Here is a brief piece I put together following a recent article from Warren Buffett encouraging parents to start early when teaching kids about money, finance, and investing: [more]
I've always enjoyed following and investing in restaurants. Restaurants can be some of the most relatable businesses for individual investors, especially teens and young adults, to understand and follow. Restaurants also give investors the excuse to eat out under the guise of evaluating the business, just the type of research you might expect Peter Lynch do on potential holdings in the Magellan Fund. Restaurants become all the more exciting for investors when you have innovative players, such as Starbucks, Chipotle, and Buffalo Wild Wings, who master and expand a niche concept nationally and, in some cases, globally. [more]
I had never heard of Noodles & Company (NDLS) until I happened upon the stock while strolling around the CAPS community. Besides having a wicked cool name, I was inclined to do some more digging into the company. Noodles just had its initial public offering (IPO) in June 2013, bringing ambitious growth projections and what could very well be a promising and innovative long-term player, a la Chipotle Mexican Grill and Buffalo Wild Wings, in the restaurant field. In fact, Noodles has some interesting connections with Chipotle that I will explore below. [more]
Snapchat has been in the news again, after turning down a $3 billion buyout offer from Facebook.
I've been wondering the same question raised by many others - how is Snapchat going to make money? Several years ago, when Facebook was offered a $1 billion buyout from Yahoo!, some could at least see the feasibility of integrating advertising into the service. Snapchat, however, brings in no revenue and may have a hard time integrating paid advertising without disrupting the user experience.
Comparisons with this story have been made to 2006 when Yahoo! reportedly was in talks about acquiring Facebook to the tune of $1 billion. I didn't even get a Facebook until 2008 (Myspace was the place to be for a junior high school student), so I was not even following the Yahoo!-Facebook story in 2006. However, in looking back at some of the commentary on the story from 2006, it becomes apparent that some people had little faith in the future of Facebook, social media, or even Yahoo!.
If anything can be learned from this, don't rely on comments on techcrunch.com when evaluating the future of a new form of technology and social communication. One reader seven years ago amusingly commented on the Yahoo!-Facebook acquisition story:
You know what? Yahoo will be losing a lot of money if they buy the Facebook. College students move on. Social networking isn't as hot as it used to be.
Social networking isn't as hot as it used to be? Someone said this in 2006?
1.2 billion users later... Facebook is now publicly traded and worth more than three times Yahoo!. (Facebook's market cap sits at $119.31 billion versus Yahoo!'s $36.21 billion.) My how much can change in seven years.
The point of this is not to suggest Snapchat will be a $500 billion company in seven years, but you do not want to underestimate the potential for things to drastically change in a relatively short period of time. Within three years we might have people predominately using wearable technology, such as Google Glass, for communication. Smartphones, as they currently exist, might be obsolete within five years. 7-10 years ago, very few people would have believed Facebook could have grown to where it is today.
Until Snapchat actually develops a revenue model, however, I join others with both skepticism and intrigue toward the future of the company. I still have a difficult time comprehending how Snapchat even got on the map to receive a $3 billion buyout offer from one of the world's social media giants. Evidently some individuals, who also have the purse strings, see considerable potential with Snapchat.
What's next, a Snapchat IPO?
David K [more]
I enjoyed watching this recent interview with David Gardner, and related to quite a bit of what he shared. Starting at 11:55, David delves into the simplicity of investing and the importance (or, at least, the advantage) of starting to invest at a younger age. He also mentions a key point: the support of parents often plays a major role in building a teen's interest in investing. Every situation will certainly be unique, but my own experience syncs with just about everything David shares in terms of supporting young investors. [more]
Last week I happened to hang out with a friend of mine who owns a Google Glass, which is currently in its second beta stage of development. This beta version of Google Glass is not cheap; currently it costs $1500 if you are lucky enough to receive an invitation. (Without the invitation, Google will not sell the product to you.) Invitations, by the way, are currently being auctioned off on eBay to the tune of upwards of $300. In other words, only die-hard tech users are plunging into Google Glass at this point.
I am not the most tech-savvy person out there, but in the brief time I had with Glass I was able to get it to perform basic functions. Glass sits on your face like any other pair of glasses, only this device has a small screen just above and in front of your eye. (Glass can be customized for the right or left eye before the order is placed.) Currently Glass syncs with your smartphone, meaning that your smartphone will display what you are doing on Glass (and vice versa). Eventually Glass will be its own device without dependence on an external phone.
Before you give voice commands to Glass you simply tap the side of Glass to wake up the device speak “OK Glass,” and a menu of options pops up. Once this menu appears on the screen you can make a voice command. These commands can be as simple as, “Take a picture,” or, “Find directions to Starbucks,” or, “Go to YouTube.” There is even the option to enable a feature where you can wink at the screen, upon which Glass will snap a picture of whatever you are looking at. Cool and kind of creepy at the same time.
According to my friend, who works in the industry and is an avid tech junkie, Google is looking to release Glass to the public in 2014 with a price range of $300-$500. The current version of Glass has a 5 megapixel camera, but supposedly Google might boost this to 8 megapixels before Glass is rolled out to the general public. Other kinks, such as a relatively weak battery life, are being worked out with these beta releases.
In all likelihood, other tech companies will enter the field of “eyewear technology” and offer products with similar capabilities as Glass. Google’s advantage, based on what I was told by my friend, is that they are not dependent on any one form of software, unlike Apple.
To be honest, I am unlikely to shell out several hundred dollars for one of these devices. The technology is cool, yes, but I already feel “strapped in” to technology – no need to make that literal (yet). However, I would not be surprised to see the general public go en masse to buy Google Glass.
Google Glass strikes me as a product which has vast potential to disrupt how things are done on a daily basis. This potential is akin to Apple’s transformation of the world (and tech industry) with the iPod in 2001. Be on the lookout for Glass’s release next year, and brace yourself for a world where everyone resembles a Trekky.
David K [more]
It's earnings season and I am playing catch-up. Today I wanted to look a bit deeper into the third quarter results, ended September 28, released by Dorman Products (DORM). My write-up of Dorman Products can be found here: http://caps.fool.com/Blogs/pencils-purchase-dorman/884716
3Q FY2013 Highlights (year-over-year, unless otherwise noted):
** Net sales increased 14% to $178 million from $156.4 million
** Gross margin increased to 39.2% from 38.2%
** Research and development spending (nine months ended) increased 22% to $9.5 million from $7.8 million in 2012
** Cash and cash equivalents $48.34 million from $66.07 million in 3Q 2012
** No long term debt
** Produced $15.53 million in operating cash flow
** YTD operating cash flow increased 28.82% to $36.84 million from $28.6 million
** Net income from continuing operations increased 16% to $22.9 million ($0.62 EPS) from $19.8 million ($0.54 EPS)
** Profit margin increased to 12.9% from 12.6%
** Operating margin increased to 20% from 19.9%
** 2,700 new parts have been released by Dorman in 2013
Auto replacement parts have never been so sexy.
Dorman continues increase investments into research and development, which is critical for a competitive industry such as automotive replacement parts. Dorman has an experienced management team that has done a terrific job carving out a niche against some of the bigger players in the field, all while maintaining financial ratios unparalleled when compared to the competition. Dorman's margins are more than double the average margins for the auto parts industry. Dorman's competitive moat stems from a knowledgeable and experienced management team and significant investments into research and development of new replacement parts (one fifth of Dorman's 2012 sales came from new products developed between 2010-12).
Dorman's year-to-date net income from continuing operations has increased 20% to $61.3 million from $51.2 million in 2012. As mentioned in the highlights above, operating cash flow has increased 28.81% so far this year compared to 2012. Dorman continues to grow at an impressive clip which, in my estimation, justifies its current P/E ratio of 22.54. This is a higher multiple than its competitors, but the company undoubtedly has financial superiority to the competition at this stage in the game.
Should the stock get hit below a P/E of 20 I will strongly consider adding to my position in Dorman. Dorman's solid (and improving financials) coupled with management's commitment to product innovation would be hard to pass up should Mr. Market offer a discount on Dorman's shares.
David K [more]
Yesterday Lions Gate Entertainment (LGF) reported results for the second quarter ended September 30, 2013, of its 2014 fiscal year. Below are brief highlights of the report along with some of my thoughts.
2Q FY2014 Highlights (year-over-year, unless otherwise noted):
** Revenue decreased 29% to $498.7 million from $707 million
** International Motion Picture revenue (excluding Lionsgate U.K.) decreased to $88.7 million from $108 million
** Home entertainment revenue (motion pictures and television) decreased to $209.9 million from $277.8 million
** Filmed entertainment backlog (contracted revenue, generally for projects spanning the next 18 months, not yet recorded) totaled $1.1 billion as of September 30, 2013
** Free cash flow increased to $84.9 million from $18.9 million
** Operating cash flow increased to $139.86 million from -$8.88 million
** Cash and cash equivalents increased to $67.21 million from $54.4 million
** Over the past 12 months total debt has decreased $277.8 million to $801.44 million
** Net income decreased to $0.5 million ($0.00 EPS) from $75.5 million ($0.56 EPS)
** Adjusted net income decreased to $25.4 million ($0.19 EPS) from $75.5 million ($0.62 EPS)
Conference Call Transcript: http://seekingalpha.com/article/1823682-lions-gate-entertain...
Lions Gate is an interesting business to follow, because quarterly revenues and earnings can be quite volatile depending on what movies and TV shows are being released and when. Lions Gate is obviously hinging quite a bit on the continued success of the Hunger Games franchise, which will release a Hunger Games sequel each November into 2015. (The first Hunger Games film was released in March in 2012.) There are even discussions for a Hunger Games theme park, which gives an idea of the vast potential involved with this franchise. In the meantime, Lions Gate continues to work with Netflix, Amazon, and Hulu, which allows the company to expand through the growing online market as well as internationally through those providers.
While it is disheartening to see substantial declines in revenue and income, even with the understanding that it is the nature of the business (which depends extensively on timing for film and TV releases), it is encouraging to see the company's ability to generate cash flow and reduce overall debt. Michael Burns, Vice Chairman of Lions Gate, states that management is targeting a total debt figure in the range of $300 -$500 million, which is well attainable considering the business's ability to produce cash flow and management's focus on reducing overall debt.
In many ways, Lions Gate is adjusting to a new reality of releasing very popular content, particularly with the Hunger Games, in contrast to its smaller budget projects from the past decade (such as Saw). I anticipate Hunger Games to be a rock solid and expanding franchise over the next three years, which will significantly boost annual revenue and earnings. The excitement for the franchise on my college campus alone has convinced me of the "staying power" of the franchise. Quarterly financial reports often paint incomplete pictures of businesses, especially those such as Lions Gate, because the next two quarters will be most important in terms of gauging the success of Hunger Games compared to last year, when Lions Gate's revenue rocketed to $2.71 billion and secured a profit margin of 8.57%. Thus far this fiscal year, Lions Gate's profit margin stands at 1.32%.
Lions Gate is in a volatile field facing much larger competitors. However, I am impressed with the ability of this independent studio, backed by involved, experienced, and innovative managers, to boost its market presence over time with internet, international, and traditional markets as well. Jon Feltheimer, who has been CEO of Lions Gate since 2000, explained in the earnings conference call that management expects Catching Fire (the second Hunger Games film) to garner significantly more international revenue than the first Hunger Games film. The first Hunger Games earned approximately $290 million in revenue internationally, and with revenue totaling over $691 million worldwide.
As Lions Gate improves its balance sheet, continues to invest in new markets online and internationally, and reaps what I expect to be a very successful next several years with the Hunger Games, I am content as a long-term shareholder despite these volatile quarterly results. With its new EPS of $1.47, the stock is still trading at a reasonable P/E ratio of approximately 22. Should the stock drop below a P/E of 20, I will consider adding to my position.
On another note, I am glad to see Hunger Games once again being released in Imax, another business in which I happen to be invested. Between Netflix, Imax, and Lions Gate, I seem to have exposure to just about all the primary areas of movie/TV production, release, and distribution. Thankfully I never added Blockbuster to those ranks!
David K [more]
Today Hain Celestial (HAIN) reported their first quarter results for fiscal year 2014. Here are some brief highlights along with some of my thoughts and analysis of the report.
1Q FY2014 Highlights (year-over-year from 1Q FY2013)
** Net sales increased 33% to $477.5 million from $359.8 million
** U.S. sales increased 23.5% to $311.99 million from $252.65 million
** United Kingdom sales increased 96.7% to $113.99 million from $57.95 million
** Rest of world sales increased 4.6% to $51.49 million from $49.21 million
** Gross margin 24.95% versus 26.46% in 1Q FY2013
** Adjusted EBITDA increased 42% to $57.83 million from $40.75 million
** Income from continuing operations increased 40% to $27.7 million from $19.8 million
** Adjusted net income increased 32% to $25.3 million from $19.2 million
** Profit margin 5.79% versus 4.6% in 1Q FY2013
** Diluted EPS increased 27% to $0.52 from $0.41
** Operating free cash flow increased 118.9% to $41.26 million from $18.85 million
** Cash and cash equivalents increased 57.69% to $65.07 million from $41.26 million in the previous quarter (4Q FY2013)
** Long-term debt decreased to $641.24 million from $653.46 million
** The following brands experienced double-digit sales growth year-over-year: Earth's Best®, Sensible Portions®, Spectrum®, The Greek Gods®, Imagine®, Arrowhead Mills®, Hain Pure Foods®, Bearitos®, Lima®, Danival®, Natumi® and Linda McCartney®.
For what it's worth, Hain managed to beat the average analyst estimates of $0.50 EPS. I don't lose sleep over analyst estimates, so I am not going to spend more time here diving into their estimates and reasoning.
I am very impressed that, despite acquisition costs and other factory start-up costs, Hain's profit margin managed to increase to 5.79%. This, coupled with the vast increase in the production of cash flow, signifies to me that management is doing a superb job balancing existing brands with new acquisitions. Within the past year Hain has engaged in various acquisitions, including the acquisition of the Hartley's, Sun-Pat, Gale's, Robertson's and Frank Cooper's brands. The 40% increase in net income from continuing operations also serves as a very good sign of continued success with Hain's existing brand portfolio.
Currently U.K. sales make up approximately 25% of Hain's overall sales, a number that appears slated to increase quite a bit in the coming year if U.K. sales continue on this trajectory. Down the road I see tremendous potential for Hain in other European countries, Canada, and other markets around the world. For now the U.K. market is providing a substantial boost to the company's sales figures. Hain's margins in the U.K., however, are not yet anywhere close to its U.S. figures (operating margin of 1.7% in the U.K. versus 14.9% in the U.S.), but they are improving compared to last year.
I expect a solid year from Hain, which also reiterated its earnings estimates for fiscal year 2014 (which I went over here: http://caps.fool.com/Blogs/hain-celestial-1q-2014/886871). I will be keeping an eye on the company's cash flow production and ability to maintain steady margins. I am also particularly interested to see how U.K. sales and margins play out this year; if Hain can boost margins in the U.K., we could see a sizable expansion of income production in the coming years.
Being someone who has Celiac Disease and must eat gluten-free, I appreciate the innovative nature of Hain's brands with alternative and healthy food and product offerings. Much of Hain's success is due to Irwin Simon, Founder, Chairman, and CEO of Hain, who has an innovative mind for product and service offerings and a keen mind for an expansive business.
If my calculations are correct, Hain's EPS now stands at $2.52. This means the stock is currently trading at a P/E of 33.08. In today's market I see this as fairly valued, and might consider adding to my position if the P/E falls below 20-25.
Glad to see another successful quarter under Hain's belt, and I look forward to the progress of Hain in the coming fiscal year.
David K [more]
Hain Celestial (HAIN) reports its 1Q FY2014 results tomorrow, and I hope to provide a brief summary here in the next couple days once I get a chance to look at the report.
I'm particularly interested in Hain's cash flow production, which leveled off last year at $120.96 million. In the 1Q 2013 last year, Hain generated $27.16 million in operating cash flow. Let's see if this fiscal year gets off to a strong start with regard to cash flow production. Hain has issued a substantial chunk of debt in the past year (approximately $275 million), which is fine so long as the business is able to generate sufficient cash flow.
I always take earnings guidance with a grain of salt (especially analyst guidance), but Hain has set its EPS estimate for FY 2014 between $2.95-3.05 (representing an approximate 16%-20% increase from its current EPS of $2.41).
Presently Hain is trading at a P/E of 34.34. This is a reasonable number provided Hain is able to maintain its earnings growth rate over the next several years. Hain is a long-term play with a solid brand portfolio of organic/natural brands and an innovative and experienced Chairman, CEO, and Founder (Irwin Simon).
If Hain is able to grow earnings at an average rate of 17% for the next five years, and trade at a P/E multiple of 25 in five years, the stock would be close to a double from current levels:
2.41*(1.15^5)*25 = $132.09
Hain's stock would have to be substantially clobbered for me to add to my position, but at this point I am very comfortable with the Hain position I opened this January. I look forward to the progress of Hain in the coming years. [more]
I think one of the biggest mistakes individual investors can make is to get impatient with investments. Market swings, positive or negative, can do a lot to stir up emotions, cause unhelpful speculation, and lead to questionable and rushed decisions. Some of my greatest investing blunders, since I started investing nearly a decade ago, stemmed from a lack of patience and letting systemic factors, rather than the businesses themselves, dictate my investing decisions. [more]
I never would have guessed that Snapchat would be potentially valued at $3.5 billion. My friends and I use Snapchat (for productive reasons, of course), but it didn't cross my mind that the company behind the platform could raise hundreds of millions of dollars and potentially be valued in the billions. Thus far I do not see the potential for how the company can generate revenue with the service without impeding on the user's experience - similar to Twitter's predicament (the issue of generating revenue, through ads, without significantly altering the experience of the user).
The social media market, to me, seems extremely competitive and quickly evolving. At this point Facebook is the closest to a long haul investment I potentially might be comfortable with, but smaller platforms and services (Zynga, Snapchat, Twitter, etc.) strike me as risky businesses with very little in the way of competitive moats.
Snapchat, a Venice, Calif-based social platform is rumored to be raising $200 million, thanks to whiplash inducing growth in its popularity and partly due to amorous overtures from Facebook. According to my sources, the new investor interest in Snapchat and its photo-sharing service is coming from a handful of hedge funds, including Naspers, the South African holding company that has invested in Tencent and a wide variety of web and media properties around the world and owns MIH. Snapchat spokesperson is yet to respond to our queries.
Snapchat is being valued in excess of $3.5 billion, reports AllThingsD. We have been able to confirm this valuation as well. One source tells us that some early investors might be sellers in this round of financing. That number has been doing the rounds in Silicon Valley for a few weeks now.
A short interview with Warren Buffett in 2009 which includes helpful reminders for long-term investors. Buffett is a class act, a hoot to follow, and represents the best of what long-term investing can entail.