← Chit Chat Stocks
Chit Chat Stocks
Fallen Angel OR Falling Knife? 10 Rapid Fire Stocks (CSGP, NKE, SHOP AND More)
01:07:57
Loading summary
Transcript102 lines
- [00:00]
A
Will The Fed raise rates 25 basis points in June 2026? IBKR prediction markets let you trade the outcome alongside your stocks and options, earn interest, get it right and earn $1 per contract at ibkr.com predictions. Last trading day June 17. Welcome to Chit Chat Stocks. On this show, hosts Ryan Henderson and Brett Shafer analyze businesses and riff on
- [00:31]
B
the world of investing.
- [00:32]
A
As a quick reminder, Chitchat Stocks is
- [00:35]
B
a CCM Media Group podcast.
- [00:37]
A
Anything discussed on Chitchat Stocks by Ryan, Brett or any other podcast guest is
- [00:41]
B
not formal advice or recommendation.
- [00:44]
A
Now.
- [00:44]
B
Please enjoy this episode.
- [00:52]
A
Welcome into the Chit Chat Stocks podcast, a podcast to help you find your next great investment. Today we are diving into some stocks that are in massive drawdowns. We are going to decide whether they are a fallen angel, one that we might want to invest in, or a falling knife that might get us hurt if we invest any further. We have 10 different companies, five each. Ryan and I picked. There's, you know, you know, in this time of market for anything that's not AI related. There was a plethora of opportunities in our substack chat, which I should mention people should subscribe to. The link is in the show notes. You can have all sorts of conversations for podcast related things. There was maybe 30 or 40 suggestions for stocks to choose. We couldn't choose them all, but we have five each and there's plenty to talk about before we get started. Let's remind listeners if you follow the show, some subscribe to the newsletter. As I mentioned before, you can sign up for free and join the chat community that is completely free and get more stock analysis from us. You can follow the show wherever you're listening right now. Spotify, Apple, YouTube, wherever and give us a five star review. That is the best way to support the show. Ryan, we want to get started quickly here. Let's start with your first company, Accenture.
- [02:11]
B
Yeah, and before we dive into the companies here, my definition for fallen angel versus falling knife is similar to that of value play versus value trap. Basically it's stocks that have fallen and whether or not we think the business is still high quality, still an angel. I'm putting air quotes up here. Sort of a fallen stock, high quality business or a fallen stock, but the business deterioration could potentially get worse. The metaphor there is that you're catching a knife which is obviously going to hurt and that the stock could probably go down even further. So yeah, let's get right into it. My first stock is Accenture. This is the largest pure play it consulting firm in the world. And I would say that sentiment has never been worse for them than it is right now. I think investors would probably say that pretty confidently. Throughout their entire existence as a public company, at least up until 2025, they have traded between 15 times and 30 times free cash flow. Now, after their recent 70% drawdown, they trade an EV to free cash flow of 6, which is extraordinarily low, not only for them, but just across common business valuations. So we're asking whether or not this is a fallen angel or a falling knife. To do that, we got to figure out what is causing the drawdown to begin with. And it's not really too much of a surprise here. As with many of the companies on this list, the culprit behind the drawdown is largely AI, or at least AI narrative. And I will also say we diversified this list in terms of industry, so it's not all just AI losers or perceived AI losers. There's we've got a gym operator, we've got, I believe, a restaurant in here, dollar stores, a car maker, a notable famous car maker, and plenty more. So in this case, it is the AI risk that's kind of scaring investors. Let's talk for a sec about what Accenture does. So at its core, Accenture helps primarily large organizations is also governments implement technologies and business strategies. I know that's very vague, but they have a very wide range of services that are often custom to the specific business. So it's hard to be that much more specific in a single sentence about what they do. In almost every case, though, what Accenture does is they provide the people and expertise to plan, build, integrate and or manage new technologies or business strategies. So think if you're doing a cloud migration, if you are implementing ServiceNow or you're implementing a new CRM or some new software technology, you might want an expert, someone who has helped companies get up to speed on the platform quickly in the past. That would be Accenture. Side note here, Accenture is a very global business. They have 800,000 employees around the globe, which is not. That's not a typo, Brett, in the notes. It is a massive figure. It's a global employee base, so it's not all based here in North America. But let me give a real life example of what Accenture does in 2022. IHG Hotels Resorts, which owns major brands like Holiday Inn, Crowne Plaza, Kimpton, I think like 15 others determined that they needed a big revamp for their mobile app. The app was slow. It was hard to use it relied on old data infrastructure and fragmented systems. Because keep in mind, you got 15 businesses that you've acquired that all have developed their own systems over the years and you got to make those things talk to each other. So IHG asked Accenture to help build this. And within about a year, Accenture had designed, built and launched the completely overhauled IHG1 rewards mobile app for both iOS and Android. That included localizing it into 18 different languages, personalizing guest journeys. So like, based on who the customer is in their booking lifecycle, what type of pages, promotions, content should you be delivering for them? Linking the app to IHG's loyalty ecosystem, also obviously very important. And today the app has a 4.9 star rating on the iOS app store. You can imagine all the complexity and coordination to have an overhaul like this. I mean, it spans so many different hotel brands, there's databases are siloed. It really requires someone to come in and be hands on. You're not hiring Accenture, in this case for pure baseline coding capabilities. You want someone to own the entire process. So no, I don't think Claude is a direct replacement for this type of situation. It's also a great example of how Accenture makes money. They sign massive deals, often above $100 million in size, with the world's large enterprises to own and on an ongoing basis manage certain IT operations or projects. So about half their revenue comes from delivering products and the other half comes from what they call managed services. Anyways, that was a little long winded here. But Accenture stock is down primarily because people are worried about AI displacing the need for a lot of what Accenture provides. For example, some of those baseline coding capabilities, you know, we don't need to outsource that anymore. We can have Claude do it, whatever. And if you just look at the recent headline numbers, you would probably think that that concern is coming to fruition. So new bookings, which is the leading indicator for revenue, declined 2% year over year, with managed services bookings declining 15% year over year. Specifically because of this, they lowered their full year revenue guidance. I thought it was kind of, this was probably overblown. People saw these headlines of revenue guidance being lowered and it wasn't that big of a difference. Previously it was a 3 to 5% revenue growth, now it's 3 to 4%. So you could even say they just narrowed the range. But yeah, nevertheless, here's what management said happened. This was the CEO talking. I also want to give you context on two factors that impacted our results this quarter. First, we were impacted by the conflict in the Middle East. We saw a revenue impact of approximately $100 million compared to our expectations. Second, a couple of our large managed services opportunities moved into fiscal year 2027 for company specific reasons. So I do think probably at the margins there's maybe very specific deals where the deal size is contracting because some of the baseline coding can be done by AI. But in general, there's yet to be really any proof that AI is the specific culprit behind some of these bookings declines. Accenture is historically very, very cyclical. Not, not cyclical, lumpy with bookings. Because like, you know, take this $150 million deal, for example. If they sign that on July 1 and not June 30, all of a sudden they're missing bookings by a huge margin. Right. Or bookings guidance. So it can really vary depending on the timing of those deals. I would generally lean towards fallen angel here. I'm not calling this a full blown fallen angel because the revenue growth will probably still be pretty slow. But at this price I think you can get good returns and I think the business quality is higher than people give it credit for right now.
- [10:17]
A
Okay. Yeah, I would include this as a fallen angel as well. The valuation is just really, really hard not to get excited about, especially when it's collapsed already 60% this year. But let's keep moving. We gotta move quickly here. And for the listeners, I know there's a lot of suggestions in the substack chat, so we'll have some rapid fire at the end. We'll kind of do a quick yes or no. Don't make any investment decisions off that. That is going to be just our personal opinion. But let me move on to mine. My first one here is Netflix. This is one that I wanted to include because the criteria kind of covered for or wanted to include for this episode was something that we haven't talked about much in the recent years, but maybe was covered more in the past and something that used to be popular within the financial media but is not as popular today for whatever reason. I think Netflix fits that bill. It has also fallen significantly, I think. I see.
- [11:18]
B
Oh God.
- [11:18]
A
I have my screenshot here. I think it's over 40% drawdown, maybe 45% from all time highs. And if you look at where it's trading at, it currently has a PE of 23.4. And what I want to do is go through why the company has fallen, whether it is actually an issue for the business moving forward and Then we can decide whether it's a falling knife or falling angel. First, Netflix is losing watch time market share among streamers. I think this is the biggest thing concerning people at the moment. It's of kind of been a slow concern over the last few years. You know, it has maintained around 8% of total TV watch time in the United States. But streaming as a whole has gone from just over 30% to under 50% of TV watch hours. YouTube is kind of pulling away from the pack here. They have 13% of overall TV watch hours going to the DIY service. This doesn't include YouTube TV for reference. And then third is the threat from TV losing share to other forms of content. Then you have things like Reels and TikTok that are gaining share. This is a threat to Netflix. If they're not watching tv, if they're looking at their phone, that is, you know, demand going away from the Netflixes of the world. Now Netflix has a good competitive position. It has its global brand as the first streaming option someone chooses when wanting to watch a movie or show with someone. You have global distribution, you have the premium content machine that is quite large and again around the globe. And you have that backend expertise and front end expertise for the technology side compared to really everyone out there except probably YouTube. Now from a specific content side they are trying to get into areas that are gaining share among streaming that they have historically lacked. This include lives live events like sports, they have random one off events, boxing, some of those kind of almost award show type things or roasts, things like that. You have the talk shows and podcasts, they all are considered podcasts but for you know it's, it's the same as, as talk shows and then you have the usual TV shows and movies. They really want to have everything out there for someone that's a potential subscriber. And then financially it. I think the business is fairly simple to understand because the more people watch, the more they will subscribe, the more pricing power you will have. If someone spends one hour a week with Netflix versus 10 hours a week, that 10 hours a week person is going to be a much. You're just going to be able to raise prices from $10 to $30. Much easier. And if there's more watch hours there's going to be a higher ability to serve ads. Ad revenue is set to double this year from a pretty low base, but still double. I think that sums it up. Again I will mention the PE is down to 23 and a half as of this recording. It may not be the cheapest stock in the world, but it's definitely not as expensive as it used to be when I had a PE of 50. Ryan, I'll maybe kick it off to you first. Fallen angel or Falling Knife.
- [14:21]
B
Yeah, this for me is for sure leaning towards Fallen Angel. The I still don't like. I don't love the multiple. It's not like screamingly cheap. But if I'm deciding between Falling Knife or Fallen angel, it's for sure Fallen Angel. It seems like every time Netflix has a drawdown, which talk about companies that have had extreme drawdowns, Netflix is maybe the biggest one. They've had so many 50% plus drawdowns over the years, it seems like every time that happens people just say the content sucks. It's like this is a distribution monster. The global audience disagrees. The statistics disagree. It's one of the first places you go to when you open your smart tv. Typically, I think for most households it seems like a high quality business to me. And there's a lot of concern at the moment about AI helping lower budget studios be able to produce formidable content that used to only be reserved for like the top studios. I'd argue that's a benefit to Netflix and maybe a cost reduction tool. Like they will benefit from AI as much as any of the other studios in my opinion. So yeah, I would lean towards Fallen angel for sure.
- [15:44]
A
I'm going to lean towards,
- [15:47]
B
I'm going
- [15:48]
A
to lean towards Falling Knife because you mentioned, okay, globally I'm sure their watch hours are growing, but within the United States, I think I saw a stat, maybe it wasn't this quarter, but a quarter prior that watch hours were only growing in like 2% that actually could have been global. So that's something that I am concerned about. I don't think the threat from everything else, YouTube, Instagram, what have you is going away. But let's keep moving. Ryan, what is your second Fallen angel or Falling Knife?
- [16:20]
B
Yeah, this one has been falling for some time. It is Nike. Their turbulence is a little tougher to summarize than some of the others on this list because it's been going on for more than five years and there's been almost a decade worth of management missteps. Shares are in a 77% drawdown from their 2021 highs. If you invested $10,000 in Nike 10 years ago, you would now have $9,000. So quite a decade. And at one point it was looking really good. I think in 2021 the, the trailing returns were really solid, but probably the biggest mistake that Nike made was their aggressive pivot towards direct to consumer. So they prioritized their owned channels. Nike stores, Nike Direct, Nike.com over working with their wholesale partners which yes this means higher profit margins. So Nike cut ties with hundreds of long standing independent retailers and department stores thinking consumers would simp the brand. This paved the way for upstart brands like HOKA and on running to win share with customers through wholesale because those are at a minimum those are very good sort of discovery places for new brands like people. Even if the stores aren't growing, traffic to the stores aren't growing, people that are going are discovering new brands. So that was one mistake. Second part is that they sort of strayed away from their core. I don't know how to describe the brand winning brand like they're a lot of their messaging for a long time has been aggressive about like being a superior athlete, being a winner, that kind of thing. And over the last few years it's shifted to more generic stuff, kind of a little more conservative. Conservative in the messaging about not, I don't know, not being necessarily a winner.
- [18:17]
A
So it's good, it's good to have people in shape as your models. It's probably the best way to put it.
- [18:23]
B
Yeah, I mean that's the thing is they appeal to the masses a bit which it feels like that's the TAM expansion but really it erodes the brand in my opinion. And then the third thing here is that it's, it's apparel and apparel, even though nike's had a 40 year great run is just a damn tough business. Consumer preferences change, there's copycats, it's just we've seen it time and time again. So I do think they're at least starting to head in the right direction. They fired John Donahue or Donahoe who was the, he was an outside tech executive from 2020 to 2024. I believe his previous experience was at eBay and ServiceNow. I don't know what on earth made them think that that experience qualified him to run Nike but he apparently brought a really data driven, data focused approach as opposed to knowing the brand, knowing the core customer which is who they've tried to replace him with. They brought in 32 year Nike veteran Elliot Hill who has been implementing the back to basic strategy by reviving their wholesale relationships, getting back to their athlete driven marketing. And I think it's possible that they're trending in the right direction with some of these strategic decisions. But operating margins are currently at a 20 year low due to aggressive promotions to get through some of their inventory and moving back into those wholesale channels. So this makes it tough to measure on trailing earnings because they've got just under $3 billion in operating earnings right now. That's down a ton from the peak. If you assume that margins can expand again, it's going to look very different on a forward basis. But if, if they are able to get their stride back and increase margins, I think you're probably looking at around a low teens earnings multiple a few years out. I'm just not a believer like I
- [20:28]
A
think still not that cheap for the risk here. Did you see Steph Curry signed with the Chinese brand Learning?
- [20:37]
B
I did this.
- [20:38]
A
It's all.
- [20:40]
B
It's a tough business and even if you do think they're taking the right steps like I like, I really like Hokas. I have Hokas.
- [20:51]
A
You're turning into a dad.
- [20:52]
B
I know it's possible but it just you, you open the window of opportunity for other brands to come in and I think some of them did that pretty well. So now it's not like all of a sudden your branding turns around and all that growth comes back right away would be my concern. Will The Fed raise rates 25 basis points in June 2026 at IBKR prediction markets? The yes recently traded at 5 cents while the no traded at 90 cents. But the markets can change quickly. Trade prediction markets on political climate and economic events with simple yes or no prediction style contracts where prices reflect probability. Explore trending data, spot the trends and if you get your prediction right, you earn $1 per contract at settlement plus you'll earn a 3.14 APY on your investment with an interest like incentive coupon. And you'll get $3 for signing up with IBKR Prediction Markets which you can use for any purpose or to start trading. Prediction contracts are not suitable for all investors. Go to ibkr.com predictions and turn your views into IBKR prediction contracts today. Last trading day for this contract is June.
- [21:59]
A
I agree and longtime listeners are going to know I'm going to say this. Never best in apparel. I think almost every apparel company is a falling knife. It just might somehow be a multi year dead cat bounce. If if you get a couple of good products out there, you get a viral moment, you get a viral trend. Like look at what were those little toys that people were having the Labubu right That there was a company.
- [22:28]
B
I
- [22:30]
A
think I might be saying it wrong. We're aging ourselves here. But there was a publicly traded stock that sold these things and it just goes up and then it goes down because the trends go away. Now. Nike was an anomaly and I think they can still maintain a somewhat, you know, as like Adidas and Puma maybe to be a bit of an anomaly. If you focus just on being a durable, you know, you're advertising with all the great athletes, you're advertising all the great sporting events, you can still maintain a solid marketing position. But they were a bit of anomaly over the last 40 years and I think that changes and I think it's still a falling knife. It's been a five year falling knife and I think that just continues. All right, let's move to my second one. It is Ferrari. Ferrari is in a 37% drawdown, one of the worst in its history as a publicly traded company. Hasn't been, I think it's been publicly traded for about a decade. It's currently trades at a PE of 34, which might feel expensive in a vacuum, but for luxury companies that can be cheap. Ish. From my perspective, there are two things holding Ferrari stock price down. First, there are investor concerns over the lack of shipment growth. Maybe Ryan can pull this up. I don't know if the screen share here is going to be very big. But essentially coming out of the even before the pandemic, you know, there was a little bit of a lump with the pandemic year. But coming out of before the pandemic, up through 2022, there was steady shipment growth for Ferrari. And over the last few years they've stopped this. Here's a quote from their latest earnings release. Within sports cars, Ferrari continued to enhance its mix and to strengthen personalizations during the quarter. To ease the execution of the planned model changeover deliveries were deliberately designed to be slightly lower than the previous year of 3,436 units. Look, financially in the short run it might be better if Ferrari could just keep growing unit volumes and enact pricing power. But I think from my perspective, from someone who's trying to take a long term position in a company like Ferrari, this is really how like, okay, not growing volumes that quickly or maintaining them at a pretty steady level is how you maintain your position as the most exclusive car brand. So I kind of like that this is happening. But I understand that investors caring about a 1, 2, 3 year model are going to underwrite it differently and do a different dcf. Now the second concern is the new electric vehicle, I believe you pronounce it Luche L U C E. Any Italian listeners, the 1% of the listeners that are Italian. I know I'm going to be pronouncing this incorrectly, but it came out with mixed reviews. And I think the big concern for me as someone who's never going to buy this is, is really that it looks like a Chinese ev. Now, Chinese luxury electric vehicles are very nice. They're, they're great. I mean, I've written in not even a luxury one in Latin America. The BYDs, the upscale ones, very nice, like it's a good product. And I'm sure the Luce is nice, but people don't buy Ferraris because they are competing with Mercedes, Audi, the Chinese luxury vehicles. They buy the Ferraris because they look, sound and feel like a Ferrari. And I think that is a big concern for me that they're pushing into the Luce. I could easily see it being a bust now. Does that dilute your brand that you've built up over 100 plus years? No. Or maybe it's not 100 years, about 100 years. But you're taking a risk here. You're moving into electric vehicles. I've seen people say it's for environmental reasons. Look, they sell 3,000 cars a year, it's not going to make a dent. Or they sell 3,000 cars a quarter, it's not going to make a dent. If we look at revenue, it's still up 9% annually since 2017. In US dollar terms, there's going to be some constant currency things because they report in Euros. I kind of look at it and say, is there any reason they can't just raise prices by 5% to 10% a year, maybe 5% with a little bit of shipment volume growth? Over the long term, you have profit margins that steadily grow given the pricing power and this, you know, your cost inputs are kind of artisanal manufacturing. They're I think at like a 30% Mar. Operating margin. It's steadily growing. I could see it steadily growing because you can just enact that pricing power above inflation. I don't think this is a falling knife at a PE of 34. I like the stock here, but I've said it before and I missed it with Hermes in the past with the big luxury companies and the two ones that are really publicly traded that you can get a pure play exposure to are Hermes and Ferrari. I like a PE of 25 as being kind of that pound the table level. So I think it's a falling angel going a little long. But Ryan, what are your thoughts on this one?
- [27:26]
B
I think the business is still really high quality and a Ferrari is still a Ferrari at the moment, despite the electric vehicle hiccup here. Like the end of the day, if you see a Ferrari on the street, you're still probably impressed. I would guess most, most consumers are. And that's people, that's the allure right there. But yes, I think you're right. Even if they held deliveries steady, they could probably grow revenue 5, 6% a year. Does that warrant 35 times earnings? I don't really think so. For me, yeah, I lean fallen angel just in terms of business quality. But it's probably not like you said, I'm definitely not pounding the table here.
- [28:18]
A
It's one of those where as long as they don't totally botch the business, you can kind of go, all right, well what future returns do I want? And if you're okay with something like just a very, very durable 5 to 10% bond like return, yeah, this could be a great price to pay. But there is still that multiple compression risk. And I agree with you, it's, it's a great business, but it's not one that's going to be hyper growth. So people expecting that. It's really about the durability of the asset that you're buying and you have to trust in that. Okay, let's move on to number five. Ryan, your third pick. What do you have for the listeners?
- [29:02]
B
The company is Intuit. Most people, at least in the US have probably heard the name. They are the company behind TurboTax, which on the consumer side accounts for about 40% of their revenue. And the remainder of the business is made up primarily of QuickBooks and some other small business solutions that they have. So right now Intuit is in their second largest drawdown ever, behind only 1997. Apparently they had a big drawdown then. Very different business today than it was then. But yeah, shares are down almost 70%. The biggest concern for investors right now is that TurboTax is losing market share. Now why they're losing market share is still. I think maybe there's a difference between what analysts think and what management thinks. But here's a quote from the call. It says we face pressure among the most price sensitive DIY filers earning less than $50,000 a year. We lost on price to re accelerate this part of our business, we will evolve our business model by delivering the right lineups and price points to meet simpler filers needs. So TurboTax only grew revenue by 7% year over year. Keep in mind, I'm saying TurboTax specifically here, not into it broadly, which is a major slowdown for the TurboTax business. Part of this is that there was just simply 2 million fewer tax returns this year in the country which was another headwind to volume. But I think the bigger concern among investors is that they lost market share because there were lower price competitors. And then on top of it
- [30:39]
A
people.
- [30:42]
B
I feel like the narrative is out there that AI can start to prepare tax returns for people and at least the simpler filers that AI could be a legitimate replacement to TurboTax. Management was pretty explicit that AI is not what's causing the decline. So here's another quote I believe this was. The CEO said I would just tell you that none of this has anything to do with AI. This is all about being priced right for customers that are less than $50,000 in income they actually willing to have experiences that are far worse than them as long as the price is right. I'm surprised that they were surprised by that. Like they just don't have as much money to pay on tax return software. But anyways, Intuit currently trades at an EV to EBIT of 12 times. That is their lowest multiple since the great financial crisis. I really like the QuickBooks business and I think there is, there's definitely some good lock in for QuickBooks. You know, once you have a small business you're running everything on QuickBooks accounting. It's a pain to switch. And I think TurboTax is pretty sticky as well, especially as the more complex that the US tax code gets, the more you need filing software to help you. So my gut says that this is a fallen angel. The only caveat I would have here is that I really do see a world in which AI is able to do a lot of the heavy lifting for a tax return or at least I hope so. That would be great if that's the case. I think probably some of the concerns over market share declines are overblown and it wouldn't be that hard for management to devise a new pricing strategy for the lower income customers to get them back on board. Run some introductory offers, some promotions there that target that customer cohort. But I'm gonna lean. Yeah, yeah. Fallen angel for me I think.
- [32:42]
A
Are we at a price where you get TurboTax for free? Right. Where you don't really have to worry about that too much maybe I don't know what the segments even look like. I haven't looked at this business closely. I see that they've accelerated the buyback a little bit, which is good. Again, I don't know what the balance sheet looks like I, I think just with the taxes they are just going to be in a little bit of a more competitive environment. And it's not like they didn't have competition in the past. They've been the number one product out there. They've had the best product funnel, they've been the best at capturing customers. But if there's these government solutions for very cheap filers, like if someone is just a standard, I have one income and I pay that every year and I don't have much investments. TurboTax probably shouldn't even target them at the end of the day because you are going to lose them to these very, very free solutions where you just plug in your number. I don't think.
- [33:38]
B
Surely that part can be done by perplexity or Claude or you know.
- [33:42]
A
Well, it can't be done, but it can. The thing is someone else to file it for you. Right. That's the key.
- [33:49]
B
But they can help prepare and give you the numbers.
- [33:52]
A
Yeah, like there's these, all these things where if you don't have a software to it, you actually have to file it like in paper, which people I don't want to do. I'd rather pay the 100 bucks. And for someone like us who self employed multiple jobs, we have the small business here. We still, I still use TurboTax. I pay the 100 and something bucks and it's well worth it for me. But I also at the same time have been able to improve what I do by consulting Gemini and saying I'm this person. Because it's honestly those, the AI models and the chatbots where AI has gone today is tailor made for helping you with your taxes. So maybe it's more of a risk to the tax return companies like the consulting firms as opposed to TurboTax. That's what I would think. So I think fallen angel, especially when QuickBooks I don't think is going to be disrupted and probably is a slight beneficiary from AI because again the small business to medium sized business is not vibe coding a replacement to QuickBooks and it's going to be much more cost prohibitive if they try to do that
- [35:03]
B
at the end of the day. The two tailwinds for intuit still remain, increasing tax code complexity and population gains. Well, typically filer gains, but there was actually a drop in filer.
- [35:17]
A
Those are both, I think that both of those could, we could be at the top soon. Well, population is pretty predictable. We're at the top unless immigration keeps going.
- [35:26]
B
All right, let's, let's move to Your third stock for the day, what is it?
- [35:31]
A
A real America stock. Dollar General Stock is in a 54 drawdown as of recording and it trades at a PE of 17 for people that don't know. I guess for all our New York City listeners, it is a basically a convenience store that slash grocery store, very small within rural parts of America. It's where you get quick goods. If you can't drive 20, 30 minutes to go to the nearest supermarket, something like that. And you can get knickknacks and things like that. Ryan, you have something to add?
- [36:02]
B
I will say if you are in the United States and you don't know what a Dollar General is, please go for a road drive.
- [36:07]
A
Drive?
- [36:08]
B
Yeah, go for a drive.
- [36:10]
A
Well, it's not in every part. Some areas have a little different market share. I think the Northwest where we're from doesn't have too many Dollar Generals. But yes, it's essentially that, okay, you're in a small town outside of, you know, hour plus from a big metropolitan area. This is where you get your basic goods. If you don't want to drive somewhere far to bulk up at a Walmart or what have you for the week. Now they're down. Dollar General is down because of competitive pressures and the fact that they kind of had negligence on remodeling their stores five years ago kind of coming out of the pandemic. Their competitive pressures come from Walmart with their rural delivery. You have Amazon investing more in rural delivery and even slow delivery chip good cheap goods like temu. I don't think I kind of discount that TEMU competition because Dollar General is really made for those everyday quick purchases. It's not for the knickknacks you might see at a dollar tree, which is a different business model. But really I think the Walmart delivery can be a risk. It's something they need to monitor and I think they need to make sure that they keep up that competitive pressure themselves by one, improving the store format, one, making sure things are at a reasonable price and two, having their own maybe pickup and delivery options in partnership with maybe someone else. I know they've been working on this, but it is important because Walmart is probably their number one competitor now that they have that full delivery slash in store model with the Super Centers which again compared to other grocery stores are more centered in rural America. Now the remodeling of stores has been costly, but it's led to a nice rebound in same store sales growth compared to 2023. It's not really that impressive. I think we're probably still below inflation. But when looking at the current PE ratio, I think the biggest question is whether their margins, which are right now, I believe at about 5% on operating margin level, can revert back to the 8% they have been historically. That's the big question. Now there's some out there that theorize that the K shaped economy. For people who don't know the K shaped economy is essentially that a lot of the higher income earners have done fine coming out of this inflationary period, while there are a lot of the low income shoppers have struggled. The low income shoppers are the ones that are shopping at Dollar General generally. And the concern this would be for Dollar General is that typically if there is economic pressure on the low income shopper, that means there's people in the higher income brackets that are eventually trading down. This is why they do well during a recession. They've historically had very nice comp store sales growth during a recession. So the fact the K shaped economy is just really a not good for them. I think you kind of look at it, you have to ask what are margins going to be at? Are they going to be able to buy back stock? They've been a pretty good share repurchaser. They're probably not going to be able to grow stores at an aggressive rate, but they can maybe grow them slightly just given that they're at a very, very high market saturation here. And do you believe in this K shaped economy narrative where if the higher income consumer, or maybe even if the lower income consumer recovers, will they see a normalization there or a benefit to comp store sales growth plus that competitive pressure from Walmart. Ryan, Fallen angel. Oh, I typed it at fallen angle. Fallen angel or falling knife for you?
- [39:38]
B
Ah man, I have some. I don't know why they would be able to get back to 8% margin. That would be my concern. What would drive that margin inflection. I just, I'm a little bit skeptical there. This has been a very durable business over the years and it's one of those businesses where you go into the store and you think how on earth is this such a great stock? But the, that's the business they're in. They're, they're not trying to be the prettiest store on the planet.
- [40:17]
A
So
- [40:20]
B
I, I'm gonna say neither if I can. I'm gonna sit down.
- [40:25]
A
Yeah, that's kind of what I have with Netflix too. I think if you believe in the management team, you believe in the culture, it's gonna do well as long as they don't see this total competitive pressure. But I agree with you on the margin standpoint where Walmart runs at very, very thin margins and has better scale than them and has better, you know, they're going to have that advertising revenue that Dollar General I don't think really has. I. You're going to have to be cost conscious on this. Like you can't just raise prices. I think they need to, especially if they need to improve the store experience. Yeah. I don't know if you should expect margins to revert to 8%, maybe a little higher over time. But I go middle ground as well. I haven't known what to think about with Dollar General in the last few years and I put it in the too hard pile.
- [41:15]
B
I think competing with Walmart and competing with Amazon, especially as Walmart invests so heavily in their delivery side is just going to be challenging. I would even say here in Texas and I know Dollar General is quite popular in the South, H E B is kind of the sort of the preeminent or leading grocer. They're investing heavily in delivery, subsidized delivery basically.
- [41:44]
A
Well, the key is can you get fast delivery in rural areas? Because if Dollar General's whole thing is that you don't want to drive every day 30 minutes somewhere, that's really it.
- [41:57]
B
Is Walmart able to do that? I honestly haven't kept up with how far their delivery goes.
- [42:04]
A
Yeah, they can do it, but it's more of how fast you can get it because all right, I can get a delivery from Walmart for my grocery goods. It can take a little bit of time, it might be more expensive. Or once a week I can drive the 30 minutes plus each way to the Walmart supercenter and get my goods. But for those everyday items I got to stop quick and get this for dinner. Oh, I want to get this after work. That's Dollar General. So it's very, it's tough, it's tough. Is that going to, is that competitive pressure going to grow or is it going to be impossible to do that everyday fast delivery in these rural areas?
- [42:38]
B
Yeah, I'm right in the middle there. All right, let's talk my fourth stock for the day, Planet Fitness. Shares of Planet Fitness have been cut in half over the last six months due largely to a massive guidance cut from management this last quarter. For those unfamiliar, Planet Fitness is one of the most successful low cost gym franchises around. They have nearly 3,000 locations globally compared to just 600 locations in 2012. So they've 5x locations over the last 13 years. They've also, I mean they've experienced strong growth across the board, not just in locations, but over the last decade their, their footprint has expanded with more locations, members per location has grown and revenue per member has also increased. So kind of a trifecta of growth tailwinds there. However, in Q1, which is their largest quarter for new member additions by far, they reported only 700,000 new members. First of all, if you've ever wondered whether or not New Year's resolutioners actually has an effect on gyms.
- [43:47]
A
Brett yeah, we have the data.
- [43:51]
B
It accounts for like 70% of new member additions annually.
- [43:56]
A
So this is, this is net new members. Yeah, maybe I could just describe it. They're all on Q1.
- [44:02]
B
Yeah, it looks like TurboTax's quarterly revenue.
- [44:07]
A
This is a good time as well. Let me give you a pause here, Rye the Planet FINNIS new members Ed is one of the tens of thousands of KPI charts you can access through our friends at Fiscal AI. Use our link Fiscal AI Chitchat to get 15% off any paid plan. It's well worth the money, especially for episodes like this where we want to bring different data comp store sales drawdowns, new members, added pricing, power shipments for the listeners and for when you're investing can help as well. Fiscal AI chitchat but Ryan continues.
- [44:40]
B
Yeah, so basically the Q1 net adds was well below management's guidance and it was the lowest Q1 new members that they've had in five years, which is off of a much larger store base or location gym base. So due to the Softer than expected Q1 management revised their same club sales growth expectations for the full year to just 1% compared to their initial range of 4 to 5%. So massive drop there. They now trade at an EV to trailing EBIT multiple of 16 times. I'll say I'm generally a pretty big believer in this concept. I think the franchise model is asset light. Franchisees should have better returns on their gyms at Planet Fitness than they would elsewhere. Because I guess, and maybe I'm wrong in this, but the way I think about it is there's not a lot of free weights at Planet Fitness. The equipment is really meant to not be damaged. It's kind of a assembled that way. So instead of like a bench press, you'll have like a Smith machine where it's like stuck to the rails essentially that allows depreciate. It's harder to ruin the equipment which means they don't have to replace the equipment as much. So I would guess that maintenance capex is lower at Planet Fitness than other gyms. So all that's to say maybe good returns for the franchisees. I continue to think that there will be room to raise prices at Planet Fitness among some of the higher tiers. You know if you give, I can't remember what they call their, their top tier but yeah, the hot tub or the other benefits, all that stuff paying 29amonth versus 24amonth. I don't think that's a deal breaker for a lot of people.
- [46:23]
A
I don't know if I trust the Planet Fitness hot tub. I'm going to be honest.
- [46:27]
B
I'm with you. But people, people may pay for it.
- [46:31]
A
So yeah, sauna, sauna access, they could be nice.
- [46:34]
B
I would go fallen angel for me I think prior to a lot of people kind of have the same policy around gyms that they have with like apparel. They just think it's a tough business. Why would you want to be in this? But I will say prior to this recent collapse Planet Fitness was a massive market outperformer. I think they were tripling the SB 500 on 10 year trailing basis. So this really is. I, I think the concept can work if they start to kind of revive the, the, the membership additions and the other part I would add is this is kind of a hunch but my guess is that as people invest in or more people buy GLP1s I would guess that's a net benefit for gym memberships. I could be wrong but yeah, I,
- [47:27]
A
I totally agree with that logic. I think that's a new tailwind and historically and I think this tailwind continues. It's been a tailwind for 40, 50 years. Is the richer society gets, the less manual labor people have to do. The more free time you have, the more you take care of your body. And more people are going to be into fitness 50 years from now as opposed to today as they are today compared to 50 years ago. Add in the weight loss drugs which can get people more motivated to the gym. I don't think the industry is that is bad. It's a little competitive but if you have the scaled player I think it can work. Here's what I'll add to the list here. We've talked about it before as a small cap it's pretty much the Planet Fitness of Latin America. Smart Fit operates and I think all the big countries there. I'd say it's, it's kind of like a Planet Fitness Maybe a slightly more upscale for those markets, but it's very easy to access and it's kind of like that. All right, pretty busy gym, there's going to be a lot of people, blah, blah, blah. It's trading in a drawdown and it has an EV to EBITDA of 6 and an EV to EBIT of 12. Also has pretty good growth metrics. So another one to add to the mix there. I, I'd say fallen angel.
- [48:39]
B
Okay, let's move to your fourth stock. What do you have?
- [48:44]
A
All right, we have one that I was surprised to see in this drawdown. It is Shopify down 40% from highs and the PE is now an officially cheap 100 EV to EBITDA of 84 and EV to gross profit, good top line metric there of 23. So that gross profit figure isn't that bad, but it's still pretty pricey. I mean we see some software stocks down below 5 now, but again it's, it's kind of a question of they have this really impressive growth track record and you have to bet on. All right, am I going to buy these really impressive top line growth figures with the potential for operating leverage at what could be a reasonable price. Let's look at the Q1 numbers. Shopify's E commerce platform for. Okay, let's just say what they are. They are still an E commerce platform for third party merchants for online shopping and payment processing. It seems to be doing just fine. Gmv, which is all the dollars flowing through its platform are up 35% year over year in Q1 to $100 billion. Operating income almost doubled to $382 million. However, it looks like investors were not happy about the guide for a deceleration revenue growth in the next quarter to the 20s. 20% or 25, 30%. I really don't know what they expect. That's what happens when you're at an absurd multiple. So it makes sense why you're in this drawdown here. And profit margin on a trailing twelve month basis has stalled out because of the investments into new AI tools for Shopify merchants and new investments with all kind of bonanza of software capabilities. Now, from a competitive standpoint, I'd say Ford's core business with Shopify. I have zero concerns like yes, there's going to be dollars that flow to Amazon, but if you are a brand, you're going to have your own website and probably sell on Amazon as well if you're in the United States. But the concern for me is that you have a limited Addressable market. If you're a software provider and payments provider for online merchants, like it's, it's, it's a big market. But compared to their market cap of $142 billion, how big is it? It's not, you don't have the scale of Amazon, you don't have that vertical integration, you don't have all these other business lines that, that's the kind of give and take I have with this company. I've always had that. For the last five years of looking at them and tracking them now, gross profit growth has been impressive around a share in some charts too. We look at our friends at fiscal AI here it's been 40% annually since 2017. That's probably 99th percentile. It's a very, very impressive figure. But the question remains, does it continue? If you answer yes, maybe this is a reasonable price, it's kind of a simple one. Like they're probably going to keep gaining market share. E Commerce as itself is going to keep gaining market share. That's a dual engine here. You have the payments volume adoption. If they can have some sort of optionality to add another pillar to the business, maybe you take that next step here. But it wasn't logistics. They, they got rid of all that physical infrastructure. If it's just software and payments, I think this is a fallen angel because the business is great. But I, I still think valuation, I, I wouldn't be interested until it's down probably to 10 times gross profit, something like that, because I'm worried that they're going to turn into a low double digits grow or as opposed to a hypergrowth company. Ryan, what are your thoughts?
- [52:12]
B
Yeah, I'm the same, I kind of think the same here. It's good that they got away from the infrastructure investments. They're not playing in that game. They want to be the optimal digital platform for you to sell goods on and establish an online storefront. I like the business for sure for this was like the poster child of the pay up for quality movement that like everyone used to say you got to pay up for quality, you just got to ignore the valuation. And I get that. But shares are down 25%, 27% over the last five years. It's still trading at 84 times EBITDA, 23 times gross profit. I'm in the same camp as you, this great business, but to me it's one that I'm going to have to wait for. And I'll also add that it seems like I've said this before but With Canadian stocks, the great Canadian tech companies always seem to get a premium. I don't know.
- [53:15]
A
National champions, national champions, maybe there just
- [53:17]
B
aren't as many great Canadian tech stocks to choose from potentially. So, yeah, I don't know. You see here a lot of kind of fan like culture around it. But let's shift gears. I'm going to talk about my fifth stock because we got to keep moving here. My company is costar Group. So prior to the last year, Costar Group was 100% a market darling. They completely dominate the market for commercial real estate data. So if you're not familiar with what Costar does, they have commonly been dubbed the Bloomberg terminal of commercial real estate. So CoStar, basically they employ a bunch of field researchers, bunch of massive call centers, and their sole job is to manually cross examine property managers, audit physical assets, call listing brokers every single day to try to get as much off market transaction data that they can. This is data that's very difficult for competitors to replicate and it's why commercial real estate agents or brokers and other people in the industry pay more than $1,000 a month for access to CoStar's data. So this was and still is a phenomenal business on its own. However, over the last couple of years, CoStar has been investing heavily in Homes.com, which they acquired in 2021 to the point where in 2025, for the first time ever, they reported annual GAAP operating losses, they have always been operating income profitable up until this last year. So this is a massive change for investors. They want to challenge Zillow as the leading data provider for single family real estate, which to be fair, Zillow does seem like it could be disrupted if, if the right company came along. The only downside is the consumer habit with Zillow is so strong. Like, even though Zillow hasn't done a very good job monetizing the business, in my opinion, or sort of being the moving further up the conversion cycle. People love to surf on Zillow, surf for homes. And it's a, it's a great way to just kind of, I don't know, find houses you might like. CoStar has seen pretty strong revenue growth on the residential side, but they don't really give enough context for investors to know whether or not the spend that they've had is worth it. Like I think they had a billion dollars in marketing spend on homestock. Com in 2025. Is that attracting customers? They are sort of counter positioning themselves well against Zillow with the it's like, I think it's called like your listing, your lead. Basically different structure for the agents or the listing agents, but it's a big question mark, essentially the residential side. And the situation naturally attracted some activist investors, most notably from Third Point, which is Dan Loeb's firm and D.E. shaw. Third Point got seats on the board and they've immediately cut costs and started buying back shares. So stock is in a 70% drawdown. They are trading at less than five times gross profit. Again, hard to give an earnings multiple here because they've invested so much in homes.com that they don't have earnings anymore. So this is a business that used to have 30% free cash flow margins. If you believe margins can come roaring back, which if they stop spending so much on homes.com they certainly can. There's a world where this is trading at a mid teens free cash flow multiple on sort of theoretical free cash flow. That to me this would 100% be a fallen angel. From my list today. This is the most, this is the furthest on the fallen angel spectrum, furthest out towards the fallen angel side.
- [57:16]
A
I'd have to agree. I guess I may be forgetting some of the ones on this list here, but if you look at that five times gross profit again, they could probably leverage that up quite a bit. That gross profit down to operating margin level. Did you really say $1 billion in marketing spend on homes.com?
- [57:37]
B
yes, I believe, I believe that was within.
- [57:39]
A
That's terrible. I mean there, there are a lot
- [57:42]
B
of ads, but it's that guy, you know, it's got the recognizable voice. I can't.
- [57:49]
A
Oh yeah, yeah, yeah. The. Yes, yes. I know exactly what you're saying. It's on a lot of sports in the United States at least that all return on ad spend has got to be atrocious. No one uses it.
- [58:01]
B
I don't get it. Management, surely they got to be doing it for a reason. They must see some sort of opportunity there.
- [58:10]
A
But I found the manager. I think, I think I found the manager. Slash, I think it might be a founder or the executive. I found him to be a little bit concerningly egotistical, like, oh, we're, we can't lose. We're going to be. We're the best. Blah, blah, blah. Same with the investors. Honestly, I, I thought they had what come. It was. I thought they had this coming to them. But again, maybe it's a buy now. I like it. Seems like a good asset, not one that's going to be disrupted by AI all right, coming up in the hour, so let's hit my last one. It's one of the first stocks I ever looked at. It probably should have just gone into the buy and never sell portfolio, but unfortunately we're just gonna be covering it. Today it is Axon Enterprise or Axon it is down 47% from highs. Currently trades at a PE of 187. Shopify levels here EBD gross profit of 21. So again, right in that same ballpark of Shopify. The company's goal is to transform public safety with technology. They invented the Taser and have expanded into all sorts of hardware and software for police departments and other forms of law enforcement to help prevent crime, crime conflicts and gun deaths. So you have different software layers that help manage police departments, kind of like a SAS business there as well as AI analysis on different footage. They have the body cameras that connect all this because you upload all the footage. You have the Taser business and they sell this as bundles to police departments as well. You know, other law enforcement agency, I'm sure like FBI international stuff as well. It is difficult to find a business or competitive reason for Axon stock to dip. Maybe there is a political trade winds that affects them, but I really don't think we're in the same. Maybe I don't really know much about politics. We're not kind of in that, what was it called, defund the police that had a big Axon drawdown that was, you know, there's kind of a one to one correlation there. Well, this happens. They're not going to have much money to spend on Axon products. But I think that's not going to happen anymore. Maybe if there's more of a Democratic Democrat surge in the United States you could get a better buying opportunity for Exxon. But again, on the actual business front, they are doing phenomenally well. They keep putting out new products. They're doing things like drone detection technology. They're having all these new AI products that I, I've never used, but I sure are pretty useful police departments. They have a very, very strong track record of execution here, putting out useful products. Their net revenue retention for software products was 125% last quarter. Maybe people are lumping them in as an AI loser just because they get put in the software category. Now you'd have to decide on that. Can police departments do all of this much cheaper? I doubt it. I've heard complaints that Axon is a bit of a price. Like they complain that of the cost of these things but who's going to be able to replicate this? I don't think anyone will be. This year the company is expecting $450 million in free cash flow. I assume there's a lot of SBC, but it has a market cap of $35 billion. So you're looking at about 100 times free cash flow. Very expensive. But it's been a absolutely durable grower, I'm sure. Ryan, this is one of the fiscal AI Twitter charts you like to toss out because that revenue growth chart is very steady and fantastic. Do you have what the long term number is? Because I believe it's something north of 20% for like 15 years.
- [61:50]
B
Let me pull it up real quick. Total revenue, is that the metric you're looking for?
- [61:56]
A
Yeah, sure.
- [61:57]
B
Since 2006 has grown at 22% annually.
- [62:03]
A
That's pretty damn good. That's pretty damn good. I would consider it a fallen angel in the same category. Shopify, I want 50% more.
- [62:11]
B
Yeah, too expensive. But this is a rock solid business and it's one that has a valuable place in society. They are trying to be basically the source of truth for as sort of almost an intermediary between law enforcement and civilians where having those cameras creates transparency. Having what's it called, evidence.com I think is the online. Is that sort of their cloud service where the video goes. To me it kind of creates accountability potentially if you believe that there's for any bad actors. Yeah, I like the business, really like it. Great sort of tie ins, hardware, software combination. But yeah, it's just too expensive for me. So I'm the same as I was with Shopify. Need more of a drawdown but definitely love the business. Let's do rapid fire here. We had so many companies that people recommended in the chat. It's been a year of drawdowns for great companies it seems actually side note, I checked yesterday and I think there are more than 20 companies in the S&P 500, just the S&P 500 that are down more than 40% year to date which I guess I don't know the stats for most years but that seems high. So let's go through some of these. We can ask some questions at the end but you just give me your gut reaction response to these companies. Constellation Software, Fallen angel or Fallen Knife?
- [63:52]
A
Fallen Angel, KKR Fallen Angel, Copart, Fallen Angel. Although I don't know valuations at all these. So just excluding valuation business quality, PayPal, falling knife has been a falling knife for a long time.
- [64:16]
B
Builders first source. I don't know if you know this, this company does that. They, they build like the trusses for houses.
- [64:23]
A
Yeah, stuff like that. I've seen good pitches on them, but I don't know them in too good detail. Falling Angel. It's a lot of good businesses, I guess in this first group here. Maybe the, the last ones here I see forward row. I might say Falling Knife.
- [64:39]
B
Okay. Lvmh.
- [64:42]
A
Falling Knife. They overdid it too much.
- [64:44]
B
Mainstream Adobe. Controversial one.
- [64:49]
A
You own it, right? This is the one you own. I'm gonna say Falling Knife. I think, although I'm a little. It could be Fallen Angel. I just. It's almost too hard pile. But I lean. Falling Knife.
- [65:00]
B
Okay. Duolingo.
- [65:03]
A
Falling Knife. Sorry, guys. The founder is really great. They've executed well. But if it was just like, all right, average management team, I'd be very concerned.
- [65:14]
B
I might, I might disagree with you there. Simon Erickson came on and gave a good pitch. What was that? Two weeks ago. So he did. I'd say probably Fallen angel there. All right, last two. Chipotle.
- [65:27]
A
Falling Knife.
- [65:29]
B
I agree. Toast.
- [65:33]
A
Fallen Angel.
- [65:35]
B
Okay. If you had to pick, you get to pick two companies from the rapid fire list and the stocks you talked about today. Which ones are you the most interested to keep researching?
- [65:47]
A
COSTAR and Intuit. Although some of these I already know, I'd say Intuit. Yeah. Yeah. It's hard to say though. Maybe. Maybe Copart too.
- [66:02]
B
Yeah, Copart's up there for me. I kind of wish we did them as one of the longer form ones. Seems like a really high quality business. The other ones that kind of know peripherally, I found Costar pretty interesting. Seems like one of those expenses you basically have to bake into every salary for a commercial real estate broker or agent. Like that's just a cost that they have to incur with. With being in that industry and seems very, very durable. Planet Fitness kind of interesting as well. I'll throw them in there. But that is going to do it, I think. Brett, unless you have any other comments.
- [66:44]
A
Nothing else on my end. Ryan.
- [66:46]
B
Okay, let's go ahead and sign off here. I want to thank everyone for tuning in. Thank you to everyone for putting companies in the chat. This was a fun episode to do and rip through a bunch of different stocks. We want to remind listeners that Brett and I are not financial advisors. Anything we say or discuss here on this show, it's not formal advice or recommendation. We may buy, sell, or hold any of the securities discussed in this podcast. Thank you again for tuning in and we will see you all next time, Sam.