Rick Benares (3:39)

Yes, yes, it's good sailing for all these AI stocks. And now Oracle is apparently an AI stock too, which is again it's great. Obviously the generative AI demand is just in its infancy right now and it's in its controversy in its infancy. But you're seeing right now where companies that are benefiting from Oracle, maybe it won't move the needle as much as it would for let's say an Nvidia of course or a core weave or something like that. But I do think in this case it's something to get excited about Oracle with and I think obviously yeah, I think there's enough demand to feed a lot of players in here, the people that are actually building the infrastructure, handling the software and of course putting out the actual product. And the users are not complaining, you know, outside of copyright restrictions from some of the major studios out there this week. But it is the kind of thing where yeah, I think Oracle will stand to benefit and again it won't be, it's not going to pick up growth to Nvidia levels but it's definitely something that can pick it up from its current pace.

Tim Byers (4:33)

Yeah, I mean triple digit growth in that data center infrastructure business is massive. Number two here. Let's get to two that you know very well here from the rule breaker scorecard, Dave and Busters and Chewy two reports little bit different. Dave and Buster's actual results were, I think we could say meh. But the outlook was fantastic and Chewy crushed the auto ship numbers. So here's the question Rick, who had the better report? Who. Who are you putting on your watch list?

Rick Benares (5:01)

Yeah, so to me the biggest so I Chewy's report obviously was the better report. But Dave and Buster's. This is a weird thing about the ST market that Chewy's had strong growth. You mentioned the auto ship numbers. More than 82% of their orders are now auto ship on Chewy, which is pretty much the equivalent of annual recurring revenue run rate. Even though these contracts are very easy to cancel, obviously it's not like it is for the software industry, but it's steady, it's growth. And more importantly, their customer base is growing again. It was contracting from 2021 to 2023 from 20.7 million customers, active customers, 20.1 million at the start of this year. And now we're seeing it grow up. Sorry, two years ago, at the end of 2024, then we saw it grow to 20.5 million and now 20.7 million. It's back to where it was three years ago, right when pet adoptions were at their post pandemic peak. So that's great for Chewy, but the stock still took a 10% hit. I think mostly I didn't see a lot of negative in the report, but the stock had almost doubled over the past year. So it was just kind of like, okay, we expected better, whereas Dave and Buster's. The report was terrible. It wasn't even that. It wasn't great. It was, it was a bad report. Comps down 8.3%, sales declining a lot of things, except what excited investors. Why the Stock was up 17% on Wednesday was that they said, hey, so far, year to date, comps are only down 2.2%. So investors are cheering a much smaller negative growth in the comps level than the great positive report. But that's enough. So it's definitely enough to see that Dave and Buster's are sort of possibly turning things around. They've remodeled a lot of stores, are doing a lot of things. So yeah, the market obviously thought the Dave and Buster story was a lot better for investors because that stock has basically been hit hard over the last couple years. But I do think the true report was a lot better. But to me as an investor, I think Dave and Buster presents possibly a better value because it's been hit so hard. But it was definitely not the kind of report that merited a 17% increase until we see the turnaround fully turn around.

Tim Byers (6:54)

More proof that expectations mean everything. All right, number three, quickly chime ipo. Tell me about this business, Rick. What excites you about it?

Rick Benares (7:03)

Yeah, so this is a business that it's a fintech platform and it's growing Rapidly, especially with young users. There's 8.6 million members. There was $121 billion transactions on the platform over the past year. They do a little bit of everything. So it's a digital bank like a Sophie, but also PayPal, Venmo, all that sort of wrapped up a little lending in there, consumer lending, credit building. It does all these tools. There's a community feature to it. And on the prospectus and again, this is the funny thing, and I don't really take it seriously in the prospectus, one item there says that 75% of members say they will be with time for life. And I assure you they will not be there for life because we know things change dramatically. But the fact that they put this into perspectives was almost comical. But it is sticky. Revenue is up 31% last year, accelerating with 27% the year before. Doing a lot of cool things. As we're recording this, the stock, it's expected to go public at 27 is the price was underwrited. It wouldn't surprise me if it does better than that. But it's not open yet. So we, you and I do not have a clear view on how we'll close at the end of the day. But this is a company hitting the market. 10, 11, $12 billion market cap could probably be very different by the time the market closes. And most of your listening, I mean.

Tim Byers (8:13)

Who knew that chime ticker C H Y M C H y M who knew your chime account account came with a prenup? I didn't know that, Rick. All right, let's take a quick break. Up next, dueling fools.

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Tim Byers (9:47)

All right, we're back. Tim Byers here with Rick Benares. We call this segment Dueling Fools. For those of you who have been around for a while, we love this idea where we take both sides of an investing thesis and we debate the merits. And then you decide. We want you to listen to our arguments on Cava Arts, delicious entrees and sauces worth the premium valuation. Leave us a comment. Let us know whether you're voting bull or voting bear. But Rick, we always start with the bear argument. So you're up first. Give us the bear thesis for Cava.

Rick Benares (10:26)

Yeah, so. So I'm a fan of Cava. I'm a customer. I'm long term bullish. However, I don't think that it's just that the fast casual chains crazy feta is the only thing that isn't a little bit local here right now. Let's start with the valuation. This might not be the right investment for you if you have a fear of heights. Kava is trading for 128 times this year's earnings and 107 times next year's profit target. And this is after the stock has been cut by more than half since peaking. Since peaking seven months ago. Its revenue and free cash flow multiples are also as wide as its corporate moniker is narrow. So with with the shares down 55% from their November all time highs, you're going to be tempted to buy in the dip. And as a fan of their food, I can assure you Kava has some pretty good dips. But after, even after the stock getting sliced by more than half, Kava has still nearly quadrupled since going public two years ago. So it's been a big winner for investors over the long haul. At the time of the ipo, Tim and I were excited about the opportunities. Full disclosure, we still are. But a part of our bullish thesis was that Cava was has been selling its dips, sauces and dressings through retailers for years. You can go to Whole Foods and pick up some of its spicy hummus or lemon herb tahini. The bullish argument was that the chain as the chain expanded, brand awareness would grow and consumer packaged goods would explode. Well, CPG sales are less than 1% of the revenue mix right now, so that really hasn't happened. Cava has some decent tailwinds. Its target audience reaches a young and somewhat affluent audience that will have several decades of woofing down spicy lamb meatball bowls and crispy falafel pitas companies calling employees back to the office is another positive catalyst. This chain thrives during the workplace lunch hour. There are also some headwinds. And like the stock, Amila Cava isn't cheap compared to most quick service concepts. It's definitely vulnerable to a softening economy. Let's talk about cannibalization, an admittedly unappetizing term when talking about food. But when Kava opened in Indiana earlier this year, it marked the first time that the concept has more stores in more than half of the states right now. Eventually, expansion will come to the point that opening a new location will come at the expense of Cava's older, nearby locations. The chain's success is inspiring other concepts to cash in on the growing interest in the healthy but flavorful merits of Mediterranean cuisine. And imitation can often be the sincerest form of battery. Now, Cava, the company like its menu, is certainly worth a park. It premium comps rose an impressive 10.8% in its latest fiscal quarter. This was a period when many of other restaurant operators, including, including some that are in our rule breakers universe, proved mortal. This is a great restaurant chain. I love culinary spelunking as a Cava dweller. But there are other quality concepts trading at cheaper valuations. In the paraphrase lyrical genius of the who you feta? You feta? You bet.

Tim Byers (12:57)

I mean, I love it. Don't get me wrong, Rick. I am always here for a little wordplay. You never know what you're gonna get. And so I do love that. And I love some kava. Let's talk about the bull argument here. Here's just a few reasons why you should be bullish on Kava today. I'm going to give you a number here, Rick. Actually, I'm going to give you two numbers. Net income rose 10x from fiscal 2023 to 202413 million to 130 million. Let me say that again. That's 10x, Rick. 10x. So those are the sort of heights that I love. You said this is a company that has earned its premium valuation or that it has a premium valuation. I say it's fully earned that premium valuation. This is also a company that does it right when it comes to expanding its menu and maximizing every square foot. Like you said, comps were up 10.8% in the most recent quarter. I think part of that, Rick, has to do with how Cava thinks about maximizing. It's it's square footage in each of the stores. So for example, in some stores they have set aside catering business. They also have it set aside for maximizing delivery. They also do some work putting their sauces and crazy feta and other things into grocery stores. So every cabba is doing much more than serving you when you walk through the door. But let's also talk team co founders Ted Sinaristos and Brett Shulman still run this business day to day and they are dreaming up new content concepts. So Ted is still the Chief Concept Officer. They dream up new concepts, new expansions, including these purpose built kitchens that we're talking about, almost ghost kitchens for improving the delivery and catering business. And while it might not seem like much, rick, the roughly 36 million in free cash flow Cava generated over the trailing 12 months now that is after everything, strip out all the stock based compensation. You also strip out some pretty heavy capital expenditures and you still get that 36 million in cash left over. Got a good balance sheet. They've got plenty of money to keep reinvesting in this business and they're only there's less than 400 Cava restaurants, 400 locations today. I don't think it would be at all surprising, Rick, to see that location total 5x or more over the next 10 to 15 years. And if that's right, the price you see in Cava today, you're going to long for 10 years from now. So there's my bull argument. Please go ahead and leave us a comment here at Motley Fool Money to let us know what you think. We would love to hear whether or not and if you have a bear argument or you have a bull argument, join us on the discussion boards. Leave a comment here to to the podcast and let us know what you think. Our last and final section Today we're going to go back into the Wayback Machine for a moment in Rule breakers history and the origin of the Spiffy Pop. Who knows what a spiffy pop is? So a spiffy pop is when a stock rises as much or more in a single day than the value of its cost basis. And the first spiffy pop in the Rule breakers universe, the stock that actually gave rise to the term spiffy pop was a quantive. Rick, do you remember when we sold this stock?

Rick Benares (16:34)

Yes. And I remember it was your recommendation to David and you got it on the scorecard. And yeah, it was the kind of thing where we found early on that when you're picking these disruptive growth stocks, other companies are going to want them. And in this case Microsoft, which has shown no lack of appetite in buying a potential threat or a potential opportunity. Yeah, I remember vividly when it happened. And it was disappointing to us because I think Quantum on its own could have probably still continued to be a market beater today, given the way trends and everything happened with everything. But, yeah, I remember vividly.

Tim Byers (17:08)

So we recommended this. David recommended this in January of 2007. And by January, I'm sorry, June 20th of 2007. 18 years ago. I can't believe it's been 18 years, Rick. Microsoft made a bid to buy out a quantive on a spiffy pop. And in six months we had a 151% return. That is not bad. It doesn't happen often, fools, but in rule breakers, it does happen, and it will happen again. So that's it. Thank you for being here on Motley Fool Money. We appreciate you here as always. People on the program may have interest in the stocks they talk about. Motley fool may have formal recommendations for or against. So don't buy or sell stocks based solely on what you hear. All personal finance content follows Motley fool editorial standards. Vendors and is not approved by advertisers. Advertisers are sponsored content and provided for informational purposes only. See our full advertising disclosure. Please check out our show notes for Rick Dianares. I'm Tim Byers. We'll see you again tomorrow. Rick. Thanks for being here.