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Cybersecurity Supremacy
Cybersecurity spending isn’t slowing down!

Palo Alto Networks $PANW reported earnings yesterday posting:

  • Adj. EPS of $1.79 vs. $1.68 expected
  • Revenue of $1.39B vs. $1.36B expected

A rare double beat for this earnings season. As a result, $PANW was up over 12% after-hours.

The cybersecurity industry is projected to be worth around $146B by the end of the year. Statista expects this industry to grow at an annual rate of 9.7% until 2026.

With tailwinds like these, cybersecurity stocks are in a great position over the next few years.

We can see this stability ourselves by looking at revenue growth for companies in this sector.

Crowdstrike $CRWD is the only stock to see its revenue growth decline over the past two years, but it is still at 63%!

Even with these tailwinds, cybersecurity stocks have been hit hard in the recent sell-off. Only Check Point $CHKP has stayed out of a bear market level down 19% from previous highs.

After this sell-off here is how these stocks currently compare based on revenue multiples and their respective growth rates.

Do you have a favorite cybersecurity stock? Which one? Tell us below!
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🤑Greedy When Others are Fearful 🤑
Everyone knows yesterday was a brutal day in the market. We don’t want to talk about it and I’m sure you don’t want to hear about it. Obviously, there are a lot of people selling stock, but let’s discuss someone who is buying A LOT.

At the end of every quarter, investors with over $100M in assets must file a 13F, which contains all of their current investments. Lucky for us, this means we get to see what Warren Buffett has bought and sold in Berkshire Hathaway’s $364B investment portfolio! The Oracle of Omaha was a net buyer of $41.5B in stocks – that means he grew the portfolio by that amount, net of any stock sales. This is the most Berkshire has purchased since the Great Financial Crisis. Talk about being greedy when others are fearful! Let’s look at one of these moves.

Liquid Gold!

If ain’t broke, don’t fix it. Berkshire has been bullish on oil stocks for more than a year and with oil now north of $100 a barrel, these stocks have seen a spike in their net income. This quarter Berkshire deployed an additional 7% of its portfolio into Chevron $CVX and Occidental Petroleum $OXY. These positions are now the fourth and sixth largest positions in the entire portfolio.

Buffett made a few more big moves, including one you might find a little surprising!

If you want to see those, check out our newsletter!
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Retail Takes a Dive!
Yesterday, Walmart $WMT reported earnings and had the worst drop since Black Monday (1987). Today it was Target's $TGT turn! Target delivered revenue of $24.8B and EPS of $2.19 compared to expectations of $24.5B and EPS of $3.02. Target proceeded to drop by over 25% and Walmart continued to move lower.

Both of these companies said higher logistics costs caused a drag on profitability. Typically these companies have really stable margins, but the recent supply chain issues have thrown a wrench into their stability.

Even after its drop, Walmart is still trading at close to 25x earnings. Target on the other hand is trading near 10x earnings. This makes Walmart more expensive than Apple, Microsoft, and Alphabet.

Currently, the retail market is under fire as growth is slowing across the industry. If you look at revenue growth numbers for Amazon, Walmart, and Target it is clear things are slowing down after the recent spending boom.

What about the consumer? Well, they don't seem too happy as the recent consumer sentiment data continues to drop to decade lows.

All in all, this week has been another rough one for both investors and consumers.
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Are you team Buffett, or team Burry?
Looks like we have a battle between two legendary investors!

Michael Burry has apparently bet against Berkshire's biggest investment position, Apple $AAPL. Apple makes up 43% of Berkshire Hathaway's investment portfolio and Burry has bet against Apple with 18% of his holdings. Apple has been one of the strongest stocks during the recent sell-off, but let's take a look!

Aside from being the biggest stock in Buffett's portfolio, it is also the largest stock in the S&P 500. This size could be part of the reason Apple has held up so well relative to other tech stocks. Apple has been the best mega-cap performer relative to previous 52wk highs.

Maybe Burry is making a bet against Apple because of its valuation. Taking a look at its relative valuation, Apple has the 3rd slowest revenue growth and the third-lowest price-to-earnings ratio. This seems reasonable, but maybe there is more to it.

Maybe Burry believes Apple won't be able to sustain its current financial strength. For example, Apple's growth is slowing down, dropping from highs above 50% to 8.6%.

In either case, this is going to be a fun story to follow as it develops over the coming quarters.
Who do you think is on the right side of this trade?
23%Burry
76%Buffett
21 VotesPoll ended on: 05/18/22
He had PUT contracts as of Mar 31st so he was looking for alpha. Given $AAPL reported earnings since then and was down over 18% since March 31, I think he made good on his bet. PUT contracts most likely not a long term hold and we're event driven
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China's Economic Slowdown
Economic numbers out of China are not looking so hot.

Chinese stocks have had a rough year as the economy remains heavily impacted by the pandemic. Let's look at the individual companies and see if their fundamentals are being affected in the same way. In this case, let's look at Tencent, Alibaba, JD, PDD, and Bidu.

If you want to look into the economic data a bit further, this is a good place to start.

Despite these economic pressures, it appears these stocks have been able to grow their revenue steadily over the last two years.

Unfortunately, this growth is beginning to slow as sequential revenue growth has dropped in each of the last 3 quarters. Sequential revenue growth can be a good indicator of how stable a company's growth rate is. Seeing declining growth quarter over quarter could signal more slowing to come.

Additionally, margins have dropped for 3 out of these five stocks. Only, Alibaba and Pinduoduo have seen margin expansion. Revenue growth with declining margins can be a sign of competitive weakness or a slowing economy. This is because it means a company is lowering prices or facing higher input costs.

But what about the US? An important thing to analyze is the opportunity cost associated with purchasing these shares instead of shares in US tech companies. When comparing these two groups of stocks it becomes clear they have similar valuations although US stocks are experiencing higher growth rates.

As an investor, it is important to analyze the opportunity costs, valuation, and future prospects before taking a position. What do you think about these Chinese tech stocks? Are they undervalued, or do they have more room to fall?
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Buy now, later, or never?
Affirm’s approach to interest-free deferred payments helped push the company into the spotlight during the pandemic. The company struck major partnerships with companies like Peloton, Shopify, and Amazon. In November, Affirm reached a high of $176 a share. Now, the company’s stock price sits at just $15, a 90% drop from the highs. Today, aftermarket close, Affirm reports its third-quarter report and hopes to spark a turnaround. Let’s take a look at the numbers and see if Affirm is a buy now, or wait until later.

Slowing Down?

Affirm’s share price might be falling, but its revenue growth has remained above 50% since the company went public. Can Affirm assure investors in today’s earnings report that it can sustain high growth for the foreseeable future?

Slim Margins?

Growth is one part of the equation, but so is profit. In today’s market, profitability is in focus more than ever. If you haven’t noticed, growth stocks have been hit the hardest in part because many of them are still losing money. Unfortunately for Affirm, it’s one of these unprofitable growth stocks. In fact, among its financial technology peers, only Robinhood is less profitable.

Guilty by Association?

Another reason behind Affirm’s recent struggles could simply be its exposure to the financial technology industry. Affirm’s friends haven’t been doing so hot. Most recently, Upstart reported horrendous earnings and dropped 56% the next day. As it currently stands, Affirm is the second-worst fintech performer relative to its 52wk high.

Needs a Knockout

Even after this drop, Affirm currently has the highest valuation multiple at 6x revenue. This reflects a hefty premium to other stocks in this group like Upstart, Coinbase, and Block, while its growth is only in the middle of the pack. Can Affirm justify this premium valuation with a knockout earnings report or could it face the same fate as Upstart post-earnings?
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The House of Mouse!
Between launching a streaming business and operating the most magical place on Earth, Disney $DIS has captivated society's attention for decades.

Disney reports its quarterly results this afternoon. Do you think it will beat expectations?

In April, the company reported 103.6m Disney+ subscribers. This was under the analyst forecast of 109m.

Interestingly enough, although investors have recently been focused on its streaming business a majority of Disney's profit comes from its parks. With pandemic policies subsiding, Disney parks have opened and operating profits are above pre-pandemic levels.

The combination of parks re-opening, and streaming subscriptions has allowed Disney to return to growth. As it stands, here is how Disney's valuation looks compared to other DOW components.

Analysts are currently expecting adj. earnings-per-share (EPS) of $1.19 on revenue of $20.1B. Do you think Disney has what it takes to top these estimates?
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Coinbase Earnings Preview
While Bitcoin $BTC is down 15% in the last five days, Coinbase $COIN is down 40%!

Today Coinbase reports earnings, with analysts expecting $0.17 in earnings-per-share (EPS) on $1.48B in revenue. Let's see how this crypto giant stacks up with some competitors!

It isn't easy being a fintech stock! Each of these businesses are 70% or more off of their 52wk highs with $COIN down 80%. Unlike the rest of the stocks in this comparison, $COIN generates huge net income margins of 45%! These are higher margins than Microsoft $MSFT, which we have added to the chart.

Bears will argue that $COIN is just an exchange and will eventually have margins similar to $NDAQ and $IEX. To their point, $COIN's margins have dropped heavily from a high of 59% to 34%. This is still roughly double $IEX and $NDAQ at ~18%.

Bulls will argue the valuation is too cheap to ignore. To their point, $COIN trades at a trailing earnings multiple of 3.7x, but slower growth estimates suggest a forward earnings multiple north of 20x.
What is your take on Coinbase?
50%Bullish
50%Bearish
18 VotesPoll ended on: 05/11/22