- Monthly Active Users
- That will be the very thing I would look at especially for online games, apps and social networking services. It is calculated by the number of unique users for a thirty day period.
- An increasing number is a must. A drop for a long period is a warning
- With the current trend of going mobile, check on mobile revenue growth rate. It should be accelerating or constant.
- Average acquisition cost (if any) under control and declining
- Customer Lifetime value (depending on the online business)
- Average order value (depending on the online business)
- Retention rate (depending on the online business)
- Improving Margins (across all companies)
- Total addressable market and room for revenue growth
|Characteristics||Checks & Tools|
|Durable Competitive advantage||Check Economic Moat at Morningstar, Vuru.co, industry specific rankings|
|Thick Profit Margins||Check Gross and Net Profit Margins against competitors at Gurufocus|
|Low Capital Expenditures||Read financial statements, check Morningstar|
|Integrity||Check Annual Reports, Statements, Conference call, attend AGM|
|Look after the long term interests of shareholders|
|Capable Management||Glassdoor, LinkedIn Reviews, Past Track Records|
|Great Culture||Glassdoor, LinkedIn, talk to existing employees|
|Growing Business (Scalability)||Check Total Addressable Market,|
|Healthy Debt||Check Quick Ratio, Debt/Equity, Current Ratio at Morningstar or financial reports|
And so, I booked my biggest loss in SGX and sold off Triyards.
And what happened? What was my investment thesis and what went wrong?
I entered in early 2016 based on low P/B hoping for a turnaround and based on analysts report. And when it dropped further, I entered twice. My rationale behind it was the shipping industry had shown signs of picking up. There are now more ship owners asking to build new vessels. And the industry looks like it might turn around in late 2017/2018.
And I was wrong.
So what was wrong?
- I failed to analyse their economic moat. In their latest earnings release statement (Jul 17), their margins were hurt. They did not have a competitive advantage and faced with strong competition.
- I had loss aversion bias and averaged down in hope of recovery. That’s a bad strategy when there’s no near term turnaround in sight.
- The low P/B strategy did not work out. There was an impairment charge to the assets and that was one of my primary reasons for selling it out. There’s a possibility that some companies might buy over Triyards but I would not want to place too high hopes for that when the industry is still in consolidating phase and there’s no significant growth of orders in the industry. Another reason that I sold out was a rise in accounts receivables with a reduction in operating cash.
- Watch loss aversion bias!!
- Economic moat matters
- Macroeconomic turnaround takes time
American Outdoor Brands Corporation (formerly known as Smith & Wesson Holding Corporation) is one of the world’s leading producers of quality handguns, law enforcement products and firearm safety and security products. Law enforcement personnel, military personnel, target shooters, hunters, collectors and firearms enthusiasts throughout the world have used the company’s products with confidence for 150 years. American Outdoor Brands Corporation also manufactures and markets Smith & Wesson branded handcuffs and other products utilizing its metal working expertise and providing products and services to many external customers. Approximately 90.1% of their net firearm sales in fiscal 2016 remained in the sporting goods distribution channel
Since Trump election, the stock price of AOBC had tumbled by about 20% to 20.60. Because Donald Trump won the presidential election on Nov. 8, consumers are less apprehensive that firearms will become harder to obtain due to the Republican Party’s continued support of the Second Amendment. Had Hillary Clinton been victorious, consumers would likely have shown an increased interest in purchasing firearms due to her support of stricter gun control laws
Comparison to Competitors
|Current Metrics||Competitor Metrics, Sturm Ruger (RGR)||Competitor Metrics, Vista Outdoor(VSTO)|
Comparing the three companies, AOBC metrics proved to be better and I believed that the TRUMP effect is temporal. With the proposed tax cuts in place, we should see a rise in household disposable income which will have a positive effect on gun sales. According to data from a 2014 General Social Survey report, gun owners tend to be a pretty affluent bunch. GSS data show that gun ownership rises sharply with income, with householders earning less than $25,000 only 18% likely to own a gun, while 44% of households earning $90,000 or more own a gun.
Why the future is brighter for American Outdoor Brands
Rather than relying solely on guns, the company has sought to cater to hunters and hardcore outdoors enthusiasts more broadly. As CEO James Debney put it last November, “We have successfully grown from a single operating division to four operating divisions that serve a large addressable market and represent more than 18 respected consumer brands.” The CEO believes that the new name “better reflects our family of brands, our broad range of product offerings, and our plan to continue building upon our portfolio of strong American brands.” Shareholders agreed, approving the change. (Source Motley Fool: http://www.fool.com/investing/2017/01/10/smith-wesson-stock-history-a-new-chapter-begins.aspx)
Therefore, even if it’s assumed that firearms sales decline gradually, Smith & Wesson is likely to offset that decline through focus on a broad range of businesses. Just to put things into perspective from a progress point of view, Smith & Wesson recently acquired the net assets of Ultimate Survival Technologies for a consideration of $32 million. Ultimate Survival Technologies is a provider of high-quality survival and camping products, and the company has witnessed revenue CAGR of 49% for the period of 2012 to 2015. (Source: http://www.gurufocus.com/news/464895/reasons-to-be-bullish-on-smith–wesson)
AOBC has a narrow moat as it operates in a specialty market but given their attractive margins over their peers, I believe that it has some competitive pricing.
Gun industry is heavily regulated and affected by consumer sentiment and economic conditions. There are also gun groups that opposed to the ownership of guns. In addition, significant expenses related to proposed new products that prove to be unsuccessful for any reason will adversely affect AOBC operating results.
Following the election results Smith & Wesson eliminated an army contract of $500 million so the market is anticipating a decline in sales and profits, but that’s already priced in at this point.
The long-term risk is demographic shifts away from guns since America is still the largest buyer of them at an individual level.
Fair Value Estimate: 24.92 (DCF)
Mr. P. James Debney has been the Chief Executive Officer and President of Smith & Wesson Holding Corporation since September 27, 2011. Mr. Debney served as a Vice President at Smith & Wesson Holding Corporation from April 2010 to September 27, 2011 and served as its President of Firearms Division from November 2009 to September 27, 2011. He served as President of Presto Products Company, a $500 million business unit of Alcoa Consumer Products from December 2006 to February 2009. He served as Managing Director of Baco Consumer Products, a business unit of Alcoa Consumer Products from January 2006 to December 2006; Manufacturing and Supply Chain Director from August 2003 to December 2005 and Manufacturing Director from April 1998 to July 2003. He joined Baco Consumer Products in 1989 and held various management positions in operations, production, conversion and materials. He has been a Director at Smith & Wesson Holding Corporation since September 27, 2011.
Recently CEO bought more than $600,000 worth of stocks in 3 separate filings from 9-11 Jan 17. This is especially bullish. There were 2 other occasions where he bought shares (Oct 14, Dec 12). In both occasions, the share price increased by more than 20% within a year.
I own a $15 call expiring Jan 19 and sold a $25 put position expiring mar 17
Tucows began as a startup software distribution company back in 1993 and has evolved and grown to various business services.
Tucows is now a provider of network access, domain names and other Internet services. Ting (https://ting.com) delivers mobile phone service and fixed Internet access with outstanding customer support. OpenSRS (http://opensrs.com) manages nearly 15 million domain names and millions of value-added services through a global reseller network of over 13,000 web hosts and ISPs. Hover (http://hover.com) makes it easy for individuals and small businesses to manage their domain names and email addresses. More information can be found on Tucows’ corporate website (http://tucows.com).
Tucows reported a fantastic earnings recently.
- Year-on-year EPS growth is 86%.
- 3 year and 5 year average growth is more than 40%.
- Overall revenue grew by 11% year-over-year.
- Gross Margin for Network Services for current quarter increases by 31%.
- Gross Margin for Domain Services for current quarter increases by 10%.
Total Network expenses increase by 23%.
Current growth plans:
- Ting Internet (4 towns underway)
- Ting mobile
- Holding for domain names
- High review for Ting Mobile and its customer service
- First mover advantage for their competitive pricing model
- Infra switching costs for their fixed internet
- Key people risk (CEO received a high 99% rating for glassdoor and is instrumental to the company’s success)
- Other big players might follow to offer pay as you use model
- Slight increase in Short interests
- Price as of recommendation: $27.45
- P/E: 20.4
- P/B: 9.8
- P/S: 1.7
- Price/Cash Flow: 19
- ROA: 10.56
- ROE: 46.5
- ROIC: 38.82
- Current Ratio: 0.85 (could be a red flag), from my understanding this is due to pre-paid subscription model for their domain services.
- PEG: 0.63
- D/E: 0.31
The company outlook is positive but there are some risks in their growth. The growth will depend how well they execute and grow in Ting.
Disclosure: I own a small position of shares in TCX.
Update: Sold out in late 2016 for a small profit. Auto loan default risk is getting high
Consumer Portfolio Services (CPS)
The company’s business is to purchase and service retail automobile contracts originated primarily by franchised automobile dealers and, to a lesser extent, by select independent dealers in the sale of new and used automobiles, light trucks and passenger vans. The company’s automobile financing programs are designed to serve sub-prime customers, who generally have limited credit histories, low incomes or past credit problems. The company provides seven different financing programs to its dealership customers: First Time Buyer, Mercury / Delta, Standard, Alpha, Alpha Plus, Super Alpha, and Preferred
- Price: 3.99
- PEG (5 yr expected) :0.21
- P/S (ttm) :0.56
- Book Value:7.21
- P/B: 0.55
- Operating Cash flow & Free Cash Flow: positive for last few years
- EPS : positive for last 5 years. Negative from 2008-2011
Industry – PE – 13.46, PEG – 1.23, P/S: 3.64
- Santander Consumer USA
- GM Financial/AmeriCredit
- Capital One
- Chase Custom
- Wells Fargo
- Westlake Financial
- Credit Acceptance Corp.PE – 13.03, P/S – 5.43, PEG (5 yr expected): 1.93
- Exeter Finance Corp.
Insider Transactions in the last 12 months
|Owner||Relationship||Date||Transaction||Cost||# Shares||Value($)||Total Shares|
|SECOND CURVE CAPITAL LLC||10% Owner||May 04, 2016||Sale||$3.73||27,000||100,788||2,463,788|
|SECOND CURVE CAPITAL LLC||10% Owner||May 03, 2016||Sale||$3.91||10,000||39,078||2,490,788|
|SECOND CURVE CAPITAL LLC||10% Owner||Apr 28, 2016||Sale||$4.03||5,000||20,136||2,500,788|
|SECOND CURVE CAPITAL LLC||10% Owner||Apr 26, 2016||Sale||$4.43||3,600||15,937||2,505,788|
|SECOND CURVE CAPITAL LLC||10% Owner||Apr 25, 2016||Sale||$4.38||5,000||21,906||2,509,388|
|SECOND CURVE CAPITAL LLC||10% Owner||Apr 20, 2016||Sale||$4.41||5,000||22,034||2,524,388|
|SECOND CURVE CAPITAL LLC||10% Owner||Apr 22, 2016||Sale||$4.29||5,000||21,438||2,514,388|
|SECOND CURVE CAPITAL LLC||10% Owner||Apr 21, 2016||Sale||$4.33||5,000||21,634||2,519,388|
|SECOND CURVE CAPITAL LLC||10% Owner||Apr 15, 2016||Sale||$4.37||5,000||21,844||2,529,388|
|SECOND CURVE CAPITAL LLC||10% Owner||Apr 08, 2016||Sale||$4.19||10,000||41,856||2,534,388|
|SECOND CURVE CAPITAL LLC||10% Owner||Apr 01, 2016||Sale||$4.22||10,200||43,039||2,544,388|
|SECOND CURVE CAPITAL LLC||10% Owner||Mar 18, 2016||Sale||$3.92||10,000||39,172||2,554,588|
|SECOND CURVE CAPITAL LLC||10% Owner||Mar 16, 2016||Sale||$3.89||6,000||23,362||2,564,588|
|SECOND CURVE CAPITAL LLC||10% Owner||Mar 10, 2016||Sale||$4.25||5,000||21,241||2,570,588|
|BRADLEY CHARLES E JR||President and CEO||Dec 30, 2015||Option Exercise||$1.50||40,000||60,000||1,817,288|
|Harton John Patrick||Sr. Vice President||Dec 30, 2015||Option Exercise||$1.50||5,000||7,500||40,250|
|TERRY CHRIS||Sr. Vice President||Dec 18, 2015||Option Exercise||$5.20||13,270||69,004||84,122|
|TERRY CHRIS||Sr. Vice President||Dec 18, 2015||Option Exercise||$1.50||46,000||69,000||97,392|
|Adams Chris||Director||Dec 16, 2015||Buy||$5.09||3,000||15,270||13,000|
|Adams Chris||Director||Dec 15, 2015||Buy||$5.01||10,000||50,052||10,000|
|Washer Greg||Director||Nov 30, 2015||Buy||$4.68||5,000||23,400||317,744|
|Washer Greg||Director||Nov 27, 2015||Buy||$4.71||5,000||23,550||312,744|
|Straten Laurie||Sr. Vice President||Nov 23, 2015||Option Exercise||$1.50||10,000||15,000||35,250|
|Robinson Teri||Sr. Vice President||Nov 23, 2015||Option Exercise||$1.50||10,000||15,000||121,800|
|Fritz Jeffrey P||Sr. Vice President||Nov 23, 2015||Option Exercise||$1.50||20,000||30,000||130,000|
|POWELL CURTIS K||Sr. Vice President||Nov 05, 2015||Sale||$5.48||9,100||49,871||217,180|
|Washer Greg||Director||Oct 20, 2015||Buy||$4.79||15,000||71,900||307,744|
|Washer Greg||Director||Oct 19, 2015||Buy||$4.82||10,000||48,200||292,744|
|Washer Greg||Director||Sep 15, 2015||Buy||$5.31||2,000||10,620||282,744|
Given the current low book value and expected growth. I am long CPSS.
Disclosure: I have no position in CPSS at the moment.