Canoo Inc - Class A

"Reading 10-Qs is fun!" — Said no one, ever.

Ok but actually, for us investors, reading 10Ks and 10Qs is actually pretty fun. Especially the **risks** section.

For those of you who think the risks section is boring, here is an _urban dictionary_ translation of the risks associated with the EV maker Canoo $GOEV.

![Image upload](https://cdn.commonstock.com/1be7ac347b23f626641e11df810960f2ce7cee89ec63ecc2e6574cc182293ddc-2028x1824.png?w=748&fit=max)

😬 We need funding. We are freaking out that we won't be able to raise more money.

😬 We have so little control over our own destiny. Things like interest rates, inflation, and heck, the war in Ukraine could blow us up, yet there's zilch we can do about those things. _Live, laugh, love._

😤 Gosh darn Tesla is dropping their gosh darn prices, which will make it harder for us to sell our gosh darn cars.

🫤 We set some timelines to make our electric vehicles. We have no idea if we can actually finish in time.

🫠 Spending is fun. We _**might**_ be bad at controlling the costs associated with our operations. Tee hee.

🏗️ Ideally, we will build a manufacturing facility some day. That is hard. We will try our best. Wish us luck!

🏗️ That manufacturing facility we were just talking about, yeah, even if we successfully build it, it could cost so much, or take so much time, we might fail anyway. Just thought we'd spell that one out for ya'

😎 A good track record is important. We don't have one. We're "early stage," which means we incur significant expenses and 100% have every reason to believe will will continue to bleed money for the foreseeable future.

🫡 There are some super nice people who said they would buy our cars. So we told Wall Street, and now Wall Street values us off of those expectations. But sometimes nice people do mean things. Like buy fewer of our cars than they said they would. Or none at all. Beware nice people.

🔨 Oklahoma and Arkansas offered us incentives to develop our own manufacturing facilities. We thought those incentives were all ours. But now... maybe?

🥺 We know how much money we need. This is a problem because we also know that we have not achieved positive operating cash flow. And the weight of this knowledge haunts us. But it helps to share. Thanks for listening.

😵‍💫 Volatility in costs as well as demand for our cars is hard to deal with. This might un-alive us.

🫣 Our "control" over our financial reporting was weak (in the past). It's not anymore. But like, if we **somehow** realized that it got weak again, that would be bad for you. You probably are wondering what this means exactly. No follow up questions.

🌈 We might grow extremely quickly. You probably think that's a good thing. But growth is stressful. And very busy. If we are not able to take the requisite amount of naps to deal with all of this hypothetical growth, we will become very sleepy.

😎 We've got a great team, according to us. But if other people think we smell weird, we may not be able to attract other great team members. Their loss. But maybe ours too... if we do, in fact, stink.

😜 We have absolutely no experience in manufacturing a ton of electric vehicles. Which, is what we are trying to do.

🤓 We have an EV model we think is cool, but if other people don't think it's cool, we don't have any other models. So this one better work.

🤫 There is this thing called the "Canoo Digital Ecosystem"— it's a software platform that's super important to how we plan to get revenue. We hope we can build it. Can we build it? We hope we can build it.

😭 We might fail to attract new customers, or enough customers, or retain customers, or customers at all. We are seeing a therapist about our anxiety.


Disclosure: I am currently long Canoo 🙃 🥸 🤡 😭


“Everyone must believe in something. I believe I’ll go canoeing.” — Henry David Thoreau

Canoo risks, urban dictionary translation

This member is verified by the Commonstock team based on their contributions to the Commonstock community. 

Verified Member

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Public Portfolio

Nathan Worden

Following a 48% peak-to-trough decline back in October 2022, shares of Tortilla Mexican Grill (LON.MEX) have since been on the rise, up ~44% so far this year.

Revenue of £58m (+20%), and did £44m in gross profit (+15%) last year. Gross margin in the mid-70s.

![Image upload](https://cdn.commonstock.com/a64d075f218fff70939e6efecec0bedca7cad033d5022a086218b65af4aa868c-1200x887.png)

Following the 32% decline on October 3rd, 2022, I decided to take a small position in the UK’s leading quick-serve Mexican franchise, Tortilla Mexican Grill. With inflation persisting and margins falling (both of which were known ahead of the report) the market puked out MEX shares in October, and they have since recovered those losses. I viewed this as an opportunity. Shares continues to fall for a few weeks after and I acquired shares for as low as £0.88 through December.

“What I do know, is that this business trades for £39m. A business which spends ~£0.23 to generate £1 in sales and last year showed a gross profit of £38.3m. I don’t anticipate profitability in the near term, but I do believe Tortilla’s operating cash flow is enough to mostly self-fund their expansion, even if that means later withdrawing guidance for expansion, which I feel might be overly aggressive”. - October, 2022

I have been following this business for a while, and think it has the potential to spit out a few hundred units over the UK in the next decade.

![Image upload](https://cdn.commonstock.com/c95037b4c8702f5fec3b7764f332143c645dd5bb3d19d2f4be32a279644316dc-1200x786.png)

It was profitable during the pandemic, largely due to government subsidies, and is not typically profitable, despite squeezing out a small operating margin this year (earnings were negative).

No doubt the pressure was on in 2022. Revenue of £57.7 million expanded by 20% and gross profits of £44.1 million grew by 15.2% behind the 19.3% growth in administrative expenses. While still a fine margin at 76.4%, it represents a decline of 320bps. An expected byproduct with government VAT support absent, and still remains well elevated vs the 10Y average. Further down the income statement, operating income amounted to £536,000 (down from £3.6 million) and the business lost £637,000 for the year (down from net earnings of £1.4 million).

![Image upload](https://cdn.commonstock.com/b38c1ad98ae315286d6f9feab5033deaafc2d25d5122336a6bf683d6e2b59de3-1200x848.png)

Burrito Gains

Conor Mac

![Image upload](https://cdn.commonstock.com/79d64ea200f6b75436b675a1ffd2ba6c0db2a023ad0b4af1ac18d2e4c1ec9fb6-940x788.png)
I was just on the site this morning, checking the latest posts, and I realised (not sure quite when it happened) I now have over 500 followers here on Commonstock!

I wanted to thank everyone who is part of the community here for their support over the last 6 months or so since I joined. It really is a great community to be part of and excited to see it grow!

Additionally, it's such a fascinating time in markets and economics right now, there is so much insight and value to be had from being part of community like this with so much uncertainty around.


**A New Direction Emerges for Porchester...**

I have had a think over the past few weeks in what direction I want to take my writing here on Commonstock (and potentially elsewhere on Substack for example).

So far I have written on random topics that come up that are of interest to me rather than a specific niche.

So that my content is of the best quality and to further grow the broader "Porchester community" I will now be writing and research on a more leaner set of topics (though still a fairly large set of topics nonetheless!).

Porchester will now have an **emerging market** focus!

I cover intensively emerging markets at work and my personal investments are heavily weighted towards emerging markets so seems like a natural way to develop Porchester going forward!

Would be keen to hear the rest of the community's strategies when it comes to writing, and any thoughts or what people would like to see when it comes to emerging markets!

Over 500 Followers & a Change in Direction! 🔺

Porchester 🔺

Lululemon Athletica inc.

$LULU beat analysts expectations for Q4.

Full year results:

- Net revenue up 30% to $8.1B.
- ⬆️ 35% internationally.
- Operating margin down to 16.4% vs 21.3%.
- Gross margin was down by 230bps but showed operating leverage gains (SG&A) of 160bps.

 ➡️ Key reason of the ⬇️ in margin was impairment of goodwill & other assets of $408M or 5% of sales.

➡️ Guess we got it right in our write-up (Jan 2023).

![image](https://cdn.commonstock.com/b06f48ff9992910306495a5aa62fb1220189b2c95292e030f06ddcb5247f78e4-806x970.png)

Good or bad, you decide. At least management didn’t try to exaggerate assumptions plugged in the model (integrity 👍).

- Solid cash position at $1.2B.
- Inventory up by 50% ➡️ improvement from the 85% in prior quarter.

📈 Outlook FY23:
- Revenue up by 15% ($9.3B to $9.4B).

$LULU is on track to achieve Power of Three x2 (doubling 2021 $6.25B to $12.5B by 2026).

Quote 👇 Meghan Frank CFO

“Our ability to exceed our annual revenue target in a dynamic operating environment is a testament to the enduring strength of the lululemon brand. Looking ahead, we remain optimistic regarding our ability to deliver sustained growth and long-term value for all our stakeholders."

Not a financial advice.

$LULU Results

StockOpine

Walmart Inc

Every month we share 2 write-ups on companies we decided to examine as potential additions to our portfolio. Although the companies analysed may tick most of the boxes, if the margin of safety is not considered sufficient, we will not initiate a position but rather monitor the stock.

In case we decide to initiate a position at any time, we will share an Investment Thesis memo. For any additions to existing positions we will update you through our Quarterly Portfolio Updates.

The below is an extract from the Business Overview section $WMT ([Walmart Inc. – Harnessing the Power of Omnichannel Retailing](https://stockopine.substack.com/p/walmart-inc-harnessing-omnichannel)) released on 23rd of March. _For the full write-up (in-depth analysis of financials, industry, management, valuation and more) you can_ [subscribe to our newsletter](https://stockopine.substack.com/subscribe).

---------------------------------------------------------------------------------------------------------------------------------------------------------

**Walmart International**

This reporting segment has not followed the same trajectory as the US and there has been a lot of trial and error efforts, where Walmart invested and divested from various regions. It shall be noted that international sales include International Sam’s Clubs as well.

Currently, the international segment serves **19 countries** outside the US with the largest in terms of stores and revenue being Mexico with nearly 3,000 stores (2,862 of which 168 are Sam’s Club) and Canada, Chile and China (43 Sam’s Club) each having c. 400 stores.

The most notable recent divestments were Walmart Brazil in fiscal 2019 (465 stores), Walmart Argentina in fiscal 2021 (Nov 2020, 92 stores), Asda in Feb 2021 in the United Kingdom (632 stores) and Japan – Seiyu in Mar 2021 (328 stores).

![Image upload](https://cdn.commonstock.com/329d1664eb84e945b127b5410274cce4a522f33bd4090f744ec3ea7a1d10f0a3-794x443.png?w=748&fit=max)
_Source: Stratosphere.io, StockOpine analysis_

Given this rough journey Walmart International revenue **declined by a CAGR of 3.3%** since FY14, reaching total sales of **$101.0B** in FY23 and accounting for 17% of total sales compared to 29% in FY14.

The drop in revenue was driven by the decline in revenues per store and the reduction in the number of stores. Revenue per store fell from $23M in FY14 to $19.1M in FY23 (CAGR of -2%) whereas the number of stores dropped from 6,107 to 5,306 (CAGR of -1.6%). The abnormal drop observed in FY16 revenues is driven by an FX impact of $17.1B whereas FY23 sales also had a negative FX impact of $3.7B.

The downward trend for revenues per store is likely to continue as Mexico stores increase faster than other countries, and as Mexico & Central America’s revenue per store in FY23 is lower at $11M Vs $55.1M for Canada and $38.6M for China. It shall be noted that Mexico stores increased from 2,199 in FY14 to 2,862 by FY23 (CAGR of 3%) whereas Canada was relatively flat (from 389 to 402) and China declined by 40 stores (from 405 to 365).

As it can be seen from the above graph, operating margin was on **average 200bps lower than the US** and the same applies for FY23 (International operating margin is 2.9% Vs 4.9% for US). Per the 10K report, gross margin is generally lower primarily due to format mix. For instance, Mexico which is the largest international segment has 2,290 Bodega Aurrera (including Express & Mi Bodega) that are smaller in size compared to supercentres which are the majority of stores in US. Fixed costs relative to square feet are relatively higher for smaller stores and as a result, operating margins are also lower. Divestures and restructurings also impact margins.

![Image upload](https://cdn.commonstock.com/e1e0d3fbf39ddadaed4a52df10f69473d628ab4639f0501271e63c765db0ac46-788x448.png?w=748&fit=max)
_Source: Walmart 10K filings, StockOpine analysis_

Internationally, Walmart offers similar services as in US and also aims to unlock value in marketplace, fulfilment, ads and financials (through PhonePe). Except the core retail (including ecommerce) these services are immaterial and although there is room for growth the timing to unlock it, is unknown. The most tangible medium term catalysts appear to be fulfilment services and financial services (especially PhonePe).

Before moving to Sam’s Club segment we want to dive into the position of Walmart in India through its ownership in Flipkart and PhonePe. The size of the opportunity is further addressed in the Industry section.

**India**

Flipkart, up until December 2022 owned PhonePe, a digital transaction platform in India. Following the separation, Walmart owns approximately **89% of PhonePe**, up from c.76% prior to separation.

**Flipkart** is an eCommerce marketplace in India (including Flipkart and Myntra) in which Walmart is a majority shareholder with **75% ownership**.

Flipkart also launched **Flipkart Health+** (through the majority acquisition of SastaSundar Healthbuddy Limited), an online pharmacy and healthcare platform through which the company aims to tap India’s healthcare market. Seems to be late to the party as Amazon India started offering these services a year earlier. Needless to say that the market does not seem to be huge given [Statista estimates of a $1.61B market](https://www.statista.com/outlook/dmo/digital-health/ehealth/online-pharmacy/india) in 2023 (expected to reach $2.61B by 2027).

To understand the strength and the flywheel for the Indian opportunity, and using [Apptopia rankings](https://blog.apptopia.com/worldwide-and-us-download-leaders-2022), **Flipkart** was the 6th most downloaded shopping app globally in 2022 with total downloads of **115M** (2021: 5th with 93M) whereas Shopsy (owned by Flipkart) was ranked as 5th with **141M** downloads (2021: not in top 10).

![Image upload](https://cdn.commonstock.com/f88b2a5af85078d693d9ba0861cace5c30b948c7c47a839fe7a7bf35f9d6d1f3-691x441.png?w=748&fit=max)
_Source: Apptopia_

Looking at **PhonePe** it gets more interesting. Per Apptopia, PhonePe had **94M** downloads worldwide for 2022 (2021: 79M) in Finance category, placing it 1st (2021: 3rd), even above PayPal which had **92M** (2021: 106M and ranked 1st).

PhonePe is estimated to be used by 1 in 3 Indians or **450M** users (a country with population of 1.4B) providing a significant opportunity for growth as PhonePe enhances its product offerings like Insurance, Wealth Management and UPI payments. For context, total PayPal active accounts as of 31st December 2022 were **435M** (of which 35M are merchant accounts).

Walmart, strongly believes in the success and growth of PhonePe which explains [the injection of $200M](https://website.phonepe.com/assets/press/PhonePe-raises-200Mn-dollar-in-additional-funding-from-Walmart.pdf) on 17th of March 2023 in PhonePe’s efforts to raise $1B.

To close this section, we lay down 3 quotes from the recent earning call (Feb 2023) that justifies the momentum in India (own emphasis):

- _“Our fast-growing businesses in India, Flipkart and PhonePe announced a **full separation** which allow both companies to focus on their own growth paths independently and help unlock value for shareholders. Flipkart has continued to **strengthen its market leadership position in eCommerce** and is entering this year with good momentum. PhonePe also announced the closing in January of the initial tranche of **a fundraise that values the business at $12 billion pre-money.** This is more than double the previous valuation just two years ago.” C. Douglas McMillon, President & CEO_

- _**Flipkart** – “Flipkart continued its strong momentum through Diwali and other seasonal events. We are particularly pleased to see Flipkart's **positive contribution margin** expanding.” John Rainey, CFO_

- _**PhonePe** – “PhonePe's recent valuation that Doug talked about was supported by annualized **TPV** reaching more than **$950 billion**, about 50% higher than just one year ago, while also exceeding more than **4 billion monthly** transactions.” John Rainey, CFO_

PhonePe (latest pre-money valuation **$12B**) is already huge in terms of volume when compared to PayPal (market cap of **$83B**) which had annual TPV of $1.36T in 2022 and processed 6 billion transactions in Q4 2022, though, considering its valuation we presume that monetization and profitability are well below PayPal. This provides a significant opportunity.

📢 _Hope you enjoyed this extract! If you did, consider signing-up and/or share it with friends. Your support will be appreciated._

🤝 _As a reminder, students with an .edu email can benefit from a 50% discount (if you face any issues or you are a student without an .edu email but wish to subscribe to the paid tier contact us)._
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Disclaimer: The content of our newsletter is not a trading or investment advice and we do not provide any personal investment advice tailored to the needs of any recipient. The information provided should not be considered as a specific advice on the merits of any investment decision.

Apptopia data unveils the most downloaded apps of 2022.

https://blog.apptopia.com/worldwide-and-us-download-leaders-2022

Worldwide and US Download Leaders 2022

Walmart Inc. is the largest US retailer and operates supercentres, supermarkets, hypermarkets, warehouse clubs, and ecommerce websites across the world.

https://stockopine.substack.com/p/walmart-inc-harnessing-omnichannel

Walmart Inc. – Harnessing the Power of Omnichannel Retailing

In-depth analysis of stocks that fit our portfolio and have a potential for sustainable returns. Click to read StockOpine’s Newsletter, a Substack publication with thousands of readers.

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Subscribe to StockOpine’s Newsletter

https://website.phonepe.com/assets/press/PhonePe-raises-200Mn-dollar-in-additional-funding-from-Walmart.pdf

The Online Pharmacy segment in India is projected to grow by 12.91% (2023-2027) resulting in a market volume of US$2.61bn in 2027.

https://www.statista.com/outlook/dmo/digital-health/ehealth/online-pharmacy/india

Online Pharmacy - India | Statista Market Forecast

![Image upload](https://cdn.commonstock.com/396843576ff54f812f76fa3de9461230cc4cd4bb72bd4941f65dda8e6ea091f6-4000x4000.png?w=748&fit=max)

A preview of tomorrow's _risqué_ [Valuabl](https://valuabl.substack.com/) cartoon by the ever-brilliant [H.Lawless](https://twitter.com/hlawlessartist). See these cartoons first on [Instagram](https://www.instagram.com/valuablofficial/).

👩🏻‍🎨 Aussie artist 
🇬🇷 Digital nomad, painting in Greece
🖼 Buy oil paintings and prints on my website
🎨 New paintings available every 2 weeks
⬇️ Shop now

Harriet Lawless Artist (@hlawlessartist) / Twitter

Value-oriented financial market analysis and investment ideas. Click to read Valuabl, by Edmund Simms, a Substack publication with thousands of readers.

Valuabl | Edmund Simms | Substack

139 Followers, 6 Following, 39 Posts - See Instagram photos and videos from Valuabl (@valuablofficial)

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Valuabl (@valuablofficial) • Instagram photos and videos

Too big to fail

Edmund Simms

Automatic Data Processing Inc.

Booking Holdings Inc

Calix Inc

Chegg Inc

Concentrix Corporation

Criteo S.A - ADR

Dynatrace Inc

Elastic N.V

Globant S.A.

Alphabet Inc - Class C

Alphabet Inc - Class A

HubSpot Inc

International Business Machines Corp.

Microsoft Corporation

RingCentral Inc. - Class A

SentinelOne Inc - Class A

Smartsheet Inc - Class A

SPS Commerce Inc.

TaskUs Inc Class A

Teleperformance - ADR

Uber Technologies Inc

Workday Inc - Class A

"Ratings were based on anonymous employee feedback about core culture metrics. Questions about opportunities for growth, bonuses, what the leadership looks like, and more were all asked. While some companies appeared on the list for the first time, others held onto their top spots."

1. Microsoft ($MSFT)
2. Workday ($WDAY)
3. Chegg ($CHGG)
4. RingCentral ($RNG)
5. HubSpot ($HUBS)
6. Concentrix ($CNXC)
7. Elsevier
8. LexisNexis Legal & Professional
9. Globant ($GLOB)
10. RX
11. ADP ($ADP)
12. IBM $IBM)
13. Google ($GOOG / $GOOGL)
14. Teleperformance ($TLPFY
15. TaskUs ($TASK)
16. Encora
17. Medallia
18. SPS Commerce ($SPSC)
19. Uber ($UBER)
20. Calix ($CALX)
21. Vena Solutions
22. Criteo ($CRTO)
23. Ivalua
24. Smartsheet ($SMAR)
25. Booking.com ($BKNG)

The 26-50 range included SentinelOne ($S, #32), Elastic ($ESTC, #39), and Dynatrace ($DT, #47).

Source: [https://www.fastcompany.com/90872515/best-companies-workplace-culture-full-list-employee-feedback](https://www.fastcompany.com/90872515/best-companies-workplace-culture-full-list-employee-feedback)

Microsoft, Workday, Chegg, RingCentral, HubSpot, and Concentrix scored high for company culture based on employee ratings.

https://www.fastcompany.com/90872515/best-companies-workplace-culture-full-list-employee-feedback

These 25 companies have the best workplace culture right now, according to actual employees

The 25 best company cultures according to a poll of employees by FastCompany

Steve Matt

Banking sector assets to GDP


![Image upload](https://cdn.commonstock.com/8a8526cfc7c369526021d3e814bab19d9d8560c0a4aa0f7ab08e47518fcda115-865x423.jpg)
_Source: Swiss National Bank Financial Stability Report 2022; People's Bank of China; Bloomberg; BofA_


[https://media.licdn.com/dms/document/D4E1FAQHydzOelR4E2w/feedshare-document-pdf-analyzed/0/1680207141193?e=1681344000&v=beta&t=ZIuu3oafyE4N_zKg-51W2uyn41_84zwz5F7uI0cPTD4](https://media.licdn.com/dms/document/D4E1FAQHydzOelR4E2w/feedshare-document-pdf-analyzed/0/1680207141193?e=1681344000&v=beta&t=ZIuu3oafyE4N_zKg-51W2uyn41_84zwz5F7uI0cPTD4)

The importance of bank credit

Todor Kostov

Hi Guys

I’ve finally set up a Substack. 

Please subscribe and share, new post coming as soon as next week!

[https://fcompounders.substack.com/?r=17kywt&utm_campaign=pub-share-checklist](https://fcompounders.substack.com/?r=17kywt&utm_campaign=pub-share-checklist)

Welcome to Finding Compounders, a substack dedicated to the art of investing in quality companies. Join us as we explore businesses with strong competitive advantages, sustainable growth potential, exceptional management teams, and sound financials. Click to read Finding Compounder's Substack, a Substack publication. Launched 16 days ago.

https://fcompounders.substack.com/?r=17kywt&utm_campaign=pub-share-checklist

Finding Compounder's Substack | Substack

My Substack is finally here !

FindingCompounders

_Recent financial market turmoil has pushed banks' share prices down. No doubt some of it is justifiable. But, amongst the rubble, investors should be able to find some bargains._

•••

![Image upload](https://cdn.commonstock.com/ed1995c919a50e3367e4528c43a2164126919d1762953f6c909e2e88da5b16bc-2048x2048.jpg)
_“Bank for sale” by DALL∙E 2_

It's been a shocking month for banks. A few weeks ago, analysts were sure the economy was powering full steam ahead. Now they're worried the fallout from Silicon Valley Bank's demise will cause a deep recession. It's not only an American problem, however. Over in Europe, Swiss authorities sold Credit Suisse, one of the country's oldest institutions, to UBS, another big lender. Unsurprisingly, bank stocks have fallen amongst the carnage.

The KBW index, a tracker of American bank stocks, has fallen 27% over the last three weeks. That raises the question: are bank stocks cheap yet? My research suggests that regional American banks are inexpensive if the current batch of problems doesn't kill them. But large banks will have to fall further before they become interesting.

![Image upload](https://cdn.commonstock.com/41fbd40a4f825f7ad2a7b19fe02d6332a5559f829cbed445bd0ab895b9726f54-900x900.png)

**America's banking market has significant upside from current prices**

Overall, the banking industry is cheap. All 550-ish public American banks are worth between $1.8trn and $2trn. That's a 32% upside from the current $1.5trn market cap. Moreover, Monte Carlo simulation, a statistical scenario analysis, suggests current prices are below the 20th percentile of potential values. Or, put another way, there's a one-in-five chance bank stocks are expensive.

The sector as a whole is stunningly profitable. Last year, American banks made $160bn of profit on $1.4trn of equity—an 11% return. Of that profit, they paid out $57bn, or 36%, to shareholders. Consequently, industry profits should grow by 7% this year. But investors reckon the opposite will happen. They've priced bank earnings to drop 2% this year and next.

![Image upload](https://cdn.commonstock.com/899ff89cff5cd95488823be7d516cfff3baee4d41bba47188f8daa802a6a056a-900x1172.png)

Investors are nervous that interest rate rises might kick off a stream of defaults, causing bank earnings to fall. They're also wary that depositors, spooked by the run on SVB, might empty their accounts. Bank-run contagion would push small banks to the edge unless lawmakers stepped in again to guarantee deposits. Liquidity problems and higher default rates would weigh on earnings, especially with lower bond prices. That and higher capital costs would slash valuations.

Still, interest rate rises will also help bank profits. Their net interest margins, the gap between the rates banks borrow and lend at, will rise. Banks are quick to raise the rates they charge but slow to raise the rates they pay. That will boost bottom lines, potentially offsetting defaults. Unless there are immense regulatory or interest rate shocks, the banking market, as a whole, is cheap.

**Searching for bargains: regional banks versus money centres**

Although the entire industry looks undervalued, the large end of the market doesn't seem cheap. Big money centre banks like JPMorgan and Bank of America trade at a fair price based on their price-to-book (PB) ratios. Currently, the ten largest banks by assets managed have an average PB ratio of one, almost exactly where it should be.

![Image upload](https://cdn.commonstock.com/d591c133f3115627225d5f7d1df20d134f244e2cd78b7e3d4ef0b460b5e1dc67-900x900.png)

Bank investors typically value banks based on the ratio of their return on equity (ROE) to their cost of equity. Banks that earn a lot of profit per dollar of equity will be worth more than banks that don't. Similarly, banks with a higher equity cost will be worth less than those with a lower one.

The ratios for the big banks have moved around a lot over the last couple of decades. Returns on equity fell during the global financial crisis (GFC) and haven't recovered. Lawmakers forced banks to hold more capital and focus on safer loans. Earning excess profits became harder. Since then, big lenders have made a meagre 8% return on their equity capital—the same as that capital's cost.

![Image upload](https://cdn.commonstock.com/a22a6008a26f5e3f5f5c2310cd3a2ee7e5e2d342c2c56bda4f60c3eeea7323b0-900x900.png)

The big banks are much more capital-intensive than they used to be. These days, more equity must be reinvested for them to grow because loans generate less revenue at low-interest rates than high ones. As rates dropped, banks had to do bigger loans to move the needle. That meant more equity had to be retained, and returns fell. Consequently, investors haven't been willing to pay the lavish multiples they used to.

But, if interest rates keep increasing, banks' capital efficiency could improve. Higher rates would beget higher revenues. And more revenue per dollar of shareholders' equity would, in turn, push ROEs and PB multiples up. Still, even at higher rates, improvements in the capital efficiency of these big banks is capped. After SVB's collapse, regulators must be itching to roll out new red tape to restrict what banks can and can't do. New laws will probably tell banks to hold even more capital and narrow the scope of lending. This, in turn, will hamper capital efficiency gains.

![Image upload](https://cdn.commonstock.com/4df1a38821d083757d0668e4403559d1f9833b8a3b01693f82cfb100f89a78ac-900x900.png)
**Learning from the last crisis**

For the industry to be cheap as a whole while the big banks aren't, there must be bargains amongst the smaller regional banks. Bank opaqueness and complexity puts-off many investors. Orthodoxy amongst traders is that small banks won't get bailed out, while big ones will. That makes them seem like a riskier bet. Still, small regional banks are likely a lush hunting ground for savvy investors.

Coming out of the GFC, investors who could buy banks during periods of panic did well. In September 2008, Berkshire Hathaway, Warren Buffett's conglomerate, invested $5bn in Goldman Sachs. Berkshire got preferred shares with a 10% annual dividend and options to buy 43m shares. By 2013, five years later, the investment had made a $3.3bn profit.

You're not The Oracle. Nor am I. And the banking system is not as distressed as it was then. But, with the right approach and a keen eye for opportunity, investors can spot lucrative deals, just as Buffett did then.

Banking on bargains—are lenders cheap yet?

Latest guest featured is Dara Khosrowshahi CEO of Uber $UBER.

Topics discussed:

- What’s the future of transportation?
- How will Uber adapt to autonomous vehicles?
- What is Dara’s Uber rating?


![Image upload](https://cdn.commonstock.com/212b8d145fc1014d2973018cddff8c99b1d94506fcbeb82053d238bfa24a3a4c-1920x1080.jpg)
_Source: Inc. Magazine_

[https://podcasts.apple.com/no/podcast/dara-khosrowshahi-ceo-of-uber/id1614211565?i=1000606395000](https://podcasts.apple.com/no/podcast/dara-khosrowshahi-ceo-of-uber/id1614211565?i=1000606395000)

‎Show In Good Company with Nicolai Tangen, Ep Dara Khosrowshahi CEO of Uber - 28 Mar 2023

https://podcasts.apple.com/no/podcast/dara-khosrowshahi-ceo-of-uber/id1614211565?i=1000606395000

‎In Good Company with Nicolai Tangen: Dara Khosrowshahi CEO of Uber on Apple Podcasts

Dara Khosrowshahi CEO of Uber $UBER (In Good Company with Nicolai Tangen)

Ulta Beauty Inc

We would like to thank everyone who took part in our recent poll about the next company we should analyze. Ulta Beauty got the majority of the votes (38%).

We will provide you with a quick introduction of the company and its business model in this post, and follow up in the coming days with a review ULTA's competitive advantages, growth perspective, financial condition and performance, management team, ESG factors, and finally valuation.
![Image upload](https://cdn.commonstock.com/f9179bd27e13a46099ec3d5fc644d59ea6ee9bf513558e227f5e4aa7f7372b9d-1626x665.png)
ULTA is a leading beauty retailer in the US that offers a wide range of beauty products and services. The company was founded in 1990 by Richard George in Bolingbrook, Illinois, and has since grown to become one of the largest beauty retailers in the country.

ULTA stores offer a diverse range of beauty products including cosmetics, haircare, skincare, fragrance and bath. The company also offers a full-service salon in each store, where customers can receive haircuts, styling, coloring, and other beauty services.
![Image upload](https://cdn.commonstock.com/5b8f112c2f1c70df296f44097a5b84c30f54144139f9d8d7b4a6e320ab24af50-869x187.png)
ULTA operates over 1,300 stores across 50 states, and also offers online shopping through its website and mobile app. The company carries over 25,000 products from over 600 different beauty brands, including both well-known and emerging brands.
![Image upload](https://cdn.commonstock.com/3985f4e7f3a7b864aa88be2a98b51d285327ae172340e1c9ebe411ed13aa2c43-866x236.png)

In addition to selling beauty products, ULTA also offers its customers a loyalty program called Ultamate Rewards. The c.39mn members of the program earn points for purchases made in-store and online, which can be redeemed for discounts on future purchases.
![Image upload](https://cdn.commonstock.com/b8e96e06c19aa2d96fdee1d9386193d49aebb3c0ef75f18f0e6932c02773a37e-943x446.png)
One key aspect of ULTA's business model is its emphasis on offering a wide range of products from both established and emerging beauty brands, called the "One-of-a-kind Assortment". This allows the company to appeal to a broad customer base with diverse beauty preferences, and also creates opportunities for the company to showcase new and innovative products.

Another important aspect of the business model is its commitment to providing a high level of customer service and engagement. Services are a major differentiator and this is evident in the company's in-store salons, where customers can receive personalized beauty services from trained professionals, as well as its Ultamate Rewards loyalty program, which provides customers with personalized offers and rewards based on their purchase history.

ULTA's omni-channel offering is also a key component of its business model. In addition to stores, the company has invested heavily in its e-commerce platform, with features such as virtual try-ons and personalized recommendations based on a customer's purchase history.

We will discuss how ULTA's unique and differentiated model creates a competitive advantage later. If you are familiar with the company or would like us to cover specific points or answer specific questions you may have, please let us know in the comments.

Next Writeup: Ulta Beauty ($ULTA)

SLT Research

Starbucks Corp.

The number of coffee shops have jumped significantly in China between 2018 and 2020

![Image upload](https://cdn.commonstock.com/89b11b97d9614896100b5a112e46d4178cc974d50691f9377e2efd5701ecd793-895x787.png)
Part of it is driven by $SBUX 's push into the market, where it plans to open up a store every 9 hours and reach 9000 stores by 2025. Other brands like Tim Hortons, Luckin (the fraud, yes), Lavazza, and Manner coffee are going for their share of the market as well, which, according to analysts is turning into a price war.

You can never have enough of caffeine, can you?

China's high on caffeine

Uday

Despite the recent turmoil, big American bank stocks don't look cheap yet.

Investors value them on a lower PB multiple than last year. But returns on equity (ROE) have declined.

If you expect industry ROE to pick up and multiples to expand, there might be some decent bets here.

![Image upload](https://cdn.commonstock.com/d6ce427f04db0d273046d82c30634a78504f83e58c6d70b98a56bd9708fc287f-900x900.png)

Are big American bank stocks cheap yet?

“The capital then required to conduct the business [in 1972] was $8 million… Last year [in 2007], See’s sales were $383 million, and pre-tax profits were $82 million. The capital now required to run the business is $40 million. This means we have had to reinvest only $32 million since 1972 to handle the modest physical growth – and somewhat immodest financial growth – of the business… All of that, except for the $32 million, has been sent to Berkshire... There aren’t many See’s in Corporate America."

[https://thescienceofhitting.com/p/there-arent-many-sees](https://thescienceofhitting.com/p/there-arent-many-sees)

“Through watching See’s, I gained a business education about the value of powerful brands that opened my eyes to many other profitable investments.” - Warren Buffett (“Berkshire – Past, Present, and Future”) In the late months of 1971, Warren Buffett and Charlie Munger learned that See’s Candies, a West Coast manufacturer and retailer of boxed-chocolates, was on the selling block. The sellers wanted $30 million for the business (after accounting for $10 million of cash on the company’s balance sheet), and Munger thought that was a reasonable price given its competitive position: “See’s has a name that nobody can get near in California…

https://thescienceofhitting.com/p/there-arent-many-sees

"There Aren't Many See's Candies"

The Science of Hitting

I started researching the next company I'll cover. Decided to go with Zoetis, any opinions on the company?
![Image upload](https://cdn.commonstock.com/f1380c80fe78346ee559b75eb6c2d80c76da96ee6ad93ed12ee9f6c73ceaa7d1-900x489.png)

Zoetis

Giuliano

Arista Networks Inc

There’s an old saying on Wall Street, _Bears make headlines, bulls make money_.

It’s true. Fear-driven headlines can easily get investors off course.

Ultimately, quality stock picking wins in the end.

![Image upload](https://cdn.commonstock.com/7a4f9e5395f845976de9b0d22d8789ead1fa7e41fba316f3ef8761fa0f2c2fca-1402x547.jpg)


I’m fortunate to have lived through a handful of market pullbacks: the Global Financial Crisis, Taper Tantrum, COVID-19, and more. Let’s go ahead and add the latest bear-fueled worry: the banking crisis.

Now, I can’t minimize these episodes, as they are and were real concerns. However, the market tends to sort setbacks out eventually. Bear markets don’t last forever.

Betting on great businesses has been a winning recipe over the long-term.

Today, we’ll dive into the latest data and size up the current supply and demand narrative. Sellers have been in control for well over a month, but that’s only half the story. One group of stocks has been under healthy accumulation: High-quality growth.

Many of our best performing stocks over the years are in demand. I’ll showcase one example company, and how our data-driven process highlights these outliers.

First, let’s check in on the data landscape.

[**Heavy Stock Selling Has Slowed**](https://mapsignals.com/map-blog/quality-stock-picking-wins-in-the-end/)

Since early February, outflows have ruled our data. We noted [heavy overhead supply was weighing on stocks](https://mapsignals.com/map-blog/stocks-are-facing-overhead-supply/). The wave of selling dropped our Big Money Index (BMI) from overbought to nearly oversold levels in a few short weeks.
While we didn’t hit the oversold threshold of 25%, we did break 30%. Interestingly, the latest lift in markets has lifted the BMI ever so slightly:

![Image upload](https://cdn.commonstock.com/5e2bebf6f22fc1cb700902405d946272ab80d3557658eead26af197608fad0d3-1200x1200.jpg)

Diving under the hood, we can see how the recent gains aren’t due to heavy buying, rather it’s from a slowdown in selling. When selling drops, stocks pop:


![Image upload](https://cdn.commonstock.com/e8173138aaea9f9e30df49e1525f6811993b0563d9c919a491647542af09d8ce-1200x1200.jpg)

All things being equal, this is constructive action. This doesn’t mean it’s an all-clear signal. It simply indicates that the latest banking crisis worry has made progress.

While stories of bank runs and high interest rates gripped the TV screens, under the surface of the market there’ve been green shoots. Select Technology and Discretionary stocks have been under accumulation.

[**Quality Stock Picking Wins in the End**](https://mapsignals.com/map-blog/quality-stock-picking-wins-in-the-end/)

Our quantitative process is all about cutting through the noise and isolating what drives stock prices: supply and demand. We rank and score thousands of equities looking at fundamental qualities like sales growth, earnings growth, and more.

What we’ve found is simple: Great companies tend to grow earnings year after year, and stock prices reflect those earnings. Top performing companies have stocks that are consistently in demand.

So, where has the demand been? Technology and Discretionary names reign supreme in 2023. A great way to see that is via our sector ranking chart.

![Image upload](https://cdn.commonstock.com/4801892a0836a02fb3daebc410c687f96203624872d9c33160206c9edd446aae-2377x1211.png)

High MAP Scores reflect not only demand for the groups, but also the overall health. Each week for subscribers we display a Top 20 list ranking the highest scoring stocks under accumulation. These are the best of the best.

Unsurprisingly, 9 of the top 10 most bought names in Q1 were in the Tech and Discretionary space. Sifting through the market carnage reveals bright spots.

One great example is Arista Networks ($ANET). With a MAP Score of 91, the company has been firing on all cylinders technically and fundamentally. Below shows that the stock was a Top 20 stock 4 times YTD:

![Image upload](https://cdn.commonstock.com/d83d9fceffe965be76104ac0a936abedaf0a7ce23b1f311fdf5191bfa5fc6636-1200x1400.jpg)

Each blue bar encompasses healthy fundamentals alongside heavy accumulation. A quick look at the sales and earnings trends paints a quality picture. The company sports 3-year sales growth rate of 24% and 3-year EPS growth rate of 22%:

![Image upload](https://cdn.commonstock.com/0bbba5b61fff885c161137ecc761ec4de20984517deefe2a78cbf7387b3f1d11-1564x1263.jpg)

These are rock-solid numbers that easily attract institutional demand.

If you zoom out, you’ll see that the inflows have been constant in this name for many years. Since 2015, $ANET has made our Top 20 list an incredible 59 times. Data is powerful:

![Image upload](https://cdn.commonstock.com/ad3b62a7fa357ada4843cdfd0cf0faeb60632406da911a741e000631bc515342-1200x1400.jpg)

This chart highlights how quality stock picking wins in the end. Market pullbacks will come and go, but as investors we should keep turning over as many stones as possible.

Data helps reveal the winners.

Let’s wrap up.

**Here’s the bottom line**: The recent drawdown in stocks has slowed. Green shoots can be seen in high-quality growth as they are under accumulation. One great example stock in our research is Arista Networks.

Focusing on sales and earnings growth has been a winning recipe for years…and even in today’s tough market conditions. There is a rush to quality in 2023.

Over the long-run, investing is all about finding the best businesses and holding.
Bears make the biggest headlines. Bulls make the money.

Let MAPsignals help you discover great businesses. [Get started with a subscription today](https://mapsignals.com/solutions/)!

There’s an old saying on Wall Street, Bears make headlines, bulls make money. It’s true. Fear-driven headlines can easily get investors off course. Ultimately, quality stock picking wins in the end. I’m fortunate to have lived through a handful of market pullbacks: the Global Financial Crisis, Taper Tantrum, COVID-19, and more. Let’s go ahead and

https://mapsignals.com/map-blog/quality-stock-picking-wins-in-the-end/

Quality Stock Picking Wins in the End - MAPsignals

Markets ebb and flow like waves in the ocean. Eventually there’s a crest, which prefaces a downward pull. That’s where we are in the data. Stocks are facing overhead supply. Just 2 short weeks ago, our rare overbought signal triggered. It’s an indicator pointing to extreme appetite for stocks. It rarely lasts and often forewarns

https://mapsignals.com/map-blog/stocks-are-facing-overhead-supply/

Stocks Are Facing Overhead Supply - MAPsignals

Solutions MAPsignals is the pioneer in connecting the universe of technical and fundamental market data with the institutional trading flows that drive market movement. It’s a unique, proprietary data analysis platform that transforms the way individual and professional investors look at the market. MAPsignals’ volume and price analysis tools enable investors to identify unusually large

Solutions - MAPsignals

Quality Stock Picking Wins in the End

MAPsignals

Warren Buffett’s write up on Oil and Gas Property Management 


![image](https://cdn.commonstock.com/628d5882542efb08309b4dd28eafc27a016d187aa4ad88275a94298eea41fe10-828x1531.png)


The Security I Like Best 

AMC Entertainment Holdings Inc - Class A

Amazon.com Inc.

What’s the consensus here on Amazon **$AMZN** buying AMC Entertainment **$AMC**? 

Personally, as an **$AMZN** shareholder, I’m not a fan. 

Michael Scofield

Apple Inc

I sold out of $AAPL. After considering their valuation, the risk associated with the company in this climate, and the potential upside, I don't think this is a compelling opportunity. Apple is a tremendous company with lovely products and pristine capital allocation, but at the crosshairs of US-China tensions, and soon to be under attack in the EU by Apple forced to open up to 3rd party App Stores, such as one in works by $MSFT and I'm pretty sure many others, under a new law kicking in next year. [https://www.theverge.com/2023/3/20/23648112/microsoft-xbox-mobile-store-2024-launch](https://www.theverge.com/2023/3/20/23648112/microsoft-xbox-mobile-store-2024-launch)

This is a reason for concern looking at the valuation, as one of the most lucrative assets and its monopoly is being challenged.

So for now, I'm out. I'm open to re-entering my position at a lower valuation, but this isn't a good R/R now.

I also sold $UBER for a small loss as I continue to narrow my focus on the companies I consider core holdings instead of opportunistic plays.

Microsoft wants to fill its Xbox mobile store with Activision games

https://www.theverge.com/2023/3/20/23648112/microsoft-xbox-mobile-store-2024-launch

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