samedi 13 avril 2019

A few words on canadian growth stocks which suck for now

It's been a tough year for a lot of great canadian stocks, just to name a few, here's some superstocks that have biten the dust over the last year. All Quebec stocks, except for Enghouse Systems.

MTY Food Group
Enghouse Systems

A lot of people look at them and say: "It's cheaper than it's been for years! Let's buy them!"

Well, usually, when it's cheap, it's cheap for a reason. Like food in groceries. When it's cheap, it's because it's becoming to be rotten and the grocery prefers to give you a 30% bargain than to put that shit in the trash.

And you, fucking genius, buy that cheap food saying: "Wow, it's cheaper than it's been for years!" and then, you get cancer.

Let's take a look at a two of these stocks.

First of all, Richelieu grows by 2-3% each quarter, which is very low for a stock that was sold no so long ago for 25 times current earnings and more than 22 times next year's earnings. How could you pay that price when you can get some stocks that grow by 10% every year for 15 times forward earnings?

Second, Enghouse Systems. The growth there is similar to Richelieu. How could you pay 25 times next year's earnings for such a low growth?

Both stocks have a very low debt however, which give them a lot of flexibility to pursue any acquisition. But come on, who the fuck would think it would be a good idea to buy something when the market is at an all-time high, or so? Overpaying is always a bad idea.

In that regard, I don't think there's any momentum for Richelieu and Enghouse. Their valuation is still moderately high and the market is expensive. So, they probably won't start to grow a lot again without any acquisition. And any acquisition would probably be pricey.

I look elsewehere for an occasion. But they're great stocks anyway.

I don't like how Savaria executives manage their company. They always fucking dilute the float and their payout ratio is very high. That's stupid. Very few company that grow a lot act that way because it's simply a crazy fucking way to manage a company. You may get a boner from their adjusted earnings, but I don't know any intelligent investor who would replicate that fucking model if they had to start a company.

The recent numbers of Lassonde aren't good at all. The company seems to have a lot of difficulty to sell their juices. In the long run, they may be back on track, but I bet it won't be a short-term ride.

And then, Dollarama and MTY... I like them, but my favorite is by far MTY. That stock is a constellation of brands. It's like a Valeant well-managed. I'm still convinced that this stock will at least double over the last 5 years. Perhaps it's gonna be hard for a year. Perhaps for two years. But the stock will sooner or later go back to it's traditional valuation.

6 commentaires:

  1. What do you guys think of Open Text Corporation? Would you include it among Canada's best stocks?

    The greatest service you can do for an investor is to bring to their attention why other investors are NOT bullish on their stocks. Buffett's partner Charlie Munger goes as far as saying that you must know the other side's argument better than they do. In that spirit, I offer the concluding paragraph's from Ian Bezek's recent negative article on MTY Food Group:

    In the past, MTY Food was capable at buying up small restaurant brands and turning them into bigger operations. Between 2003 and 2013, the firm acquired 19 such brands. Along with creating some new brands of their own, this allowed MTY Food to become the so-called king of the food court, having a brand in each food segment to roll out across Canada's malls and shopping centers.

    However, it's a huge difference buying tiny brands and trying to enhance them versus paying top dollar price for a struggling franchise like Papa Murphy's. Remember that Lee bought Papa Murphy's for roughly 9x EBITDA back in 2010. Since then, EBITDA has actually declined, as the company has seen sales plummet and its store base shrink. And yet, MTY Food is paying nearly the same purchase price - and a significantly higher EBITDA multiple, to buy up Papa Murphy's now.

    Now, there's no question that Stanley Ma is a better operator than the management team he will be replacing. Perhaps he can turn things around for Papa Murphy's. But this is an expensive transaction, especially counting all the debt MTY has to assume, for a business that is shrinking, losing store units, and may be functionally obsolete in a world where high-quality delivery and take and bake competitors increasingly dominate.

    The whole article is here:

  2. RE: Quebec Stocks

    This from Saturday's Journal de Montreal

    Depuis le creux boursier du 9 mars 2009, les indices boursiers IQ-30 et IQ-120 des sociétés dont la siege social est au Québec ont respectivement grimpé de 311% et 284%, surpassant nettement la performance de 117% de l'indice phare de la Bourse canadienne, le S&P/TSX de Toronto."

    In short, the Quebec stocks outperformed the TSX index by a wide margin since 2009. The article continues and mentions a decline in the percentage of companies coming from Quebec. They speak of "la representation anorexique du Québec a la bourse canadienne" Worse: Quebec companies only make up about 6% of the TSX Venture index.

    so, we have LESS stocks coming from Quebec but the established ones tend to outperform the TSX index in the long term. At least they did in the last ten years.

  3. Great post! I hold SIS and agree with you mgmt has pissed me off. Now that they have shown they are going to dilute anytime they need money to replenish the bank account they have moved from a sleep at night company to a what should I replace it with company. As for MTY I agree with Angelo and the SA article. Maa is a legendary capital compounder, but MTY has been floundering a bit. I know the argument is well its well over a 100 bagger, etc. I get that and nobody is debating its track record to now. But they have a new ceo (yes maa is still on the board), the landscape is changing (less foot traffic in malls due to online), SSS growth is tougher to achieve, and Papa Murphy's appears to be a crappy purchase (struggling company, paid too much, product that is arguably not that in demand (ready bake pizza)). Can MTY turn things around and continue on its high growth path, maybe. But are their head winds that would make me not want to pay current price for it, definitely.

  4. Many Canadian stocks often end up sucking.

  5. I position trade enghouse and rch occasionally and will actually buy ENGH next week.A great entry point. Nothing wrong with rch either. You analogy that stocks are like food is not right. Stock prices intra-year move independent of fundamentals.

  6. 1. Richelieu- Never owned it but I used to admire them.

    2. Dollarama- Growth certainly slowed but there is still strong cash flow with latin america potentials. I hated the Rossy family sold off a chunk of shares again.

    3. Lassonde- I still like them but going through some challenges now. I will have to wait and see. It will be fine long term but certainly low liquidity stock can be scary when things are challenging.

    4. Savaria- Never owned them. Always something seemed to be off for me. Just like you, I hated them I may be missing the growth though

    MTY Food Group- Still like them a lot. Did not like the pizza place though but cash flow is cash flow. They will figure it out eventually.

    5. Enghouse Systems- Recent revenue hiccup wasn't expected but I took the management words for it so I will have to monitor. I may add some. Tones of cash, pretty good multiple after deducting cash for its historical growth level.

    Markets make me humble. So much up and down. Most of the above stocks were all time high just a few months/ quarters ago now being close to 52 weeks low. Getting more efficient in rebalancing :)