Newsletter XVI - Ray Dalio, $WELL.TO, & Earnings Galore
Recapping a Week in the Markets: Nov.06 - Nov.10
“The only thing you absolutely have to know, is the location of the library”
Earnings Season Continues
A number of companies in the Hourglass portfolio announced earnings again this week, so this section will dive very briefly into how the quarter’s went - with the added benefit that you get to see some of the different companies in my portfolio!
SupremeX - $SXP
Adj. EBITDA: -24.5%
Net Income: -38.3%
Envelope Revenue: +0.4%
Packaging Revenue: 9.1%
SupremeX did not have a stellar quarter, but it had exactly the quarter that I and seemingly most other shareholders were expecting it to. Coming off very difficult comps from last year, the business was bound to take a step back and return to long-term averages for margins and EPS. Despite that, they still managed to grow revenues at a decent clip, particularly in the nascent packaging segment.
Q4 will be the real test for this business and the one I’ll be paying more attention to. I expect to see higher growth figures in revenues and some margin incline as the business enters their busiest quarter, historically, with both the packaging and envelope segments recording higher revenues in the lead-up to Christmas holidays.
Duolingo - DUOL 0.00%↑
Paid Subscribers: +60%
Gross Margins: +100bps
Adj. EBITDA Margins: +1400 bps
Duolingo continues to blow even my highest expectations out of the water. The company is a full year ahead of where my most optimistic projections on MAUs and paid subscribers, and paid subscriber penetration of 8% is also well ahead of my estimates.
On top of phenomenal growth in userbase, which is the most important metric for Duolingo as they are still in growth mode, they also turned a profit in the quarter, had some blistering margin expansion, and grew free cash flows in the quarter by nearly 450% YoY.
The company also announced that Duolingo Music is getting integrated into the main Duolingo app - this is an adjacent offering and growth lever that I’m really excited to see Duolingo leverage for future growth.
WSP Global - $WSP.TO
Net Revenues: +24.7%
Organic Growth: 6.7%
Adj. EBITDA: +28.1%
Adj. EBITDA Margin: +50 bps
One of my favourite and highest-conviction businesses, WSP recorded another phenomenal quarter of steady growth, with particular note to the efficiency of the growth. Net debt/EBITDA ratio climbed somewhat to 1.9x (from 1.6x) due to higher interest rates on their loans, but still sits at a very reasonable load.
This is a name that really deserves a lot more attention from investors, and another quarter of strong organic growth, margin expansion, and efficient expansion of the business just demonstrates this.
The Trade Desk - TTD 0.00%↑
Net income: +144%
Adj. EBITDA Margin: -100 bps
Every once in a while in the ad industry, you are gifted more attractive buying opportunities based purely on speculative and short-term fear about the future for ads. So it is with this quarter’s earnings for The Trade Desk; despite continued fantastic growth and penetration of the Unified ID 2.0, shares plummeted more than 20% after hours.
Nothing about the long-term thesis here is broken, but conservative guidance and fears over spending in the ad industry are what caused the drop in The Trade Desk shares. I’m still incredibly bullish on The Trade Desk, and view this quarter’s drop as nothing more than a buying opportunity and an early christmas present
Unity Software - U 0.00%↑
Adj. EBITDA: +32% QoQ
Adj. EBITDA Margins +500 bps QoQ
I was particularly excited for Unity’s Q3 results this year, not because of what they had achieved, but rather for what they were saying.
What they had achieved was certainly impressive, with net income losses continuing to narrow, margins expanding, and some really impressive YoY revenue growth. However, this performance takes a backseat to the announcement from new interim CEO Jim Whitehurtst:
“However, we are currently doing too much, we are not achieving the synergies that exist across our portfolio, and we are not executing to our full potential. We aim to address these opportunities to emerge as a leaner, more agile, and faster growing company. We will share specifics as plans are finalized over the next few months.”
Whitehurst took over from former CEO John Riccitiello in October, who at long last was ousted for his consistent ineptitudes as Unity’s head honcho. His words, however, point to some deeper rooted issues in the business’s structure. The next few months will be interesting to watch to see if these strategic initiatives are able to untap Unity’s potential as the company searches for a new full-time CEO.
Weekly Watchlist Stock
WELL Health Technologies - $WELL.TO
WELL Health is a play on online healthcare, and one that’s rewarded shareholders handsomely over the last number of years. After coming public as a company of just $6m CAD, WELL has since grown to reward shareholders with a 67% CAGR over just 6- and a bit years.
WELL’s primary value prop is enabling the use of technology in medical clinics. The range of solutions that WELL provides to both patients and doctors to more easily move their appointments online is impressive: electronic medical records, apps, referral networks between care providers, patient and doctor portals, and even ePharamacies.
WELL is Canada’s leading provider of telehealth platforms & tools. The company had a massive run-up during COVID, as might be expected, and registered a more than 500% growth in revenues for fiscal 2021, as the world was forced online. That’s slowed since, of course, but the company is still riding the tailwinds from that period to continue growing, with revenues growing 113% (33% TTM) and EBITDA 148% since that same year.
Debt is also reasonable and the tailwinds to the industry and growth potential for WELL itself are both really appealing. Despite the potential of the business and the blistering and efficient growth its seen over the last several years, WELL trades for less than 2x total sales and 16x EBITDA. At a surface glance, there’s not a lot to dislike about this business and lots to like, particularly the valuation, so I’m throwing it at the very top of the watchlist.
‘Principles: Life and Work’ by Ray Dalio
Perhaps you’ve heard of Ray Dalio the investor, but this book marked my first foray into Ray Dalio the author. In ‘Principles: Life and Work’, Dalio discusses his approaches to both his personal life and his career, and how they’ve contributed to the enormous success he’s achieved at his investment firm, Bridgewater.
Dalio splits the book into sections - one addressing strategies for personal success and another for professional success. In the personal section, Dalio covers his approaches to problems, people, and goals.
In the section on professional success, Dalio’s focus is on creating and contributing to a healthy work environment. I particularly enjoyed this part of the book for its unique and, frankly, probably unpopular approaches to corporate culture. He stresses the importance of placing greater value on the contributions of those with successful track records, rather than giving everyone equal weight in a vain attempt at ‘fairness’. He also encourages disagreement and healthy contradiction to further develop the best possible idea.
Both sections provide some fantastic tips and frameworks, and the book as a whole made for a really interesting blend of tips for success in both personal and professional settings. Where books normally exclusively focus on one or the other, ‘Principles: Life and Work’ by Ray Dalio found a perfect blend between the two.
Dino Polska: Where is it headed? A destination analysis
Kevin at Atmos Invest
Everyone’s favourite Polish stock - while everyone (and their mother) has been eager to tell me all about this stock’s potential and the generally undervalued nature of Polish stocks, I haven’t come across a deep dive into Dino Polska of this level of quality yet.
Kevin dives into the business model, management, growth opportunities, and the macro grocery scene, as well as the business’s potential as a 10- or 100-bagger in your portfolio. It was a really thorough deep dive, and Kevin did the best job I’ve come across of summarizing the company in an engaging way.
Check the article out below, and be sure to subscribe to Atmos Invest while you’re at it! The service provides some really thorough research on potential multi-baggers, including InMode, a company I also recently covered in a podcast episode.
Grading System for Portfolio Allocation
Portfolio allocation can be an extremely difficult part of self-directed investing. Allocation sizes can also vary between concentrated and diversified portfolios; concentrated portfolios are unlikely to have any positions smaller than 5%, while it’s not abnormal to see sub 1% positions in a diversified portfolio.
Regardless of the type of portfolio, figuring out how much money to allocate towards any individual company can be tricky. A great system to avoid over/under allocation is to grade the companies in a portfolio based on management, valuation, balance sheet, and business model. Grading can be a somewhat subjective exercise, but it allows investors to at least roughly identify the best opportunities both in their own portfolios and in the market as a whole.
From there, it becomes much easier to determine the total allocation to commit to a company - a company with a grade of A is easy to put 5% towards, while a company that gets a grade of B- could be considered more risky, and may only warrant a 2-3% allocation.
What’s New at Hourglass
Episode XVI: XPEL ($XPEL) - A Small Cap Love Story Turned Sour
I recapped my research on XPEL in the most recent episode of the podcast, as well as why I ultimately decided to pass on the investment opportunity. The new podcast format alternates between companies in my portfolio, companies I’m looking at for the first time, and companies I’ve passed on.
This episode on XPEL was the first on a company I’ve passed on, so I dive into the competitive concerns that made me pass on the stock, as well as the things that XPEL has succeeded with: a fantastic and continuing history of growth, a strong balance sheet, and very shareholder aligned management.
Listen to the full episode here and drop your thoughts on the company on the podcast platform of your choice!
Upcoming Episode - Jamieson Wellness ($JWEL.TO)
Next week’s episode is going to be going over an interesting Canadian small-cap, Jamieson Wellness. Sitting pretty at a market cap of ~$1.1bn CAD, Jamieson is benefitting from some industry tailwinds and global expansion that should help to grow revenues for years to come.
This is my first look at Jamieson, so I’ll be deep diving into the company history, business model, any potential moat, and the growth potential. The topic was suggested to me by a listener who reached out wanting to know some more about Jamieson - if anyone else has requests for a specific company to be covered, in either a podcast or deep dive article, please feel free to reach out at firstname.lastname@example.org. The episode on Jamieson will be out on Tuesday (November 14th), so stay tuned and follow me on Substack or on Spotify to get that episode as soon as its released.
Delay in Paradise - dentalcorp ($DNTL.TO)
The deep dive article was supposed to be released yesterday morning (November 9th), but unfortunately it needs a tiny delay before I can release it.
I’m focused on providing thorough and high-quality research through these articles, so I believe a delay is ultimately in the best interest of covering the company in enough detail. The dentalcorp article is now going to be released next Thursday morning, so keep an eye out - it’s a potentially very undervalued company that I’m extra excited to share with you all. Hit the subscribe button below to get that straight in your inbox when it’s released!
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That’s all for this week folks - have a great weekend, happy investing, and I’ll see you back here next week!