Preliminary Analysis Case Study #1 Part 10 – Final Part

Preliminary Analysis Case Study #1 Part 10 – Final Part – Inventory, Footnotes, And How To Evaluate Management

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 prior posts in this ongoing case study. All parts thus far 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…

***

In this video, we talked more about the inventory, how they’re accounting for inventory in the footnotes, a major issue in its inventory, how to evaluate management, and more.

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 last 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 9 – NCAV, Major Inventory Issues, and More.

Preliminary Analysis Case Study #1 Part 9 – NCAV, Major Inventory Issues, and More

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 prior posts in this ongoing case study. All parts thus far 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…

***

In this video, we talked more about NCAV valuation, inventory issues, and more.

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 last 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.

The Best Book I Read All Year – Value Investing In Your Car Episode 3 – Mini Book Review

The Best Book I Read All Year – Value Investing In Your Car Episode 3 – Mini Book Review

In Episode 1 of Value Investing In Your Car, I answered the question Does Value Investing Work Anywhere In The World?

And in Episode 2 I answered the question – When Does Value Investing Work Best?

In today’s video I’m doing a mini book review of the single best book I read all year – Extreme Ownership: How U.S. Navy SEALs Lead and Win.

It's so great I did something I've NEVER done before after finishing it.
This is the single best book I read all year.

In the short 15 minute video I talk about the following things…

  • Why this is the best book I read all year.
  • Where I first heard about this book from.
  • The powerful lessons I learned about leadership and strategy from this book that I’m implementing in my own businesses.
  • Exactly how great this book is… Hint – It’s so great I did something with this book I’ve never done before.
  • Why I read so much.
  • What are some of the other great books I listened to or read this year.
  • And more.

When was the last time you read a book?  What were some of the powerful lessons you learned from it?  What was the best book you read all year?

I’d love to hear see your answers below so we can all see some more great book recommendations and learn from them.

P.S.  I’d love your help naming our new podcast/vlog…  If you have a great name please send it to valueinvestingjourneyteam@gmail.com with the Subject Line of Name For Your Podcast/Vlog so my team knows what the message is about.

P.P.S  If you want to get every post like this in the future please subscribe for free here.

Preliminary Analysis Case Study #1 Part 8 – Cash Conversion Cycle, NCAV, and More

Preliminary Analysis Case Study #1 Part 8 – Cash Conversion Cycle, NCAV, and More

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 prior posts in this ongoing case study. All parts thus far 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…

***

In this video, we talked more about the cash conversion cycle, NCAV, and more.

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 last 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.

Throwback Thursday – Lionel Messi Is A Failure

Throwback Thursday – Lionel Messi Is A Failure

***

This is the third post in our new Throwback Thursday’s Series, where we share with you posts from the past blogs to bring you as much value as possible.

I’m reposting this article today because even now, 2.5 years later, it’s still one of the most regularly viewed articles on this site.

Other than some minor edits and updates, this is the same exact post as originally published in 2015.

Jason

***

Famous Failures

This post is a continuation of my Famous Failures series.  To view earlier posts in this series go to this link.

The aim of Famous Failures is to show that all successful people are failures, and that to become great, we have to fail, learn, and keep moving forward.

Lionel Messi Is A Failure

In case you don’t know, the picture above is of the best football player in the world. Lionel Messi. The Michael Jordan of soccer.

Leo Messi

The above screen capture is from this video on Famous FailuresIt’s about the best footballer in the world – and my favorite player – Lionel Messi.

Below is an excerpt from this article detailing some of the adversity he faced growing up.

But Messi is no stranger to adversity. Born with an outstanding, audacious talent, nature, almost as if re-dressing the balance, denied him the growth hormone that would permit him to grow the same as most other children.

Messi said: “When I was 11 years old they discovered that I had a growth hormone deficiency and I had to start a treatment to help me to grow.

Every night I had to stick a needle into my legs, night after night after night, every day of the week, and this over a period of three years.”

“I was so small, they said that when I went onto the pitch, or when I went to school, I was always the smallest of all. It was like this until I finished the treatment and I then started to grow properly”.

A team cut him when he was 11 due to health issues.  But he chose to work and go after his dream of playing for FC Barcelona.  In time he became the best football player in the world, and one of the best of all time. The info below is from Wikipedia.

He’s won 22 team championships in eight different competitions. Has won dozens of awards including being the world’s best player, a record four straight times.  And holds – and is still breaking – dozens of records around the world.

For more information on Lionel Messi read: Lionel Messi Is The Best Footballer The World Has Ever Seen.

But to really understand his greatness you need to watch him. Below is a 6:22 video showing some of the reasons why many think he’s the best football player ever.

And to think, none of us would ever have known anything about Lionel Messi if he gave up when he first failed.

Dream big… Imagine what you can do if you keep pushing forward instead of quitting when you fail.

What do you think of Lionel Messi? Do you admire him and the way he plays football? Do you think he’s a failure for not winning a World Cup yet? Or are you wrong and think Cristiano Ronaldo is a better player 🙂

Let me know in the comments below.

***

P.S. Since writing this in 2015, I’ve read Messi’s biography by Guillem Ballague – Messi – which I designate as a MUST READ!!! on the Recommended Reading and Viewing page of this blog.  If you want a more in depth look at the MASSIVE amount of hard work and sacrifice Messi went through to get to where he is today, this book is fantastic.

P.P.S. I put on a FREE webinar last 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.