUNDREDS OF ADDITIONAL BASIS POINTS per loan from sellers who want us to streamline the whole transaction for them. "Oh if I sell to ZO and use a Zillow Mortgage to buy my next house, they will give me $4k in credits to closing costs? And I never have to deal with a buyer ever? DONE."
And we get to do all of the above without building out any significant new ad spend or marketing funnels, just by ADDING A BUTTON TO OUR WEBSITE. I mean, the button has to WORK, for like a couple thousand people a month, but that's just an implementation detail. ZO is going to unlock growth that is orders of magnitude larger than our current "media business" and allow us to get our fingers into all kinds of valuable parts of the transaction that we didn't have access to before.
So, TL:DR: Zillow's core ad business was almost at its wits end. Getting into iBuying was inevitable. ZO debt is non-recourse and even crashing home prices due to the 'Rona cannot kill us. If we don't die, we win, because we now will engulf seller leads and moving-related services in the parts of the industry that we did not have access to before.
As a Zillow Group employee, I am prohibited from trading options, or transacting our stock outside of quarterly vesting windows. However, I do have the opportunity every year of receiving my incentive grant of Zillow shares in options instead of RSUs. And as of this year, I am now the proud holder of what are essentially Z $48c jan'2030 options, at 3x my normal allotment of shares. So make your own decisions, but I would not recommend betting against us.
submitted by TilltheGrassBison to wallstreetbets [link] [comments]

Video games are the future. ATVI DD inside.

Video games are the future. ATVI DD inside.
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.
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 thoughts

You 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
  1. COD - (literally prints fucking money every single release) and the new free-to-play Warzone mode has been insane, taking tons of market share from Fortnite and PUBG. They also have gotten tremendous traction with their COD Mobile game. They will also obviously announce a new COD for the next-gen consoles coming from Microsoft and Sony, Holiday 2020. This holiday season will unquestionably be the most gigantic video game fiesta the world has ever seen, and COD will be the Fucking King. Mark my words.
  2. Overwatch 2 - No date announced yet, but you can bet your allowance (that your wife's boyfriend gives you) that they're gonna try and get it out during the Holiday season. I bet it sells 45-55 million copies, on top of all the micro-transactions, similar to its predecessor).
  3. Diablo 4 and Diablo Immortal - Diablo's fan base are addicts. Blizzard killed it with Diablo 3, and many people expect these 2 new games to be even more epic. One of them being a console game similar to Diablo 3 (for next-gen consoles obviously), and the other being a free-to-play (micro.fucking.transaction'$) game made for iPhone/Android (lol losers). Much smaller fan base than COD/Overwatch, but still, 10's of millions is pretty massive.
  4. WoW - Not what it used to be, but still has a large player base of millions. They are releasing another new expansion this year and the revitalization of its classic Wow has been a hit.
  5. Hearthstone - More than 100 million people have played the game as of 2018 (most recent data I could find). I'd guess that with their new Battlegrounds Mode, in addition to multiple yearly expansions, this game will continue pulling in significant revenue for years to come, especially if they find ways to invent new game modes that bring old players back.
  6. Starcraft - Although this area of the business doesn't make them much money right now, I think it's safe to say that the Starcraft Universe still carries a lot of weight in a lot of gamers' minds. I wouldn't be surprised if we see a Starcraft 4 or some mobile variation of it in the next 3 years, and I think that it would do excellent.
  7. Hero's of the Storm - The game is still played, but is definitely one of the smallest revenue generators for them.
  8. Revitalizing Spyro and Crash Bandicoot - Although there is no real news on theses getting re-vamped, ATVI thinks of them as a flagship brand. I bet they sell a shit load of copies each on console if they go that route, especially the Nintendo Switch (which happens to be in the hands of 55 million people).
  9. Tony Hawk's Pro Skater 1+2 Remaster - Yeah, they are remastering this shit. You remember how badass these games were back in the day. Set to release Sept, 2020. I actually think this might be a surprise revenue generator. It'll sell 25-35 million copies.
  10. King Digital Entertainment - ATVI bought them for around 6 billion a few years back, and it's pretty clear that this was a wise purchase. Their suite of current games and upcoming games/expansions should continue to print money and at a good margin. They are a dominat player in the mobile space, and could leverage those users to try other games from ATVI (Diablo Immortal)
  11. Tv show - Pretty strong rumors that Blizzard is working on a few TV shows based on their Diablo and Overwatch worlds. Animated TV shows are growing in popularity, even for adults. Both of these shows will attract ALL blizzard fans (100's of millions around the world), and lots of new people too, as I'm sure they'll make it easy enough to digest for someone who doesn't know the game/universes already. This could also bring brand new people into the Blizziverse. And I'm sure Netflix/HBO Max/Apple TV would be happy to pay a pretty penny for rights to it.

E-Sports - The Future of 'sports' entertainment

E-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.
https://preview.redd.it/8g6urh79oa451.png?width=2476&format=png&auto=webp&s=cfc5dc86d808439bbb5ff7612d2f40d86c0742e2
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submitted by tslatothemoon to wallstreetbets [link] [comments]

Is Reach (Mirror, Express, Star, OK!) A Cheap Buy Right Now?

I've been looking for some cheap investments while COVID-19 has the market in a slump. Ideally trying to find stocks which hadn't returned to their original potential, and appear to be cheaply valued. Potentially Reach (RCH) on the London Stock Exchange meets that criteria.

https://preview.redd.it/jocg5fxuu2751.png?width=800&format=png&auto=webp&s=ab3b0d5a4e8fa806d635dadec2cc63913a5491f7
Who Are Reach?
If you haven't heard of the name before, don't worry. Reach is a collection of UK print and digital newspapers and magazines, some focusing on national news, others on gossip and celebrates, and a few on hyper-localised news. They are the largest commercial national and regional news publisher in the UK, with over 150 national and regional multichannel brands including the Mirror, Express, Star, OK!, New!, Daily Record, Manchester Evening News, Liverpool Echo, WalesOnline, MyLondon and BelfastLive.

https://preview.redd.it/bpm4y6tvu2751.jpg?width=678&format=pjpg&auto=webp&s=1f95b709dc3c26c7dd235172dac0f444e112f983
Source: Reach 2019 Annual Report
You might think a print-based company would be the last investment you would want to make when you think about the world in five or ten years. Keep in mind, in December 2019, Reach sold 40m newspapers and reached a digital audience of over 47m people in the UK, their digital offerings are growing.
With a new CEO who joined back in August 2019, a period of operational focus after buying the Daily Express and Daily Star, and now with COVID-19 there are a lot of headwinds that Reach are battling.
As this is a UK listed company, it's harder for us to get up to date information, as the fundamentals update bi-annually. Thankfully we have seen a trading update which we can talk about later on.
How Does Reach Make Money?
Print has been in decline for several years now, with that in mind it's important to make sure Reach is actively looking to diversify their income.

https://preview.redd.it/vwhruwpwu2751.jpg?width=625&format=pjpg&auto=webp&s=7d7fff695a529ca7292ec0f891e6a897cf810021
Source: Reach 2019 Presentation
As we can see, they are expanding the digital revenue but it is massively behind print, and print is declining faster than digital can replace it.

https://preview.redd.it/bnmoa5kxu2751.jpg?width=603&format=pjpg&auto=webp&s=cb02f50bb3975598bc03936f2945e3af87a51d82
Source: Reach 2019 Presentation
Looking at the breakdown for print it's the advertising which is in decline above everything else. As advertisers move to more holistic, trackable, and cheaper methods it's hitting Reach's top-line revenue.
That isn't to say Reach doesn't love advertisers. The digital offering is the new powerhouse in terms of what can be done for advertisers with customers data.

https://preview.redd.it/o5rc4meyu2751.jpg?width=1263&format=pjpg&auto=webp&s=6d7d21969cded7066ec9310306ad5dbe29c9ecf0
Source: Reach 2019 Presentation
The digital aspects of Reach have been tailored to build up a complete picture of you across all their brands. The more data they collect, the higher fee they can charge for more targetted advertising. Reach has already made this a priority within their traditional print outlets to ensure they have a strong digital offering. The vast expanse of outlets and the hyper-local solutions drastically increases the odds of Reach being able to offer you up to advertisers.
Is Reach Fundamentally Strong?
Reach has brought up other brands, currently going through an integration, and digitally upscaling their efforts, which all sounds very expensive.

https://preview.redd.it/jaznrx5zu2751.png?width=704&format=png&auto=webp&s=c46c7fe77d8024a4a460e5f9688203a56fe66f74
Source: Genuine Impact
I was taken back and impressed to find some pretty sable fundamentals for Reach. Even compared to investments in the US, Reach was showing up as a cheap buy and had a solid balance sheet behind it.
Naturally, we want to dig into the raw data to make sure we understand the business a bit more.
Carrying on with the finances, let's talk about the revenue again. Bringing in £702.5m worth of revenue is a pretty decent figure, as we know it's what happens next which matters.
The gross margin is not as high as I normally like, 47.23% means you are losing half your revenue just to make any money at all. The print business is an expensive one to be in, and this is something Reach is looking at reducing. With the two new brands on board, there are more savings to be made there operationally speaking.
Where I start getting impressed is the profit margin of 13.42%. This dipped in 2018, due to buying the other brands.
We also see a return on assets of 6.60%, and a solid return on equity of 15.81%. One thing Reach gets right is putting money to good use.
Seeing how Reach just brought some new brands I wanted to check out the debt to see if there were any clear red flags.

https://preview.redd.it/1pegtg00v2751.jpg?width=1389&format=pjpg&auto=webp&s=ccaba168a64ea98071f77964d849e15a4bfb625d
Source: Wallmine
Debt to assets of 52% is higher than it needs to be but not uncomfortably so. We do know they have drawn down an additional £25m in debt to protect their cash during COVID-19, considering the current debt is £693.2m this isn't a dramatic change. They also have £35m left on their credit facility if they need it.
Speaking of debt, I wanted to have a closer look at the balance sheet. In terms of cash, we have £20m plus £102.2m in net receivables. Then things get weird. £224.9m in equipment (told you printing was expensive) and £810m of intangible assets. These very high intangible assets could well be the value of the "brands" rather than anything you should be taking debt against. When you consider this, the debt to assets percentage isn't as attractive. Removing £810m from the assets brings it down to £518.6m, and suddenly the debt looks a bit more serious.
While COVID-19 has stalled many dividend payouts, including for Reach, it's worth mentioning as when this dividend returns it's one to hold onto. An 8.34% dividend yield which has grown for the last four years, it's suspended right now but will be returning. The payout ratio is only 20.79% meaning as the price increases the yield will drop again. Though keeping 80% of the profits does allow Reach to keep building a war chest and hopefully chip away at that debt.
Is This A Value Purchase?
The price has seen a COVID-19 related drop, and we have had some tame news about revenues being down but digital being up. We already know that a hit to print is a meaningful cut against the top-line revenue.

https://preview.redd.it/4tfxvcu0v2751.jpg?width=767&format=pjpg&auto=webp&s=f7689eaab46c9662c6fe3ef91cd713761e56aabe
Source: Google Finance
The price still hasn't recovered, and until the UK is back to work it's unlikely to. Reach won't be able to replace the missing revenue, but they can speed up their digitalisation.
It's worth noting the high intangible assets will inflate any figures for value hunters, and Reach has used this to help them raise more debt. Assuming we think these assets do hold their value, what does that mean for Reach's numbers?
A price to earnings of 2.55x is extremely attractive compared to the rest of the UK market, this is being boosted by a strong EPS of 31.50x. Looking elsewhere the numbers are much lower. Enterprise value to sales of 0.32x, and a price to book of 0.39x.
This gives us some nice headway in terms of the assets they hold, but it comes down to your belief in their balance sheet and how successfully will they bounce back.
What About The Future?
Reach-ing into the future the sell-side analysts are optimistic but not sold. In terms of the share price growth, the expectation is recovery is incoming. For a one year position, this makes Reach very interesting.

https://preview.redd.it/3m908em1v2751.png?width=1080&format=png&auto=webp&s=7e64b6ea4c0427c7b1a44b2d78cf9d760f623f5c
Source: Genuine Impact
To turn this growth into hard numbers, we are looking at a target price of £1.25~ versus the current price of £0.80~, a 55%+ increase. However, this is not enough to push all analysts into a buy position.

https://preview.redd.it/26plxxc2v2751.png?width=1080&format=png&auto=webp&s=1d6d0467f8b6abf5124a75be89296f1edc4b3d32
Source: Genuine Impact
With no clue about when the UK will return to normal, and will the UK buy as many papers again, this is a dark cloud above the share price.
Analysts are moving into a more defensive position to wait and see, for either the momentum to pick back up again or until Reach announces more promising news in future trading updates.
Summary Pros
Summary Cons
My Thoughts?
It's an old business which is trying to go digital but it still makes so much money through print. Will COVID-19 make them change their ways and drive forward with more digital innovation?
Long term the debt can get out of control, and being the biggest doesn't mean being the best. They have a strong digital appeal but they aren't making the most of it.
As a long term investment, it comes down to what they can do digitally and turning digital into a meaningful revenue stream.
Short term if you are hopefully about the UK returning to "normal" then we can expect a spike with more people returning to work. If working from home becomes the new normal, there will be long term damage to Reach.
What do you think? Is this a hopeful buy based on the UK returning to work, or do they have more to offer on the digital side? Or maybe they are an old company which has seen their day?
Let me know what you think, I always welcome any feedback!
Thanks for reading and stay safe.
submitted by kano2005 to UKInvesting [link] [comments]

PRPL KILLED earnings! Tendies can still be made. Here's how.

PRPL KILLED earnings! Tendies can still be made. Here's how.
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EDIT: At Top 100 Analyst at Oppenheimer just gave PRPL a price target of $19. Clearly, he reads wsb.
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tl; dr

Seriously, 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 Release

Earnings 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.

Consensus Actuals
Revenue $106.97M $122.4M
EPS $0.05 $0.11
A solid beat on Revenue, EPS, EBITDA and Adj. EBITDA. Just an amazing quarter, but the historical isn't the best part. The forward looking is amazing. Before we get into that, a few more numbers that matter.
Receivables
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.
Supply Chain
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 Guidance

PRPL 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.
Cash
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 Sales
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:
  • They have a new Mattress Max machine as of the beginning of the quarter (20% increase over last year's unit manufacturing capacity)
  • They are still selling everything they can make.
  • They receive greater revenue and margin from every DTC unit relative to wholesale.
Therefore, we will see a revenue and earnings beat for the next quarter and likely the rest of the year.
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 Lag
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
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.
https://preview.redd.it/yqo6ilxgv8y41.png?width=791&format=png&auto=webp&s=6bcdb6ded74c2d3281d7a98717e11aad72e17975
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.
Press Coverage
PRPL is still not a well known stock. It will likely get some better press coverage over the next few days for two reasons:
  1. It slaughtered earnings better than most companies this season.
  2. Casper, a media darling, reports tomorrow morning.
It is Casper's first earnings release since IPOing. Whether or not it is a disaster, most reporters will start drawing comparisons to PRPL. More visibility through the day tomorrow and weeks to come will drive further new investment as people start to understand what is happening here.
Index Additions
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.
Great Fundamentals
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!

Positions

I 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.
https://preview.redd.it/p8xftnpzz8y41.png?width=1242&format=png&auto=webp&s=005bd6c3156a79eeab3d4ec007858cb6efb94c73
submitted by lurkingsince2006 to wallstreetbets [link] [comments]

$DBVT: DBV Technologies SA

TL; DR: David gives Goliath a run for the money in peanut allergy treatments. May need to hold for a week or two, so no spaghetti hands please.
(Edit: I have also posted this in pennystocks & DueDiligence. Please feel free to comment and share your opinions
DBVT is a clinical-stage biopharmaceutical working on treatments for food allergies. The Company is focused on immunotherapy that works through skin absorption. Market cap. is about $600M.
What the galaxy says:
According to a study done by the Centers for Disease Control (adapted from company website):
The pilots of the ship
The flight guidance system
The stock traded between $8 and $10 pre-covid. It is currently trading around support at $4.5. In fact, the last time it traded around these lows was in December 2018 when the company voluntarily withdrew their BLA application for the Viaskin Peanut product due to “insufficient level of detail about the manufacturing and quality controls”. (Keep in mind, the new CEO joined in November 2018 and he is a thorough man). The price fell from $16 to $4 and they were subsequently sued. The hearing is pending in New Jersey. Previous to this, the price dropped from $42 to $28 in October 2017 when the company announced that the Viaskin Peanut clinical trial failed to achieve statistical significance in the lower end of the 95% confidence interval by a small margin (target was 15%, results indicated 12.4%)
Competitor $AIMT (market cap. $1B) benefited from both of these price moves, but lost the gains as swiftly as they came. In fact, they were unlucky that the approval of their oral tablets for allergy treatment was on January 31st, but they didn’t benefit from the price move due to covid. Furthermore, their drug is priced at $890 per month, only shows benefit after 2 years, and is still dogged by side effects like abdominal pain, vomiting, nausea, tingling in the mouth, itching (including in the mouth and ears), cough, runny nose, throat irritation and tightness, hives, wheezing and shortness of breath and anaphylaxis. This drug must still undergo a Risk Evaluation and Mitigation Strategy (REMS). i.e. it can only be administered in a controlled environment (parents have to take their kids to a certified hospital every 2 weeks) and the administering nurses, doctors and patients all have to register for the REMS.
Wallet situation
In their most recent press release, the company indicated that their cash runway (€262 million) can last through 2021.
The financials are lacklustre. In the past 3 years, revenue has stagnated at around $10M (although they beat estimates). However, since the new CEO was appointed, EPS grew 7% in the first year and 29% in the second year, and they have secured $200M in financing. Not too bad, not too good either, but given the CEO’s strong track record, the good things are yet to come
The rocket fuel
Viaskin technology is currently under review by the FDA. Taget action date for Viaskin Peanut is set for August 5. Viaskin Egg & Viaskin Milk will follow soon after. These products have a US FDA Fast Track designation. You may ask why a French company is developing treatment therapies in the US, and the answer would be that because on average, the process of drug review is 2-3 months faster in the USA than in the EU. If the FDA accepts the test data and gives a way forward on a date for inspection of the manufacturing facilities, then the race for allergy treatments would be blown wide open. It could probably soar back to the $16 range where it was in 2018 before that damned BLA withdrawal, or we can dream about a Saturn landing and aim for $42 where it was in 2017 before the clinical trials failed by the small margin. Nine (9) analysts have given it a short-term price target of $9 and mid-term target of $25, but I like the CEO’s track record and I prefer to dream bigger.
Some other windows to to stargaze
  1. The big boys are in on this one, many since February 2020 and some as recently as June 2020: Baker Brothers (11m shares), Arrowpoint Asset Management (4m), Perceptive Advisors (4M), Boxer Capital (3m), Morgan Stanley (2m), Amundi (1.4m), and Fidelity (574k). Sabby missed this rocket, which makes stargazing all the more beautiful. In total, institutions own 44% of the shares.
  2. There are also also recent acquisitions of stock in (in June 2020) by a number of index funds like FTIHX, IMRFX & JCCIX..
  3. The FDA had questions about the impact of the patch adhesion to its efficacy (remember, no safety issues were reported during the clinical trial). The company has already responded to this query but the FDA has given no further feedback apart from that the data was being reviewed. At this point, it is a coin flip game. High risk, high reward.
  4. The data mentioned in point (iii) above has been published in multiple peer-reviewed scientific publications (this one and this one and this one32155-4/abstract)). All reviews show positive data.
  5. The company recently trimmed down its workforce (something that is notoriously difficult to do in France) and scaled down other clinical programs in order to focus on the Viaskin Peanut product which is coming up for review on August 5th. (This simply indicates that they are very serious about this niche, or that they are prepared for a possible delay of the FDA’s decision)
  6. DBVT is collaborating with Nestlé in a deal worth €100M to develop more product candidates (e.g. Viaskin milk). Nestlé is the largest food company in the world with over 2000 brands and generates $93 billion plus in revenue each year since 2008. However, Nestlé is as notorious as all big companies are, and food allergies have been one of the legal thorns in their flesh for a while. They are personally invested in this peanut allergy product and this collaboration has not been affected by the covid crisis. (Fun fact: Nestle also owns 18% of $AIMT, the competitor company. They are hedging their bets)
  7. Skin patch therapy is potentially more marketable among the market segment that they are targeting (childen & infants) than pills. In addition, they would have potentially less side effects because the active compound gets directly into the bloodstream, and does not get absorbed via the liver.
  8. Consider that it is a French company and the big influence France has in the EU. If they get approved, they might get approval support from the French government too.
submitted by Allegrettoe to PennyDD [link] [comments]

Power REIT -- Stock analysis and Value Investors Club application

This is my Value Investors Club application on Power REIT. Tell me what you think.
Power REIT is a real estate trust with investments in solar, railroad, and newly in medical cannabis greenhouses.
Thesis:Power REIT (PW) is the best way to invest in the cannabis area without the traditionally binary hit or miss nature of emerging industries.PW is anchored by a portfolio of traditional properties allowing it to more safely and at lower cost invest in cannabis assets.PW earns a return on invested capital (ROIC) in great excess of the cost of capital. Return of 12%-19% in new properties, recently issued bonds at 4.62%.PW is under valued despite a seemingly rich market price because of probable massive increase in revenue, earnings, and funds from operation (FFO).The margin of safety is significant.
Significant Assets:6 Controlled Environment Agriculture greenhouse facilities aggregating over 131,00 square feet7 solar farm ground leases totaling 601 acres112 miles of railroad propertyApprox. $10 mil. cash
Significant Liabilities:Approx. $24 mil. Long term debt at interest rates less than or equal to 5%Major debt: $15,500,000 at 4.62% fully amortizing, maturing in 2054Maturities as follows:2021 $635,5022022 $675,3742023 $1,168,2972024 $715,7772025+ $21,208,698Preferred stock: 144,636 shares of 7.75% Cumulative Redeemable Perpetual Preferred Stock, at $25.
General info:Power REIT is currently pursuing investment in what they call controlled environment agriculture or CEA, essentially greenhouses. PW seeks out strictly medical cannabis producers who for whatever reason need additional financing, they then purchase the real estate they own and lease it back to them, and at times help with financing of construction. PW is one of the few ways for cannabis producing companies to get any sort of financing as federally it is still illegal and banks are weary. This gives PW lots of negotiating power in deal making, and that is why they can for example, buy and finance a 5.2 acre CEA property in southern Colorado for around $1 Mil. and get a straight lined rent of $192,000 equating to around a 19% FFO yield.
These properties and tenants are of greater quality than the typical cannabis operation, remember they require tenants to maintain a medical cannabis producers license in the lease. That is a key for PW, this is not a speculative cannabis play that is dependent on federal legalization, on the contrary, a lease they have in a Maine property includes the clause that states that "After the deferred-rent period, rent is structured to provide a 12.9% return based on the original invested capital amount with annual rent increases of 3% rate per annum. At any time after year six, if cannabis is legalized at the federal level, the rent will be readjusted down to an amount equal to a 9% return on the original invested capital amount and will increase at a 3% rate per annum based on a starting date of the start of year seven." PW is partly a play against the federal legalization.
On the topic of debt:A company with a market cap of under $50 mil with about $24 mil in debt might seem a little risky, but here is where the stability from the solar and rail assets comes in. Their existing FFO from those two asset classes is a little over $1 mil while the debt payments with exception of 2023 don't exceed $1 mil for the foreseeable future. So as long as they don't issue new debt in an uncharacteristically bad way PW will have no solvency issues.
Management:Management is skill-full. The CEO David Lesser is pretty much for all intents and purposes the whole company, he is the sole full time employee. He is excellent in terms of real estate expertise. It is very clear he knows his stuff. He has a long history in real estate and more specifically in renewable/clean energy real estate. Lesser is also the chairman of the board, and the largest shareholder. He gets paid exclusively in various forms of equity. His interests are aligned with owners interests. Insider ownership is around 30%, very high for a REIT.
Lesser is also key on avoiding share dilution as stated, and in practice unlike many REITs. There have been no share dilutions besides management's compensation plan. The major recent financing was the 2019 bond issuance.
Relative PricingFor this section I will refer to Innovative Industrial Properties (IIPR) another publicly listed REIT that invests in cannabis assets. IIPR invests in a wider range of assets like retail not just CEA. I am much more suspicious of IIPR's real estate and management. There have been many questions raised about the quality of real estate and solvency of tenants. The CEO seems sleazy and they constantly dilute shareholders. I think PW is superior in terms of intangibles and tangibles. IIPR is PW only publicly traded comparable.
IIPR has grown FFO per share 133% for the MRQ YoY. PW has grown FFO per share 107% over the same time. PW only started investing in high return CEA in late 2019, and engage in more conservative financing, so the difference in growth rates is marginal.
IIPR is currently being priced at around 19.1 times forward 12 months FFO.PW is priced at only 14 times forward 12 months FFO. (If management's most basic expectations are met)In terms of relative price PW, if it sold at the 19.1 multiple it would be selling for $32.4 which I still think could yield an above market rate of return over time.
ValuationI believe PW to be the type of business that the market undervalues because of high uncertainty but low risk. The high uncertainty comes from not knowing how much management will want to grow and raise capital, will management continue to use safe amounts of leverage, will new financing options become available to cannabis companies etc. The low risk comes from the fact that PW has very low risk of going to 0 or even decreasing substantially in share price because of the current safety in investment return and diversification. I'll put a floor as to what I think a low risk price is. Let's say base case scenario over the next year PW invests the existing $10 mil. in cash at a yield of 12.5% (below the usual yield of around 18%), doesn't raise any additional capital, and lease payments are collected and debts paid as scheduled. PW FFO per share would be about $0.45 per quarter. If they trade at an P/FFO multiple of 20 (PW currently trades at 27) that makes the price $36 per share. However, I do think capital will be raised, management has expressed interest in doing so. In that case the strong ROIC and high cash flow would give PW a high ceiling to grow as far as macroeconomic and market conditions allow.

Catalyst

Share price increases when new real estate acquisitions are announced. Eventual dividend. PW currently pays no dividend because the preferred has satisfied the REIT return of capital requirement recently, however with income rising 100%. It is likely a dividend will be coming soon and that will attract more attention. Continued performance and time.

Edit: as a disclaimer, I am Obviously long PW
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