Buffalo Wild Wings expanding delivery service: College Students Rejoice!

College Kids love good food, that one think is well known.  Among the options, Buffalo Wild Wings Inc. is a perennial favorite with this demographic, and one way it is pursuing to turn around its struggling business is expanded delivery service. Now you can have your wings delivered to your home or dorm if you don’t feel like making a trip to the restaurant!

Recognizing a shift in consumer behavior, Buffalo Wild Wings BWLD, -3.69%   Chief Executive Sally Smith said on the company’s Wednesday earnings call that it’s ramping up delivery at its company-owned locations.

“Delivery is an addressable opportunity for Buffalo Wild Wings as more consumers are eating at home.  You’re really seeing a decline on in-restaurant traffic in the casual dining restaurants, the whole restaurant industry.  You’re seeing a shift from in-restaurant dining to take-out & delivery, and that drop has been more severe than we were anticipating in the industry as we came into the year.

In the most recent quarter, the company saw sales during the March Madness college basketball tournament slip, which company executives attributed to increased competition and more home viewing of the games. The company focused on take-out and delivery in order to claim some of those sales.

Third-party delivery from 180 locations added $2.7 million in company-owned sales for the first quarter. The company aims to have delivery in 250 company-owned restaurants by year’s end. It’s also looking to add delivery to local apps and websites in order to cut down on third-party-provider commissions, and exploring ways to increase profitability, including the addition of beverages, where possible. Buffalo Wild Wings serves beer and other alcoholic drinks.

Buffalo Wild Wings reported overall sales of $534.8 million for the first quarter, up from $508.3 million last year, but below the $536.0 million FactSet consensus. Same-store sales at company-owned restaurants were up 0.5%.  With that, adjusted earnings were $1.44 per share, also below the consensus of $1.66 per share.

Trading at $156, BWLD seems to be trying to change things to earn your money as an investor.  Has it worked?

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Under Armor: Buy or Bust?

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As a college student, the latest trends in clothing and fashion often include many different kinds of athletic wear.  As a young person, no brand is more fitting for the youthful culture and the Brand meaning than Under Armor (UA).  They have a unique focus on performance and everyday usability, and this company is part of a new generation of players looking to take on the established brands of Nike and others.

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Under Armor stock has been on a wild ride over the past few years, going from highs of around $125 per share all the way down to the current price of  $19 per share.  This dramatic movement is also surprising as the company has been growing and reporting positive sales numbers.  Last year, while the market was up and strong most of the year, UA was down over 55%.  Investors seem to hate the stock and the company is in a rough position with respect to its valuation.  Seeking Alpha has many articles on the value of UA shares and why they really do seem like an overweight company in the marketplace.  The guidance has slowed for the company in the past few quarters, and the thinking among analysts is that UA has reached its max growth  potential and is starting to cool down and transition into a more stable and slower moving company.  With a Price to Earning Ratio of 44 at its current stock price, the earnings have significantly slowed and this has affected the underlying value of the stock in the eyes of investors.

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In addition to generally softer earnings, the international growth that the company is aiming for has taken longer than expected to take root and start contributing to the bottom line.  Even at the new lower price since the dramatic drop off in 2016, UA is still struggling to grow the bottom line at a rate which makes investors happy with the brand, and the direction of the company is becoming more unclear every day as the marketplace changes to a digital world more and more.  UA has been a little slow developing digital elements to connect with the clients it targets, and competition in the sports world has been fierce with various sports stars working with the brand to try and increase growth.  Cam Newton and Stef Curry are UA sponsored, but the brand is still struggling to get the needed sales growth.  Based on this lack of continual growth and instability with the company earnings, Under Armor is a stock that I would avoid as an investor as there is too much downside risk to owning shares.

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How to Research Stocks

There are many different sources to go to for stock news.  The source you get information from is important since this is directly impacting the stocks you choose and the performance you get out of your portfolio.  Below are two trusted sites which have different content but act as valuable resources when looking where the market and individual stocks are headed.
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Seeking Alpha: https://seekingalpha.com/

Seeking Alpha is a platform for investment research, with broad coverage of stocks, asset classes, ETFs and investment strategy. In contrast to other equity research platforms, insight is provided by investors and industry experts rather than sell-side analysts.  This means that the information is being generated by experts with no financial ties to the data.  Seeking Alpha has three outstanding characteristics:

  • Breadth: Seeking Alpha has remarkably broad coverage of stocks, including more than 4,000 small and mid cap stocks covered in the past year.
  • Depth: With over 10,000 contributing authors and 280,000+ commenters, insight and discussion are informed and sophisticated.
  • Influence: Seeking Alpha articles frequently move stocks, due to a large and influential readership which includes money managers, business leaders, journalists and bloggers.

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MarketWatch:  http://www.marketwatch.com/

MarketWatch, published by Dow Jones & Co., tracks the pulse of markets for engaged investors with more than 16 million visitors per month. The site is a leading innovator in business news, personal finance information, real-time commentary and investment tools and data, with dedicated journalists generating hundreds of headlines, stories, videos and market briefs a day from 10 bureaus in the U.S., Europe and Asia.  MarketWatch has several key characteristics which make it good for searching out market trends and picking stocks successfully:

  • Combined Analyst ratings from major firms put together into one general consensus for easy picks
  • Video content hosted by industry experts on the latest new stories.  Fast acting reporting and informational stories allow traders to follow trends that directly impact share pricing.
  • Insider information that tracks trading of higher ups and industry experts.  Full financial data from historical analysis and rates

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Both platforms each have unique views on the market; one as more of a blog format and the other as a stock news service with special insight.  Using each of these sites in tandem together makes the stock buyer able to be informed about their choices and able to increase their ROI with respect to their value oriented stock buying.  Try them out next time you are researching a stock to buy!

IPO or Bust: Is it smart to get in early as a new investor?

Hamilton Lane Inc. is a global provider of private markets investment solutions with $292 billion of assets under advisement and $40 billion of assets under management. The company works with its clients to build out, conceive, monitor, structure and manage portfolios of investments and private market funds. It has 290 employees working in 11 office locations in the U.S., Tel Aviv, London, Rio de Janeiro, Seoul, Hong Kong and Tokyo. The company offers a menu of different investment solutions for its clients, including customized separate accounts, specialized funds, advisory services, distribution management and data analytics. The company was founded in 1992 and is based in Pennsylvania.  In February, the company decided to file an IPO which is the way a corporation can be listed on a stock exchange and transition from private ownership to a publicly owned entity.

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This announcement and the flurry of high profile IPOs this year has made investors excited to put money into new companies on the market and buy the shares the day they come out.  However, does this really make for a viable long term strategy for investing?  Often times the stock may have violent fluctuations at the post launch period, but the price settles in and may not even increase after the first people buy their shares in the launch.  Snapchat for example launched at around $20 and has remained flat ever since with little movement upwards.  This shows that the initial valuation was high and now the upside is very limited for the company at the present post IPOScreen Shot 2017-04-11 at 8.53.49 AM.png

Likewise, would it be smart for a beginning investor in college or the early phase of investing to put money into a volatile but potentially growing company?  Based on this evidence, I would argue that No it does not make sense to try and derive value from these stock IPO launches such as Hamilton Lane.  While they have hype and potential, often times the price is pushed so high before the public stock release that the gains and upside are eliminated if people pile into buying shares.  Since Hamilton Lane was a quality company that has existed for years and has an established revenue stream, the ability to judge the value of the company was very accurate and high.  Below is the stock price since the IPO and it shows that the analysts who valued the deal indeed did know the price that should be paid in order to prevent huge spikes in the share price.

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IPO’s can be looked at as the potential for a quick profit.  However, you do need to make sure that the market conditions are right for a brand as well as make sure that the price and valuation are not overblown, causing you to pay more than a stock is worth.

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Key Stock Valuation Methods

When looking to purchase a stock, it is very important to know where the company is headed and how they plan to create profit in the future.  This process to understand the worth of a stock as it relates to a specific company is called Valuation.  This article will walk through several common methods to look at corporations and understand their direction in order to make better investing decisions in the long term.

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Dividend Discount Model (DDM)
The dividend discount model (DDM) is one of the most basic of the absolute valuation models. The dividend model calculates the “true” value of a firm based on the dividends the company pays its shareholders. The justification for using dividends to value a company is that dividends represent the actual cash flows going to the shareholder, thus valuing the present value of these cash flows should give you a value for how much the shares should be worth. So, the first thing you should check if you want to use this method is if the company actually pays a dividend.

Secondly, it is not enough for the company to just a pay dividend; the dividend should also be stable and predictable. The companies that pay stable and predictable dividends are typically mature blue-chip companies in mature and well-developed industries. These type of companies are often best suited for this type of valuation method. For instance, take a look at the dividends and earnings of company XYZ below and see if you think the DDM model would be appropriate for this company:

2005 2006 2007 2008 2009 2010
Dividends Per Share $0.50 $0.53 $0.55 $0.58 $0.61 $0.64
Earnings Per Share $4.00 $4.20 $4.41 $4.63 $4.86 $5.11

In this example, the earnings per share are consistently growing at an average rate of 5%, and the dividends are also growing at the same rate. This means the firm’s dividend is consistent with its earnings trend which would make it easy to predict for future periods. In addition, you should check the payout ratio to make sure the ratio is consistent. In this case the ratio is 0.125 for all six years which is good, and makes this company an ideal candidate for the dividend model.

Discounted Cash Flow Model (DCF)
What if the company doesn’t pay a dividend or its dividend pattern is irregular? In this case, move on to check if the company fits the criteria to use the discounted cash flow model. Instead of looking at dividends, the DCF model uses a firm’s discounted future cash flows to value the business. The big advantage of this approach is that it can be used with a wide variety of firms that don’t pay dividends, and even for companies that do pay dividends, such as company XYZ in the previous example.

The DCF model has several variations, but the most commonly used form is the Two-Stage DCF model. In this variation, the free cash flows are generally forecasted for five to ten years, and then a terminal value is calculated to account for all the cash flows beyond the forecast period. So, the first requirement for using this model is for the company to have predictable free cash flows, and for the free cash flows to be positive. Based on this requirement alone, you will quickly find that many small high-growth firms and non-mature firms will be excluded due to the large capital expenditures these companies generally face.

For example, take a look at the simplified cash flows of the following firm:

2005 2006 2007 2008 2009 2010
Operating Cash Flow 438 789 1462 890 2565 510
Capital Expenditures 785 995 1132 1256 2235 1546
Free Cash Flow -347 -206 330 -366 330 -1036

In this snapshot, the firm has produced increasing positive operating cash flow, which is good. But you can see by the high level of capital expenditures that the company is still investing a lot of its cash back into the business in order to grow. This results in negative free cash flows for four of the six years, and would make it extremely difficult or impossible to predict the cash flows for the next five to ten years. So, in order to use the DCF model most effectively, the target company should generally have stable, positive and predictable free cash flows.

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Comparables Method
The last method we’ll look at is sort of a catch-all method that can be used if you are unable to value the company using any of the other models, or if you simply don’t want to spend the time crunching the numbers. The method doesn’t attempt to find an intrinsic value for the stock like the previous two valuation methods do; it simply compares the stock’s price multiples to a benchmark to determine if the stock is relatively undervalued or overvalued. The rationale for this is based off of the Law of One Price, which states that two similar assets should sell for similar prices. The intuitive nature of this method is one of the reasons it is so popular.

The reason why it can be used in almost all circumstances is due to the vast number of multiples that can be used, such as the price-to-earnings (P/E), price-to-book (P/B), price-to-sales (P/S), price-to-cash flow (P/CF), and many others. Of these ratios though, the P/E ratio is the most commonly used one because it focuses on the earnings of the company, which is one of the primary drivers of an investments value.

When can you use the P/E multiple for a comparison? You can generally use it if the company is publicly traded because you need the price of the stock and you need to know the earnings of the company. Secondly, the company should be generating positive earnings because a comparison using a negative P/E multiple would be meaningless. And lastly, the earnings quality should be strong. That is, earnings should not be too volatile and the accounting practices used by management should not distort the reported earnings drastically.

These are just some of the main criteria investors should look at when choosing which ratio or multiples to use. If the P/E multiple cannot be used, simply look at using a different ratio such as the price-to-sales multiple.

Conclusion:

Choosing the best method to value a stock is key to picking winners to add to you portfolio.  The ability to calculate these ratios and use public information on each company to look into the quality of one share of stock lets you know where to allocate your assets in an ever-changing marketplace.

 

Netflix (NFLX)- Market All Star or Overvalued Tech Stock

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Netflix (NFLX) has been a huge force in the streaming and content industry.  While the company has humble roots as a DVD rental service, the later half of the 2000’s has seen the company actively grow its subscriber base using the internet to deliver instant video content.  The company continues to innovate by funding exclusive shows, streaming new Ultra HD 4k Content, and opening its platform to the rest of the globe.  College students and seniors alike can find custom tailored recommendations for their viewing type based on machine learning algorithms.  Does the company deserve your attention as a valued stock asset?

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The stock price currently sits at around $140 after a prolonged rally stretching back to July of 2016 when shares were trading at $88.  Is this powerhouse stock going to be able to keep up the momentum in the coming months as competition continues to increase?  Services like Amazon Prime Video, Sling TV, Direct TV Now, and others are all working to produce and serve content to the cable cutter generation.  Netflix has to create value in its original shows and content as it is becoming the main differentiation point in a crowded marketplace.  Over 93 Million people are Netflix members, with about half of that number coming from outside the United States.

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Investors have placed high expectation on the company with respect to new subscriber growth, and the company has exceeded those numbers each of the past 2 quarters.  The one figure that leaves people questioning the value of NFLX shares is their insane P/E number.  P/E is a figure that measures price to earnings, and it is the number of years needed to recoup a current investment based on the revenue figures of the company.  The technology sector typically has a high P/E as it is very hard to value, but Netflix in its current state would take over 333 years to make back the company value based on the share price.  People should be wary of watching the stock climb without seeing significant revenue growth to match as this is a sign that the stock could be overvalued.  Risk increases exponentially when something is overvalued and has no plan to grow their revenue stream.

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Having movies at your fingertips is an amazing feat, and as the technology around us continues to change, will Netflix be able to continue its run and innovate in order to stay relevant?  Is the share price too high to justify as an investment?  These and many other questions lie ahead of the company, but they have indeed had several years of rapid growth and have become a household name all over the world.

 

Domino’s and its Absolute “Domination” of the Industry

I know that this blog is designed for people and students to invest on a tight budget.  Seeing the countless stocks over $100 per share isn’t what young investors want to put  into their portfolio right out of the gate.  However, Domino’s Pizza (DPZ) resides in a category that millennial buyers resonate with more than any other generation.  Delivery Pizza!  The stock has been a strong pick for the past 3+ years and paying the $180 dollar price of entry for one share is actually a solid value for one specific reason:  they are totally demolishing the segment competition.

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Papa Johns and Pizza Hut posted Q4 2017 earnings numbers of +5% and -4% respectively, while Dominos which has a very similar customer base and product line posted company growth of over 13% in the US.  This is driven in part because of product improvement, menu changes, and a Domino’s app / points club which rewards customers and continues to drive same store growth.  Without a direct effort to add more locations to their chain, Same Store Growth has propelled the company to a very profitable position in the marketplace and has marked the stock as one to keep an eye on for growth each quarter.

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As College students are the ones targeted by the technology driven marketing of Pizza companies, Domino’s has done the best job of making ordering easy and making young people pay attention to their product.  Look into their stock if you can stretch your budget a little more, and be prepared to grow as the marketplace has been disrupted by this company.

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“To Snap or not to Snap”…

Snapchat entered the stock market today priced at $17, and is ready to start trading despite the fact that analysts don’t really know what to make of the company and their direction in the marketplace.  To date, the company has struggled to become cash positive and create effective revenue to offset costs.  Daily Active User count has started to stall around ~150 Million and it is unclear how the service plans to grow overseas despite its US popularity.  The app is considered wildly popular with people age 18-24, and this market has the most potential for marketers dive in with target messaging.  The app and company has 200 million shares for sale in this initial offering, worth roughly $3.4 Billion dollars.

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Typically, IPOs are viewed as ways to get into a stock with a high chance of growth.  While the company is growing and becoming a social symbol in the culture, the company is strangely not offering an ownership stake with each share purchased but instead is retaining complete company control with the sale.  Another factor which should be on your mind before purchasing is that the market is touching some of its highest average Price to Earnings or P/E Ratios ever in recent years.  This is a sign that companies are doing well but the market may be overrunning the value of what corporations actually are worth.

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Snapchat has a lot of risk as technology companies are never as predictable as other new IPO entrants.  Facebook fell nearly 54% in its stock valuation before slowly regaining its footing and posting over a 200% gain from the initial offering price.  Twitter on the other hand had a similar user base during its IPO, but the share price has fallen since the service has failed to find effective monetization on its platform.  Snapchat has partnered with traditional media and online outlets to make monetized stories, they have created ad based filters for users, and even tried to sell physical snapchat glasses.  However, no one can tell for sure if these are going to pan out into long term profit or short term heartache.

imagesClearly there is an audience for Snap and its services.  The real question is can these users be turned into a profit as they age, and does the company justify $17 per share for a chance to get in on the profit?  The real question is, “To Snap or not to Snap”.

Invest Commission Free with Robinhood

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When investing in single stocks on a budget, paying a $5 or $10 commission every trade can make a big difference on overall earnings.  The people behind the app based trading tool Robinhood are looking to take on the big players in the marketplace and give power to the millennial aged demographic looking to get into stocks for the first time.

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After downloading the app, Users create their account using their personal information, their social security number, and other identification information.  Next, you can transfer funds from your bank account into the app to start trading.  One important limitation of Robinhood is that the platform typically takes about 3 days to move funds over $1000 between your bank and the company’s assets tab.  While the trades are cheap, this is not really a viable day trading device if you are looking to get into more frequent money movement.  You can use the search bar at the top of the home page to look at any ticker on the Nasdaq or S&P 500 to invest in, and the user interface is minimal but informative.  You can create a watchlist of your favorite stocks as well as easily browse your current holdings and the earnings related to them.  There are no real research tools to speak of within the app and this means that choosing what to invest in really requires that you use external websites for analyst opinions.  Picking a stock like T-Mobile (TMUS) which I covered recently only gives simple information, so it pays to be patient and look on Marketwatch, Yahoo Finance, or other places for company fundamentals.  NerdWallet published a great article that covers all the pros and cons of the app and the trading platform as a whole that you should read before committing to Robinhood fully.

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Users who have tried the platform have started with only $100 or less and have been able to grow their wealth and assets without expensive minimum balance limits, pay to trade stocks, and load fees on their funds.  The New York Times just posted an article on the company and the disruptive nature of their trading platform.  Mutual funds, options, and other higher skilled trades can not be performed using the app, but this platform is great for small transaction single stock, short or long term trading strategies.  For a starting college student with minimal capital, Robinhood can get your foot in the door and give you a chance to learn the markets with potential for real gains as well.

 

Robinhood’s Top 10 2016 Stocks Bought by Users

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