Nike: Never sell a good asset

Last thursday, Nike (NKE) results were out and, holy fuck, they were amazing.

For the last quarter, EPS raised to 0,93$ from -0,51$ the year before. These 0,93$ EPS beat the 0,51$ estimates by 82%. It's phenomal, tabarnac.  

Not so hard to go from negative to positive. But let's take a look at quarterly EPS over the last 10 quarters:

2018-11: 0,52$

2019-02: 0,68$ 

2019-05: 0,62$

2019-08: 0,86$

2019-11: 0,70$

2020-02: 0,53$

2020-05: -0,51$

2020-08: 0,95$

2020-11: 0,78$

2021-02: 0,90$

2021-05: 0,93$

If we compare may 2021 to may 2019 (thus, we exclude 2020 which was a year of panic), the EPS went from 0,62$ to 0,93$, an increase of 50% over two years. It's incredible for a 240B$ company that sells shoes. 

It means that Nike managers have exceptional skills to drive their business.

Friday, the stock was up 15%. It's very big surge. But is Nike expensive?

At current price, Nike is sold for about 30 times next year's earnings. It's not cheap, but for such growth, such predictable earnings, a ROE of 55 and such a dominant business, I would say that its a fair price. Plus, the estimates for years to come are exceptional. 

In the recent months, I sold some NKE shares, thinking that this year would be difficult for them. I was wrong. And today, a Stephen Jarislowsky quote came to mind:

"Never sell a good asset". 

 

Don't fuck with Donville: 7 years later

On june 22nd 2014, I started this blog. Although I was a blogger since 2005 on a more personal level, I never blogged about serious topics such as finance and even less using the english language.

The first question that comes to mind is "where has gone my naivete?" I'd say that maybe it went at the same place where virginity goes after the first sexual intercourse. 

Here's some observations: 

1- I had much more conviction in my opinions at the beginning of this blog;

2- I thought that many stock were worth of consideration (now I believe that about 1 or 2% of stocks are worth of consideration);

3- I didn't consider profit margins or earnings predictability at all (they both are very important for me now);

4- I bought canadian stocks, mostly (65% of my portfolio was in CAD); 

5- I believed in some analysts and superinvestors;

Yes, my blog was probably funnier back then, but fuck, I'm so ashamed of my 2014 portfolio. Let's take a look at it:

Canadian stocks

Rifco: 11,7%

Constellation Software: 10,6%

Cipher Pharma: 8,9%

Valeant: 7,5%

CGI: 7,4%

Carfinco: 5,6%

Couche-Tard: 4,9%

Loyalist Group: 3,5%

Macro Enterprises: 2,2%

NTG Clarity Network: 2%

Avigilon: 1,3%

US and foreign stocks

Questcor Pharma: 7%

Portfolio Recovery and Associates: 5,9% 

Dollar Tree: 3,3%

Ross Stores: 2%

Cash: 16,1%

I owned a few great stocks but many crappy stocks. Among them, Rifco was sold for about 6,10$ at the end of june 2014 and is now sold for 0,90$. Loyalist Group is dead. Macro Enterprises lost about 50% of it's value. NTG Clarity Network was a 0,28$ penny stock and is now a 0,04$ penny stock... And I don't want to talk about Valeant because I've written too many posts about that fucking stock. 

However, I owned 70 shares of Constellation Software which had a value of 19 000$ back then. If I hadn't sold any share, that stake would represent almost 140 000$ today. 

In retrospect, I would say that I was  bad investor in 2014. Not a super bad investor like those who speculate about stuff which they know jack shit about. But I bought some really crappy stuff. 

Yes, I was bad, but do you imagine how bad readers were to give some attention to a guy with such a portfolio? I probably had the worst readers in the history of the world in 2014. 

What's the best dollar store?

 Dollar stores are great businesses. Even though they operate in the retail sector, they manage to do well. I assume that it's because people want to feel the cheap stuff they buy with their hands. Also, when you buy for 5 or 10$ of cheap stuff, do you really want to search on the Internet and probably pay for a shipping that will be more expensive than the stuff you buy? 

There may be other reasons why dollar stores continue to do well. But I don't think that things will change in the short and even medium term. So, it may be a good idea to invest in that kind of stock. I'll compare the four names I know the best: 

Dollarama, Dollar General, Dollar Tree and Five Below. 

Dollarama

Stock performance over the last 5 years: 85%

FWD PE: 22

Annual EPS growth last 5 years: 20%

Estimated EPS growth next 5 years: 14%

Debt level: Medium

ROE: 784 (!)

Profit margin: 14%

Dollar General

Stock performance over the last 5 years: 133%

FWD PE: 19

Annual EPS growth last 5 years: 14%

Estimated EPS growth next 5 years: 8%

Debt level: Medium

ROE: 40

Profit margin: 8% 

Dollar Tree

Stock performance over the last 5 years:  12%

FWD PE: 15

Annual EPS growth last 5 years: 14%

Estimated EPS growth next 5 years: 9%

Debt level: Medium-High

ROE: 21

Profit margin: 6%

Five Below

Stock performance over the last 5 years: 353%

FWD PE: 34

Annual EPS growth last 5 years: 40%

Estimated EPS growth next 5 years: 33%

Debt level: Medium-High

ROE: 28

Profit margin: 9%

I like all of them but I'm more neutral towards Dollar Tree which still struggle from the Family Dollar acquisition, many years after it happened. That's probably why their FWD PE is substantially lower than the others. 

If I had to make a choice among these four, I'd probably buy Five Below and Dollarama because they have the best margins and the best estimated growth. Also, they operate in different locations, so you have a global exposure to North America with both of them. 

A Donville Kent stock that checks all their growth boxes and checks none of my boxes

 Some of you may have received that email:

***************

Dear Friends,

Ask Jesse Gamble what his favourite stock is right now and he won’t miss a beat. The Senior VP & Portfolio Manager at Donville Kent Asset Management is pumped about this software company that checks all his growth boxes.

**************

What's that stock? It's Vitalhub (VHI.V). A 128 million dollars cap stock. What do they do? 

Vitalhub Corp., together with its subsidiaries, develops technology solutions for health and human service providers in the hospital, regional health authority, mental health, long term care, home health, and community and social service sectors in Canada, the United Kingdom, and the United States. Its solutions include electronic healthcare record, case management, care coordination, patient flow and operational visibility, and DOCit mobile apps. Vitalhub Corp. is based in Toronto, Canada.

And what about their numbers? 

ROE: negative

Profit margin: negative

Beta: 1,5

EPS 2018: -0,10$

EPS 2019: -0,04$

EPS 2020: -0,08$

Sales growth: only positive point (up 56% from 2018 to 2020)

Dilution: massive from 2018 to 2020 (+100% shares)

I wouldn't touch that fucking stock with a pole. First of all, because it's a fucking micro cap. You have 9 chances out of 10 to do bad with such a market cap. I know because I've lost a lot of money with that kind of stocks. 

Then, they don't make money. Then, they dilute a lot their float. Then, it's so fucking easy for an  investment firm to pump a micro cap stock. You just have to excite a few people and the needle moves on the stock you recommended. You can't do that when you recommend Google or Apple. 

I don't fucking understand how people who manage other's people money would invest money in any fucking micro cap listed on the fucking venture. I don't even do that with my own money. 

Good for them (and their clients) if they're right and I'm wrong. Actually, I hope they're right because I have nothing to gain from other people failure. But I guess that I'm a bit disappointed that, after all these mistakes on the venture, Donville Kent would have learned to stay away.