Invest Pending Buys
New Ideas - Jun 2021
- Popular amongst hedge funds inc. Renaissance Tech, Citadel, Arrowstreet Capital, AQR Capital Mgt, with 20% port in Half Sky Capital
Growing businesses at dirt cheap price
FY'2022+ To boost growth 362 store count by 10% every year
FY'2021 M$3.2b fPE=14 PEG=1.5x PCF=6x - was hurt yoy comparisons vs Covid
- Guidance flat sales AFTER SLOWED store expansion to 6%
- Guidance eps $1.8-$2 vs $2.5 eps'20
Q1'21 $1.6b y-4% ss -10% WORRYING! NI $83m y-13%
FY 2020 ONLY $3 b market cap
- Delivery and pick-up solutions were 12.5% of sales in Q1 and have stayed above 11% of sales for the past four
- Reduced its long-term debt by more than 50% over the last year.
- Revenue, store count, and operating profits all grew
$500 million in operating cash flow throughout the fiscal year . For investors with a long time horizon, Sprouts Farmers Market offers lots of upside with a high margin of safety.
CORE: Fresh-produce and health-focused supermarket chain
- Smaller store size at 28-30k sf
- unique open layout : low shelves so customers can see and access everything and get in and out quickly
- selection of fresh alternatives, customers get a quality shopping experience with attractive prices in direct competition with Whole Foods
2x/wk Coupon foods PROMOTIONS key part of getting consumers in stores WEEKLY - but slowed down in Covid, resumed in May'21
ABOUT: Sprouts Farmers Market w 360 locations across the US
- 2019 management change when it hired Jack Sinclair as CEO, prior EVP of U.S. Grocery at Walmart
- Now expansion strategy and generating strong cash flow in the process
SKX - we bought their shoes
The going got tough for shoe manufacturer and retailer Skechers last year during the worst of the pandemic, but the company appears to have mostly recovered. Overall sales were down just 0.5% in the fourth quarter of 2020, with the U.S. wholesale business growing modestly and the China business enjoying nearly 30% growth.
The direct-to-consumer business, which includes Skechers' stores as well as e-commerce, is still suffering as the pandemic lingers. But that business should bounce back once consumers become more confident about visiting stores.
What 2021 holds for Skechers is hard to predict. The company declined to provide guidance due to uncertainty, but with vaccine distribution ramping up, things could be largely back to normal for Skechers by later this year.
Skechers bottom line tumbled in 2020 due to the pandemic, so the stock looks quite expensive based on that figure. But based on the average analyst estimate for 2021, Skechers stock trades for just under 20 times earnings. This ratio is lower if you back out the excess cash on Skechers' balance sheet. Skechers had a net cash position of about $845 million at the end of 2020.
Skechers isn't the cheapest stock, but the company is capable of returning to double-digit revenue growth once the pandemic has fully passed, especially once the retail business recovers. Given the growth potential, Skechers stock looks like a solid value.
Nelnet is a mini-conglomerate based in Lincoln, Nebraska, with a history of growing book value (total assets minus total liabilities) per share at 17.3% a year. The company's roots originated with student loans, but after the federal government took over the lending program in 2010, the company has seen guaranteed cash flow come in year after year.
Right now, Nelnet is expecting to recognize more than $1.5 billion in cash flow over the next five years with plans to redeploy that cash into its other operations. Some of those operations and investments include a loan servicing business, an education and payments software business, a fiber-optic cable operation, and a chartered bank franchise in Utah. While most of these businesses might not sound as exciting as some of the headline-grabbing companies in the market today, together, Nelnet's operations delivered $374 million in net income in 2020.
To piggyback on the impressive earnings, Nelnet dedicated more than $1 billion in cash to its operations and to shareholders in the past year alone. Though Nelnet's balance sheet can look somewhat daunting at first glance, it's worth remembering that the company has to report all of its outstanding loans as liabilities even though they are almost entirely guaranteed by the federal government. Due to the tricky financial statements, many investors tend to overlook Nelnet. At a trailing price-to-earnings (P/E) multiple of 8.2, there is limited downside risk for Nelnet shareholders.