Preliminary Analysis Case Study #1 Part 4 – Operating Margin And SG&A

Preliminary Analysis Case Study #1 Part 4 – Operating Margin and SG&A

Last week, I announced we were going to begin doing a real-world case study on Constellation Brands – Stock Ticker STZ.

Well, after releasing this post, my team reminded me that there was actually a preliminary analysis my client did before this one. So before we get to the STZ case study, we’re doing to take a detour to talk about Canopy Growth Corp –  Stock Ticker WEED.

I didn’t want to skip this one because there’s a lot of context and talk in this discussion that we don’t necessarily go over in the later training sessions because we’ve already talked about them.

This post is a continuation of the last posts in this ongoing case study.  All other parts are below:

Below is his unedited preliminary analysis for reference – without any of my comments – for you to get a  look at.

Canopy Growth Corp – WEED

***

WEED – Canopy Growth Corp (Canadian Company)

All numbers are in millions of CAD unless noted otherwise.

  • FY Ends March 31st, 2017
  • 3,404 market cap (medium)
  • N/A dividend yield.
  • P/B TTM = 4.92
  • TTM Operating Margin is -39.2 and has somewhat increased over last 2 years.
    • 5 year average OM is N/A
  • Share count has done increased from 77 to 119 from FY16 to FY17. Current TTM is 149m.  Statement of shareholder’s equity??
  • Book value per share has increased from 1.34 to 1.55 from FY16 to FY17. Current TTM is 3.73.
  • Morningstar ROIC TTM is -6.58 and a little higher than the last 2 FY’s
    • 5 year average Morningstar ROIC is N/A
  • TTM ROE is -6.45 and a little higher than the last 2 FY’s
    • 5 year average ROE is N/A
  • TTM FCF/sales is -151 and we can’t tell any pattern. See con note on FCF
    • 5 year average FCF/sales is N/A
  • CCC: No info on the payable period (assume the product is cheap to grow) but DIO exploded on FY2017 to 5,494 days (FY2016 and 2015 avg is about 650 days). Research online says cannabis takes up to ½ year to grow so I would need much more investigation on why inventory takes so long to turnover.
  • EV=3,312
  • EV/EBIT is -73.6
  • EV/FCF is -37.6
  • EBIT/EV (earnings yield) -1.3%
  • FCF/EV (earnings yield) -2.6%

Cons

  • Young company – only about 3 years old after name change (used to be Tweed)
  • Note only balance sheet on Morningstar has FY2015 so we need to look at 10K for data.  We cannot really tell any direction with a 2/3 year old history
  • SG&A & Other are over 163% of Revenue
  • SG&A roughly decreasing and “Other” is increasing
  • Op Income and Margin are (-) but are generally decreasing over time
  • Outstanding shares are significantly increasing over time
  • FCF is increasingly negative as both op cash flow and CapEx are also both increasingly negative
  • Not much experience with Canadian companies
  • Goodwill and intangible assets exploded on FY2017
  • Regulation laws in Canada and USA
  • They bought a lot of companies in FY2016

Pros

  • Cash exploded in FY2017
  • FY2017 Cash & Equiv – Total Liabilities = $39m
  • Book value/share is generally increasing but only for last 3 years
  • Low Debt (also reflected by the ROE and ROIC being similar numbers)
  • Revenue is increasing over time
  • STZ bought about 10% interest in WEED.  Industry took notice and WEED most likely gained some legitimacy with large companies
  • COGS is only 23% of Revenue (doesn’t take much cost to grow product?)
  • High Working Capital Ratio = 9.8 but this high typically suggests either too much inventory or not investing excess cash…

***

So, after going through the beginning’s of this preliminary analysis process in part 1 and 2 last week, here is part 3.

In this video, we talk about operating margin, selling general and administrative costs, and IPO’s.

For some reason, when I talk the audio cuts out so I’ve added narration to the video above for context.

If you have any comments or questions, please post them in the comments section below and I’ll answer them.

I’d also love to see your preliminary analysis as well, so feel free to post these in the comments below.

If you’d like more information about the coaching program this client is in, go to this page.

For reference, he’s in the $ 10,000, year-long program and this is only after 1 month of coaching, doing nine 1-hour training sessions via Skype.

P.S.  This analysis is based on the preliminary analysis template I developed over a number of years, and after evaluating thousands of companies.  If you’d like a copy of this to do your own preliminary analysis, you can get yours for free here.

P.P.S.  I put on a FREE webinar on Thursday teaching The 3 Secrets That Have Helped Me Beat Buffett In The Stock Market, so you can possibly do the same.  If you’d like to sign up for FREE to view the replay of the webinar, you can do so here.

Preliminary Analysis Case Study #1 Part 3 – Book Recommendations And More

Preliminary Analysis Case Study #1 Part 3 – Book Recommendations, Power of Learning, and More

On Monday I announced we were going to begin doing a real-world case study on Constellation Brands – Stock Ticker STZ.

Well, after releasing this post, my team reminded me that there was actually a preliminary analysis my client did before this one. So before we get to the STZ case study, we’re doing to take a detour to talk about Canopy Growth Corp –  Stock Ticker WEED.

I didn’t want to skip this one because there’s a lot of context and talk in this discussion that we don’t necessarily go over in the later training sessions because we’ve already talked about them.

This post is a continuation of the last two posts in this ongoing case study.  Both parts are below:

Below is his unedited preliminary analysis for reference – without any of my comments – for you to get a  look at.

Canopy Growth Corp – WEED

***

WEED – Canopy Growth Corp (Canadian Company)

All numbers are in millions of CAD unless noted otherwise.

  • FY Ends March 31st, 2017
  • 3,404 market cap (medium)
  • N/A dividend yield.
  • P/B TTM = 4.92
  • TTM Operating Margin is -39.2 and has somewhat increased over last 2 years.
    • 5 year average OM is N/A
  • Share count has done increased from 77 to 119 from FY16 to FY17. Current TTM is 149m.  Statement of shareholder’s equity??
  • Book value per share has increased from 1.34 to 1.55 from FY16 to FY17. Current TTM is 3.73.
  • Morningstar ROIC TTM is -6.58 and a little higher than the last 2 FY’s
    • 5 year average Morningstar ROIC is N/A
  • TTM ROE is -6.45 and a little higher than the last 2 FY’s
    • 5 year average ROE is N/A
  • TTM FCF/sales is -151 and we can’t tell any pattern. See con note on FCF
    • 5 year average FCF/sales is N/A
  • CCC: No info on the payable period (assume the product is cheap to grow) but DIO exploded on FY2017 to 5,494 days (FY2016 and 2015 avg is about 650 days). Research online says cannabis takes up to ½ year to grow so I would need much more investigation on why inventory takes so long to turnover.
  • EV=3,312
  • EV/EBIT is -73.6
  • EV/FCF is -37.6
  • EBIT/EV (earnings yield) -1.3%
  • FCF/EV (earnings yield) -2.6%

Cons

  • Young company – only about 3 years old after name change (used to be Tweed)
  • Note only balance sheet on Morningstar has FY2015 so we need to look at 10K for data.  We cannot really tell any direction with a 2/3 year old history
  • SG&A & Other are over 163% of Revenue
  • SG&A roughly decreasing and “Other” is increasing
  • Op Income and Margin are (-) but are generally decreasing over time
  • Outstanding shares are significantly increasing over time
  • FCF is increasingly negative as both op cash flow and CapEx are also both increasingly negative
  • Not much experience with Canadian companies
  • Goodwill and intangible assets exploded on FY2017
  • Regulation laws in Canada and USA
  • They bought a lot of companies in FY2016

Pros

  • Cash exploded in FY2017
  • FY2017 Cash & Equiv – Total Liabilities = $39m
  • Book value/share is generally increasing but only for last 3 years
  • Low Debt (also reflected by the ROE and ROIC being similar numbers)
  • Revenue is increasing over time
  • STZ bought about 10% interest in WEED.  Industry took notice and WEED most likely gained some legitimacy with large companies
  • COGS is only 23% of Revenue (doesn’t take much cost to grow product?)
  • High Working Capital Ratio = 9.8 but this high typically suggests either too much inventory or not investing excess cash…

***

So, after going through the beginnings of this preliminary analysis process in part 1 on Wednesday, here is part 2 of this discussion below.

In this video, we took a short several minute break from analysis to talk about book recommendations, the power of learning, and much more.

For some reason, when I talk the audio cuts out so below each shorter video I’ve created a video where I’m rehashing what I told the client during our training session.

And my context with the missing sound in the above video here…

Again, as I say in the video,  I’m not sure why my sound cut out on the recording because he could hear me the entire time.  But all of my past videos are like this and we’ve just fixed the sound issue a few days ago, hopefully for good.  For now this is how I’ve got to improvise things.

If you have any comments or questions please post them in the comments section below and I’ll answer them.

I’d also love to see your preliminary analysis as well, so feel free to post these in the comments below.

If you’d like more information about the coaching program this client is in, go to this page.

For reference, he’s in the $ 10,000, year-long program, and this is only after 1 month of coaching, doing nine 1-hour training sessions via Skype.

P.S.  This analysis is based on the preliminary analysis template I developed over a number of years, and after evaluating thousands of companies.  If you’d like a copy of this to do your own preliminary analysis, you can get yours for free here.

P.P.S.  I put on a FREE webinar yesterday teaching The 3 Secrets That Have Helped Me Beat Buffett In The Stock Market, so you can possibly do the same.  If you’d like to sign up for FREE to view the replay of the webinar, you can do so here.

I’ve Accepted A Spot On The Rutgers University CX Advisory Board

I’ve Accepted A Spot On The Rutgers University CX Advisory Board

I never saw this coming…

Especially now.

I’m still at what I consider the beginning stages of my career.  And I feel I haven’t begun to even scratch the surface of what not only my true potential is but also the number of people I can help with this blog, my book, and my products and services.

So when I first saw the email I thought it was a hoax…

Last week I received an email from a Rutgers University program director saying that I’d been personally invited to apply to become a member of the Rutgers University Customer Experience – or CX – Advisory Board.

I wish I was videoing the reaction on my face because it probably looked something like this…

A reenactment of my expression of shock and confusion when I first read this email thinking it was a hoax at first.

Why?

I don’t have a university education in marketing.  And I don’t have any kind of formal university education in any form or fashion due to severe health issues in the past.

Hell… I’ve never even stepped on a university campus for anything other than football games and friends and family’s graduations so the thought of me on a prestigious universities advisory board took me by complete shock.

This is why I thought this email was a hoax when I first opened it… I’m glad I took another look though.

After doing a bit more research from the materials in this email I found that the advisory board focuses on:

Become inspired at the Customer Experience Certificate Program at Rutgers. Learn to understand customer’s experiences, develop deep insights, and integrate innovative methodology throughout your organization. Immerse yourself in a program designed by professionals, for professionals. Classes are fast-paced, interactive and provide practical skills and tools you can take back to your workplace and apply immediately.

Essentially, the advisory board crafts material to help students learn about marketing, digital marketing, sales funnels, the sales process, marketing processes, and entrepreneurship.

This is where my eyes began to perk up…

With my curiosity piqued, I emailed the program coordinator back to schedule a call with her.

She scheduled our meeting for 30 minutes but it ended up lasting more than an hour and it was amazing.

At the end of the call, she said: “You’re exactly who we’re looking for on this board and it’s a no-brainer for me to highly recommend you for this position.  And given that one of the program directors personally recommended you I’d like to ask if you’d accept this appointment when and if given?”

More brief confusion and then I, of course, said yes I’d be honored to serve on the board.

I’ll get back to this brief confusion in a bit.

A couple of days later I got the email pictured below from the director of the program.

The places with the sticky notes are to block out personal names, phone numbers, and addresses of members of the board.

My Rutgers CX Advisory Board Acceptance Letter

But now let’s get back to this new brief confusion…

To my knowledge, I’ve never talked with or met the director who personally recommended me which is where the confusion came from.

Since the person who recommended me wasn’t on the call I didn’t ask how he knew about me but I’m assuming he found me by something I’ve written or posted about value investing.

Even though this is a great honor that I’m incredibly proud of I’m not writing this to toot my horn.

I’m telling you all this because I want to get this massive point across to you…

You never know where your opportunities may come from.  And never sell yourself short.

If others see value in what you can offer, take the chance… You never know where life-changing opportunities will come from or where they can take you.

Put yourself out there, take chances, fail a lot, learn a lot, improve a lot, bring as much value as you can to everyone you interact with, and you never know where events may take you…

Maybe to the board of a prestigious university to sit alongside people who have generated billions of dollars of revenue where you’ll have the chance to change lives.

I’m excited and honored to see what this opportunity leads to.

The first board meeting is in mid-January 2018 and I’ll keep you updated on all of this.

Oh and don’t worry, I’ll still be posting and teaching more here.  As of now, the appointment to the board will only take up a small amount of my time.

P.S.  If you want to know more about how anything is possible if you work hard enough and have the right mindset read my post titled You Can Do Anything You Put Your Mind To.

Value Investing Journey Named A Top 40 Value Investment Blog In The World

Value Investing Journey Named A Top 40 Value Investment Blog In The World.

I’ve been a bit absent lately working on some major projects, building a team and delegating tasks, consulting and coaching clients, and setting the foundations for my businesses up a LOT better.

I needed to do this so it’s easier for everyone to learn and gain value from these this site.  But also so I can spend more time creating content and helping people learn the ultra-valuable skill of value investing and business analysis.

While I’m doing this I can’t forget about this award though…

Last month Value Investing Journey was named a Top 40 Value Investing Blog In The World By Feedspot.

I want to thank the team at Feedspot for this honor.

And I also want to thank you as a loyal reader.

Without you sticking by this blog while I take the occasional breaks to learn, work on other projects, and work to grow my businesses this wouldn’t be possible.

This is now the second time this year we’ve been named a top 50 value investment site in the world.

There are a ton of other great value investing sites on both lists so make sure to take a look at and learn from them.

Feedspot Named Value Investing Journey One of the Top 40 Value Investing Blogs In The World

Thanks so much for being and remaining a part of this journey.

Jason

P.S. I’m doing a FREE live webinar tomorrow November 30th at 12 PM EST where I’ll teach you the three secrets that have Helped Me Beat Buffett In The First Five Years Of My Career… And how these same secrets can help you do the same.  To get your FREE spot in this webinar click here to save your spot.

Mini Book Review of Deep Work

Mini Book Review of Deep Work

In this video, I’m doing a mini book review of the book titled – Deep Work, Rules For Focused Success In A Distracted World by Cal Newport

It’s a great and phenomenal book which talks about the importance of deep work versus shallow work.

Deep work is things like writing, producing content, coming up with business ideas, and making business plans.

While he generally defines shallow work as more of administrative stuff such as data entry, research, things like this.

Deep work is things that get you closer to your ultimate goals.  And shallow work while necessary, doesn’t get you closer to your big goals most of the time.

He doesn’t get into a philosophical argument on which one is better for the economy or yourself because both are necessary. But if you want to be successful, make a lot of money, and make a significant impact on the world he argues that deep work is not only the right thing to do but it’s the best route for you to take.

In his research, he estimates that people can only do deep work – which he defines as deep concentration and mentally exhausting work – for only  2 to 6 hours each day.

And without training your mind to do deep work most people can do it for less than two hours in any day.

This phenomenal book talks about how especially in our knowledge economy, how important deep work is because people who do shallow work are being replaced by automation.

I especially appreciate his emphasis on the importance of deep work and focus when it comes to the millennial generation, where I belong as I just turned 30 in December.

My generation was brought up with all this distracting technology so the focus is becoming a competitive advantage.

It’s normal to see people my age trying to do a bunch of things at once.  One example I see on a regular basis goes something like this… They have a movie on while doing research on the computer, while listening to music on their cell phones, all the while doing none of them well, which research has proved over and over again.

This is just one example of the highly destructive and fragmented stuff that takes us away from our deep work and getting closer to our goals.

Throughout the book, he argues that to have a highly paid job in this new knowledge economy, and to not be replaced by automation, that you have to do deep work, become highly productive and skilled, and produce tons of value for either your clients, society, or whoever your audience is.

***

You can watch the full video below…