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Phreesia IPO: The Buying Opportunity Starts At 2x-3x Revenue

With a scalable and growing business model, Phreesia, Inc. (PHR) is a name that growth investors will need to keep in mind. The company reports 25% revenue growth and sells shares at $16, or 4x sales. Phreesia, Inc. is not selling shares at an expensive valuation. However, the buying opportunity commences, in our opinion, at 2x-3x revenue. Notice that the shares were valued in an acquisition at $8.03 per share in 2018.



Source: Prospectus



(Source: Company prospectus)

Business

Founded in 2005, Phreesia, Inc. offers SaaS-based solutions to connect patients with healthcare providers in addition to payment solutions.

The company has accumulated a significant amount of know-how and business relationships in the healthcare industry. Notice that in 2019, Phreesa generated more than 54 million patient visits for 50,000 individual providers across the United States. Besides, in 2019, it reported $1.4 billion in payments. The image below offers further information on the number of users and the company’s clients:



(Source: Company website)

The Phreesia Platform does not only provide a registration solution and appointment scheduling, but the software also offers solutions to help patients select appropriate healthcare services. The software collects and analyzes information from patients, which allows the company’s system to provide different healthcare specialties. See below a list of the various solutions offered:



(Source: Company prospectus)

With Phreesia’s software, healthcare providers can reduce the number of personnel receiving calls and filtering patients. Additionally, healthcare organizations receive valuable information for doctors and specialists, even before having a meeting with patients. Check the image below for details on the matter:



(Source: Company website)

It is quite impressive that after 14 years of operation in the same industry, Phreesia continues to increase its revenue and client base. The fact that its software is very scalable and customizable explains the company’s growth.

Beneficial Revenue Growth

Phreesia benefits from recurring monthly subscriptions and recurring payment processing fees. Additionally, the company has increased the number of products offered to existing clients. As a result, Phreesia reports considerable organic revenue growth. In 2019, it reported annual revenue of $99.88 million, 25% more than that in 2018.

See the images below for more information on the company’s key performance indicators and the top of the P&L:



(Source: Company prospectus)



(Source: Company prospectus)

The company does not report a positive operating margin. However, it is very appealing that losses are diminishing. Phreesia reported a loss of -$14.5 million and -$9.49 million in 2019 and 2018 respectively.

With revenue growth of more than 25%, sales and marketing expenditure increased by 6% amounting to $26 million. The company does not need to invest a lot in marketing to report revenue growth. It is very beneficial. With these figures in mind, if revenue continues to grow, Phreesa could report positive operating income in three to six years.

See the image below for more details on the income statement:



(Source: Company prospectus)

Value investors will also be interested in Phreesia. In 2019, free cash flow increased by more than 50% amounting to -$11.96 million. Moreover, Adjusted EBITDA was positive and equal to $3.54 million. The table below offers further information on the matter:

(Source: Company prospectus)

Balance Sheet

The balance sheet does not look as solid as the P&L. The asset/liability ratio is below 1, and the amount of cash is not significant. As of January 31, 2019, Phreesia reported cash of $1.54 million. With accounts receivable turnover ratio of more than 6x, what is worrying on this name is the total amount of debt. Including interest, the total amount of debt is equal to $44 million. The images below offer further details on the company’s balance sheet:

(Source: Company prospectus)



(Source: Company prospectus)

The total amount of debt and contractual obligations is not small. However, as of today, market participants may not need to worry. Phreesia needs to pay $6 million in less than a year and $15 million in one to three years. With more than $99 million in revenue, the company should not face difficulties in paying these contractual obligations. A list of contractual obligations is given below:



(Source: Company prospectus)

Use Of Proceeds

Phreesia expects to raise $111.2 million from the IPO. The company will use $18.1 million to pay a cash dividend to Senior Convertible Preferred stockholders and $17.7 million to repay a revolving line of credit. Most market participants will not appreciate that Phreesia will use a certain amount of money to pay existing shareholders and pay the debt. With that, the amount to be used for these purposes is not that large. The remaining net proceeds will be used for general corporate purposes, capex, and opex, among other uses. The lines below offer further information on the matter:



(Source: Company prospectus)

Expected Capitalization And Valuation

Phreesia financed its activities through the sale of convertible preferred stock, junior convertible preferred stock, and warrants. It is worth mentioning that the company expects to convert these securities as the IPO goes live. The equity conversion will benefit common stock owners.

See the image below for more on the expected capitalization of the company:



(Source: Company prospectus)

With $83 million in cash and debt of $19 million expected after the IPO, the net debt will approximate to -$64 million. Phreesia will have 35.185 million shares outstanding. The market capitalization, at $16.00 per share, will approximate to $562.96 million. The enterprise value will be equal to $498.96‬ million.

With revenue of $99.88 million and revenue growth of 25%, forward revenue of $124 million is reasonable. At $16, the company would trade at 4x forward sales.

Most competitors are private companies, so assessing the valuation of Phreesia gets complicated. See the image below for more details on the competitors:



(Source: Owler)

As shown in the image below, we selected a list of SaaS companies reporting revenue growth of 3-37%. Phreesia reports revenue growth of 25%, so the list of SaaS companies shown below can be used to assess the valuation of Phreesia:



(Source: YCharts)

Peers trade at 0.4x-17x. However, there is a large concentration of competitors trading at 3x-7x. Like Phreesia, many competitors report EBITDA margin of below 5%. With this in mind, 4x sales is not a high price for Phreesia. The company could trade at a more significant valuation once the IPO goes live. With that, a buying opportunity will commence at 2x-3x sales. The images below offer further information on the matter:



(Source: YCharts)



(Source: Company prospectus)

Recent Acquisition Offers Valuable Information

In December 2018, Phreesia signed an asset purchase agreement to acquire assets of Vital Score, Inc. The amount paid for the assets was not significant. However, the company used its stock to pay, which is interesting. The transaction offers information on the valuation of the shares in 2018. As shown in the lines below, the shares were valued at $8.03:



(Source: Company prospectus)

Selling Shareholders

The table below provides information on the selling shareholders. Executive officers and directors are expected to reduce their stake from 81.74% to 64.69%. Besides, most funds owning shares are expected to reduce their position in the company, which is not ideal.



(Source: Company prospectus)

Most market participants don’t appreciate buying shares when existing shareholders are selling stakes. With this in mind, observing the reaction of the market on the IPO day is interesting. If the market dislikes the sale of equity, the share price may decline. As a result, Phreesia could trade at low valuations.

Conclusion

Phreesia has a solid and established business model that grows after 14 years of operation and with no worrying contractual obligations. With 25% revenue growth and positive EBITDA margin, the company will be most likely successful in selling shares at 4x sales. With that, conservative individuals will most likely wait to acquire shares at 2x-3x sales. The buying opportunity commences around that valuation.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Budweiser APAC’s IPO failure hurt retail investors, say newspaper adverts urging reform

urging reform@

HONG KONG, July 17 (Reuters) – The dramatic failure of brewer Budweiser APAC’s $9.8 billion Hong Kong listing left “mom and pop” investors badly out of pocket, a local broker has said in an unusual series of full-page advertisements in newspapers across the city on Wednesday.

Bright Smart Securities & Commodities Group Ltd urged bourse operator Hong Kong Exchanges and Clearing Ltd (HKEX) and regulator Securities and Futures Commission (SFC) to reform the listing process.

Retail investors accounted for 23% of trading in Hong Kong last year, far higher than in other major markets such as New York or London. They are also active participants in the city’s initial public offering (IPO) market.

They typically borrow from their brokers to subscribe to IPOs, using the shares they hope to obtain as collateral.

Last Thursday, investors awaited the pricing of Budweiser APAC shares in what would have been the world’s largest IPO so far this year. However, Belgian parent Anheuser Busch InBev NV cancelled the pricing and called off the IPO the following day.

Retail investors nevertheless had to pay interest on the money they had borrowed to subscribe to the IPO.

Calling off the IPO “made investors pay interest for no reason,” Bright Smart Securities said in its adverts. “If another company shelves its IPO, that company should compensate for paid interest to investors to ensure fairness.”

HKEX and the SFC declined to comment. A spokeswoman for Budweiser APAC said subscriptions for the IPO were done in accordance with local market practice.

Local brokers are a significant force in Hong Kong because of the high level of retail trading. They have a leading role in electing the financial services representative who sits in the city’s Legislative Council – the current representative, Christopher Cheung is chief executive and chairman of broker Christfund Securities.

While brokers have welcomed some reforms to Hong Kong’s securities market, they have actively opposed others. In 2012, they took to the streets to protest against plans to shorten the bourse’s trading lunch break. (https://tinyurl.com/y6hvejx2)

Bankers at multinationals and their advisers often privately blame local brokers and retail investors for hindering reforms in the city that would make the market operate more like its U.S. rivals.

While New York IPOs price one evening and begin trading the next morning, Hong Kong deals require a settlement gap of five working days because the system is still largely paper-based.

Retail investors still file paper applications to subscribe for shares and they pay in advance by cheque or cashier order.

Earlier this year the exchange said it was looking to shorten the five-day cycle, and that it was working on a paperless model for the securities market to help them to achieve this.

(Reporting by Felix Tam; Additional reporting by Alun John and Donny Kwok; Editing by Jennifer Hughes and Christopher Cushing)

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DouYu IPO Looks To Raise $859 Million – Investor’s Business Daily

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“ipo” – Google News


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Medallia IPO: What Investors Need to Know – Yahoo Finance

initial public offering (IPO). Hoping to ride this IPO wave is Medallia, a software-as-a-service (SaaS) company specializing in real-time business intelligence. Its stock will be available to trade publicly later this week.” data-reactid=”11″>Given how well many new tech stocks have done on the stock market in 2019, now appears to be a fine time for a digitally focused company to float an initial public offering (IPO). Hoping to ride this IPO wave is Medallia, a software-as-a-service (SaaS) company specializing in real-time business intelligence. Its stock will be available to trade publicly later this week.

The 2019 freshman class of tech stocks is getting crowded. Can Medallia distinguish itself from this growing pack?

A Medallia infographic, including the logos of lots of its customers, from its IPO prospectus

Image source: Medallia

Experienced at customer experience

Medallia is a customer intelligence company founded by a pair of management consultants. Its signature product is the Medallia Experience Cloud, which, the company explains, is an “experience management” software platform. This can be augmented by software suite modules that offer specialized functionality.

The company says Medallia Experience Cloud:

… captures experience data from massive and expanding signal fields emitted by customers and employees on their daily journeys and it is a leader in the market for understanding and managing omni-channel experiences.

The bulk of Medallia’s sales (79%) come from subscriptions to its products. Most of the remainder is derived from “professional services,” which essentially means consulting.

(NYSE: HLT) among its nearly 600 clients.” data-reactid=”31″>The company is an old hand at this, having plied its trade since 2001. On its website, it lists a slew of diverse customer-facing companies such as Delta Air Lines, AirBnB, H&R Block, and Hilton Worldwide Holdings (NYSE: HLT) among its nearly 600 clients.

Lately, at least, Medallia has been spending more than it’s taking in from these customers. Its net loss for the fiscal year ended in January was $82.2 million on total revenue of $313.6 million. That was deeper than the 2018 shortfall of $70.4 million on $261.2 million in revenue. That $52.4 million one-year revenue boost came from a combination of organic growth and acquisitions of smaller, complimentary companies.

Medallia doesn’t mind spending to grow its business. It also doesn’t seem to be aiming for profitability at any cost, like some tech companies, and instead is choosing to be a long-term player. It keeps looking for other suitable acquisitions, and it plans to continue shelling out for sales and marketing that ropes in mid-sized enterprises, a crucial customer base.

It also aims to invest more in its international operations. At the moment, less than 30% of its revenue comes from outside the U.S.

Peer pressure?

We live in an age of enhanced customer engagement. It’s common for consumers to leave product reviews for nearly anything they buy online, from cars to PC printers to spoons. This gives a company like Medallia an engaged customer base from which to draw opinions and data, and it can funnel this into useful analysis a client can analyze to improve its business.

Medallia’s platform appears broad enough to cover many different kinds of enterprises, as indicated by its client list. Any business that can sell versions of the same product to companies such as Hilton, Delta, and H&R Block is clearly good at designing something with near-universal appeal.

(NASDAQ: SVMK), the parent company of SurveyMonkey. Another is Qualtrics, a specialist company acquired last year by mighty business software conglomerate SAP (NYSE: SAP). Those are just two of many in this growing sector.” data-reactid=”38″>Keep in mind, though, that Medallia is not the only player in the customer intelligence game. One peer that also recently went the IPO route is SVMK (NASDAQ: SVMK), the parent company of SurveyMonkey. Another is Qualtrics, a specialist company acquired last year by mighty business software conglomerate SAP (NYSE: SAP). Those are just two of many in this growing sector.

SVMK, despite its early struggles as a publicly traded company, is showing good top-line growth and still has plenty of its cash in its coffers. ” data-reactid=”43″>Neither SVMK nor SAP/Qualtrics is a small fry. SAP is a business software powerhouse with a very long client list. You can be sure it’s suggesting many (if not all) of its clients sign up for Qualtrics products. SVMK, despite its early struggles as a publicly traded company, is showing good top-line growth and still has plenty of its cash in its coffers. 

So, it’s a tough space in which Medallia must compete, and it’ll likely only get hotter.

Still, I’d give Medallia the benefit of the doubt. I like the company’s focus and experience as well as its seeming ability to maintain clients (Hilton, for example, has been there almost from the beginning, signing on in 2002).

I also think it’s very possible for Medallia to broaden its product range within the wide customer intelligence category. Finally, I buy the company’s argument that its range of products provides plenty of up-selling and cross-selling opportunities to clients.

I’d say, then, that Medallia will distinguish itself within the expanding horde of 2019 tech IPOs. It’s a stock worth considering for a buy. 

The IPO details

14.5 million shares of Medallia are being sold in the IPO at a price of $16 to $18 apiece. The company estimates the sale will raise roughly $240 million. With that range, Medallia would be valued around $2.2 billion.

The stock is slated to begin trading Friday, July 19, on the New York Stock Exchange under the ticker symbol MDLA.

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  • Eric Volkman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Delta Air Lines. The Motley Fool has a disclosure policy.” data-reactid=”60″>Eric Volkman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Delta Air Lines. The Motley Fool has a disclosure policy.

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    “ipo” – Google News


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    How to Invest in IPO Stocks – Motley Fool

    Investing in any stock can be a maddening experience, especially for beginners. You click “buy” and you watch your brokerage statement. You’re gleeful when your stock goes up and disappointed when it goes down.

    When it comes to investing in IPO stocks — or companies that have recently held their initial public offering and can be traded on the markets for the first time — take that experience and multiply it by 1,000! It can be so disorienting that it’s difficult to tell up from down.

    That’s because newly public stocks can be incredibly volatile. They can move up by 10% or more one day and down by an equal amount the next. We’ll get into why that’s the case below — but it can be a harrowing experience.

    In 2012, Fool Eric Bleeker wrote about a person who emailed him about investing her entire life savings — $40,000 originally slated for a down payment on a house — in Facebook’s IPO in May 2012. His verdict on the move: “That’s insane.”

    The letters I,P, and O with arrows pointing to them.

    Image source: Getty Images.

    He’s not wrong. Investing your entire life savings in a single IPO is not rational or smart. But at the time, Eric’s article was prescient. Shares of Facebook fell 53% by September 2012, and the investor had lost half her life savings.

    A modern-day tragedy, right?

    Well, the thing about the stock market is that — until you sell your shares — there’s always tomorrow. Over the next six years, shares jumped 1,130%! That investment — worth just $19,000 in September 2012 — clocked in at more than $230,000 by July 2018. Forget a down payment; that optimistic investor could now pay for the whole house!

    A modern-day success story, right?

    Hopefully, this helps you see that when we talk about “how” to invest in IPO stocks, “with caution” and “with eyes wide open” are the best answers.

    What is an IPO?

    The easiest way to understand an IPO is to highlight an imaginary company trying to make a new machine. Let’s pretend this new machine is a teleportation device. Obviously, it’s a very exciting development.

    The woman who came up with the technology for the device had been testing it in a university lab for years. When she finally thought she’d perfected it, she decided it was time to bring it to the masses. But the road to that goal was long and winding.

    In general, the process went like this:

    • She secured her patents to protect the intellectual property.
    • She presented her idea to trusted friends with ties to the business community.
    • Through these ties, she found the first employees of her teleportation company — a new CEO, CFO, and COO. She would function as the chief technology officer.
    • The company got an official moniker: Star Trek Enterprise.
    • This team of four then went to venture capital (VC) funds all over the world. They asked for money to manufacture and test large teleportation devices. (It’s an expensive process.) In return for the money, they gave these VCs ownership of a modest percentage of Star Trek Enterprise.
    • Over time, Star Trek Enterprise grew. It expanded to 100 employees and developed its first marketable teleportation device. During that time, there were other rounds of fundraising to help make ends meet, while Star Trek Enterprise had yet to make a single sale.
    • The first teleportation device was a huge hit — it allowed small packages to be delivered right to your house instantly. They have been selling like hotcakes.

    Now that Star Trek Enterprise is a smash hit, it prepares for an IPO. The company works with a bank to offer shares on the New York Stock Exchange under the ticker BEAM. The process can be prolonged. The bank and the company often go on an “IPO roadshow” to tout the soon-to-be-available stock. After talking with potential investors, the bank and Star Trek Enterprise determine a valuation and the number of shares to issue.

    And they aren’t limited to listing on the New York Stock Exchange. Nasdaq is the other popular option in the U.S. If the company chooses to, it could also list its shares abroad, like on Shanghai or Hong Kong Stock Exchange, or — closer to home — on the Toronto Stock Exchange.

    When the IPO eventually arrives, management usually appears on the floor of the stock exchange and rings the opening bell. Because the roadshow has built up the requisite excitement, there’s usually strong demand for shares, which can send them soaring within hours. Anyone with a brokerage account can buy a share of BEAM and own a part of it. But usually, it’s better to wait. We’ll explain why below.

    Why do companies go public?

    There are three big reasons companies decide to go public.

    1. The first is a matter of prestige. Over the decades, taking your company public is a signal to the business world that you’ve “made it.” It is a badge of honor akin to winning a Nobel or graduating as the valedictorian.
    2. The second is a matter of rewarding those who helped you early on. Those VC funds that poured money into Star Trek Enterprise weren’t totally altruistic. They want to see nice returns on their investment. The problem is that when a company is privately held, it’s very difficult to find a buyer and determine a price at which to sell your stake. When a company goes public, those early investors have a chance to finally cash in. Their initial investment in the company is converted into shares, and those shares can then be sold on the open market.
    3. The third is a simple matter of funding. By offering shares on the public market, companies gain access to instant, non-debt-related capital. The private markets have changed considerably over the past 20 years — with tons of VC capital being available to privately held companies. This was unthinkable in years past.

    But even today, there are companies that need access to that capital, like Tesla (NASDAQ:TSLA), which makes electric vehicles. It costs tens of billions of dollars to build gigafactories and manufacture cars of the future. Without the ability to conduct secondary offerings (in which a company issues new shares after already being public), such companies would be forced to take on debt.

    By avoiding debt, the company chooses to dilute existing shareholders — there are more shares for the same underlying company, meaning you own less of it. But that seems more prudent, as taking on lots of debt can make a company fragile and force it to spend an outsized portion of cash on debt interest in the future.


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    Why are IPO stocks so volatile?

    The late Benjamin Graham, known as the Father of Value Investing, wrote about stocks in the 1930s in the shadow of the Great Depression. At the time, most Americans didn’t understand the stock market, believing it to be nothing more than a rigged gambling machine to benefit Wall Street.

    Not so, thought Graham. Yes, an enormous stock market crash kicked off the Great Depression. And sure, daily movements in the stock market seem to happen for no reason whatsoever. But the key is to change the timeline upon which you view such moves. Graham said:

    In the short run, the market is a voting machine but in the long run, it is a weighing machine.

    What does this mean exactly? Over the short term, a stock’s movement has a lot to do with fickle things like investor attitudes and popularity. There’s a limited number of shares of a company available. If everyone wants a piece of a company, the demand for those shares drives up the price.

    This explains why IPO stocks pop, or go way up in value, on their first day. Pent-up demand to own a slice of a company leads shares to skyrocket. Beyond Meat (NASDAQ:BYND) is the perfect example. The company has 46 million shares total, but it only offered 9.6 million in its IPO. In other words, only 20% of the company was available to the public.

    Limited supply and huge demand caused the stock to quadruple in price before the company ever released a quarterly report. Think about that: There was no new information for the public that wasn’t in the prospectus (the really long document the company provided to investors before going public). And yet shares increased 300% in little more than a month! That’s what a voting machine looks like.

    But over time, supply and demand will even out. Those investors excited about the vegan craze will move on to something else — or new vegan-focused companies that hit the market, thus cannibalizing interest in Beyond Meat. That doesn’t mean shares will tank when that happens. Instead, it just means the company’s stock will trade based on business results rather than FOMO (fear of missing out) on the next big stock.

    Can I buy pre-IPO shares, or do I have to wait until the first day of trading?

    It’s not usually possible for individual investors like you and me to buy shares at their initial offering price. When a company goes public, it works with investment bankers to take care of the details. Those bankers buy up shares. Sometimes, the shares are offered to the bank’s top-tier clients at a cheaper price than what’s offered to the public. Because IPO stocks often experience a huge pop on the first day, these clients earn quick and easy returns — making them more loyal to that bank.

    One exception to the rule is when a company decides to do a direct listing instead of an IPO. In circumstances such as these, the company doesn’t raise any funds by making its shares available on the public market. Instead, it just provides public information on the company and allows insiders who privately own shares to trade their stake in the public market. When that happens, whatever price you can get on the first day of trading is determined by the market — not an investment bank. For more information about direct listings, read about how Slack (NYSE:WORK) took the direct listing route.

    An overview of the IPO landscape

    We are witnessing an influx of high-value IPOs. There are two reasons for this.

    First, we are currently in the tenth year of the longest bull market in history. Between March 9, 2009, and July 1, 2019, the S&P 500 has returned an astounding 437% to investors. In plain English, that means that investors are excited about their investments and willing to continue paying top dollar for them.

    That matters because if a company goes public, it wants to raise as much money as it possibly can. If it goes public in the middle of a bear market — when everyone is feeling pessimistic — it won’t get as much money for what it’s offering. But if it goes public now, there’s a window of opportunity. Companies have no idea how long that window will be open, so they are rushing to enter the fray.

    The second reason behind why today’s IPOs have such lofty valuations has to do with a paradigm change in how companies fund themselves in their earlier stages. There’s a lot more VC money to go around right now. According to Crunch Base, the total volume of VC dollars invested globally has tripled since 2014 alone — to more than $320 billion in 2018.

    Going public brings a higher level of scrutiny to the company and adds pressure on executives to deliver returns over the short term. This is a major incentive to stay private for longer. Why go public if you already have the money you need?

    Eventually, those early VC investors want a way to cash in, and the company going public is the logical solution. Because those companies have had so many years to grow while remaining private, they are debuting on the market at much higher valuations.

    What are key metrics to watch in an IPO?

    In general, there are four broad areas to investigate when looking at a company nearing IPO:

    • What kind of sustainable competitive advantage — or moat — does the company have?
    • What do the financial statements for the company demonstrate?
    • Who is running the company and how?
    • What does the valuation look like?

    We’ll tackle these four in order below, using as an example a company that recently went public: PagerDuty.

    Does the company have a moat?

    Perhaps the most important variable to measure in any investment is a company’s sustainable competitive advantage — or moat. Without a moat, business success can be just as much a blessing as a curse. If the competition sees you doing really well, they’ll make a good-enough copy of your product or service for less and steal your business away in a capitalist phenomenon known as commoditization.

    While there are no hard-and-fast rules, there are four basic moats a company can have.

    1. Network effects: Each additional user of a service/product makes it more valuable for all the other users.
    2. High switching costs: While users have the option of switching to a competitor, doing so would be costly — financially, logistically, and emotionally.
    3. Low-cost production: If one company can offer a service/product for consistently less than the competition, it will always win business.
    4. Intangible assets: This includes things like brand value, patents, and government protection.

    What is PagerDuty’s business? It collects all of the signals (data) that a company’s apps and servers send it, find areas that need attention immediately (read: a company website is down), and notifies the exact person needed to fix the problem. This is an oversimplification to be sure, but it gives you a good idea.

    PagerDuty benefits from two key moats. The first is high switching costs. When a company uses PagerDuty’s solutions, the solutions learn from the experience. Perhaps during the first website outage, PagerDuty notifies too many parties. It learns from that action and makes sure to do better next time.

    Switching to another provider would not only introduce the need to retrain employees, but it would mean the loss of any operational fine-tuning that had been achieved through the process of refining the response to problems.

    One of the best ways to monitor if high switching costs exist is to monitor the company’s dollar-based net retention rate (DBNR), which measures the amount of sales that a cohort of customers pays from one year to the next. The key is that this filters out the effect of new customers.

    If the DBNR is at or near 100%, the company is holding onto existing customers. If it is well above 100%, it is not only holding onto those customers but seeing them add new services over time. That means PagerDuty is embedding itself ever deeper in the DNA of its clients.

    Chart showing dollar-based net retention at PagerDuty

    Data source: SEC filings.

    But there’s a secondary moat worth mentioning, too. PagerDuty uses artificial intelligence (AI) and machine learning (ML) to become better at detecting problems.

    On the most fundamental level, the more data PagerDuty can feed to its AI and ML, the more accurate it will be. That means that each incremental customer addition makes PagerDuty more valuable to existing customers — even though it might not appear that way on the surface.

    The end result is a small but growing moat in the form of network effects that create a meaningful barrier against upstart competition.

    Does the company have financial fortitude?

    Next, we want to know the financial situation of the IPO company. Specifically, what would happen if the company ran into serious trouble — either micro (i.e., there’s a problem specific to the company, such as with sales) or macro (i.e., there’s a recession) in nature?

    Companies that have lots of cash, not much debt, and healthy free cash flows can not only survive such times but actually emerge stronger. They do that by buying up their own shares when they’re depressed, acquiring rivals, or simply lowering prices to drive out the competition and grab long-term market share.

    Here’s where PagerDuty stands in those respects.

    Cash Debt Free Cash Flow
    $338 million $0 ($17 million)

    Data source: Yahoo! Finance.

    This is a mixed bag. It’s a huge deal that PagerDuty has zero long-term debt and a formidable war chest of more than $300 million. I would much rather a company have positive free cash flows. On free cash flows, this means that through the normal course of business, PagerDuty lost $14 million last year and spent an additional $3 million on capital expenditures.

    But the fact that the past year’s loss was “only” $17 million tells me that PagerDuty has plenty of time to become free cash flow positive before we have to start worrying. For instance, if it continued to lose $20 million per year indefinitely, PagerDuty could still fund operations for another 17 years with its nearly $340 million in cash.

    Does management have skin in the game?

    Next, learn about who is running the company. Founder-led companies tend to do the best because founders view their companies as existential extensions of themselves and are inherently incentivized to build something of lasting value.

    While PagerDuty’s key founder, Alex Solomon, is no longer PagerDuty’s CEO, he is still very much involved. In fact, he left the CEO role to focus more on the product — ceding control to the current CEO, Jennifer Tejada, while he took on the chief technology officer role. He also still serves on the company’s board.

    It’s important to see how much stock insiders own of PagerDuty. The best way to do this is by going to a company’s listing on the SEC’s Edgar Database and searching for a DEF 14-A filing — which reveals this information. Currently, all insiders combined own 13.8% of shares outstanding. That stake is worth $500 million at today’s prices. That high level of ownership matters to me, because management has financial skin in the game: They will only succeed if we — as shareholders — succeed.

    Finally, it’s important to me that the company has a healthy culture. The real work is done by the rank-and-file employees. If they’re happy, that’s a good sign. Based on reviews at Glassdoor.com, PagerDuty does well here. Tejada has a 100% approval rating, and the company garners 4.6 stars out of 5.

    How much would I pay for the IPO?

    Finally, it’s important to get an idea of what we’re paying for. We do this by looking at a number of different valuation metrics and considering growth rates as well.

    Because PagerDuty is not yet profitable on an accounting basis — nor is it free cash flow positive — it can be very difficult to value. Over the past 12 months, PagerDuty has pulled in $130 million in sales and is valued at $3.6 billion. That results in a price-to-sales ratio of 27.

    That’s expensive. To put it in perspective, the S&P 500 trades for 2.2 times sales. Of course, the companies in the S&P 500 are much larger and more mature businesses. That being said, PagerDuty is more than 10 times more expensive on a sales basis.

    It’s encouraging to see that PagerDuty is growing so fast. The aforementioned DBNR has been very high, and sales grew 49% during the company’s first quarter of 2019.

    Don’t quibble too much when it comes to price since you’re playing the long game. At the same time, though, don’t “back up the truck” for such an expensive stock. When I bought shares of PagerDuty, I only allocated a small part of my portfolio to the stock, around 1% of my holdings.

    In the end, I’m willing to largely ignore the fact that PagerDuty is so expensive because the company checks the other three boxes:

    • It has a meaningful and measurable moat.
    • There’s zero long-term debt, lots of cash, and not much free cash flow loss.
    • The company has excellent leadership with skin in the game.

    In the end, these four variables are the most important to evaluate with IPO stocks.

    When to wait instead of buying an IPO stock

    It’s also important to note that there’s no one forcing you to buy newly public stocks. These stocks — unless they are bought out or go bankrupt — will likely be tradeable on the public markets for years to come.

    There are two broad areas where it makes more sense to wait until you’ve learned more about the company:

    1. If the company is in a brand-new market that has yet to take shape, especially if it could be affected by regulation. Right now, both the cannabis and cryptocurrency markets would be prime examples.
    2. If the company has lots of hype (think: Facebook when it went public), but you don’t really understand how it makes money.

    You can always add these stocks to your watch list, study them further, and add to them at a time when it makes more sense to you.

    What are the 10 largest IPO stocks of 2019?

    This year has seen a bevy of multibillion-dollar IPOs. The list below includes eight companies that have already gone public and two that are expected to go public before the year is over.

    Company What It Does Current Valuation
    Uber (NYSE:UBER) Ridesharing and delivery $74.7 billion
    The We Company* Parent to shared-workspace company WeWork $47.0 billion**
    Airbnb* Online lodging and events marketplace $38.0 billion**
    Zoom Video (NASDAQ:ZM) Video teleconferencing $26.8 billion
    Slack*** (NYSE:WORK) Messaging software $17.7 billion
    Pinterest (NYSE:PINS) Visual idea discovery $14.3 billion
    CrowdStrike (NASDAQ:CRWD) Cybersecurity $13.8 billion
    Chewy (NYSE:CHWY) E-commerce pet food $13.1 billion
    Beyond Meat (NASDAQ:BYND) Plant-based meat alternatives $10.3 billion

    Data source: Yahoo! Finance. Valuations are accurate as of July 16, 2019. *Not yet public — is expected to go public. **Valuations are based on estimates and private funding rounds. ***Technically not an IPO but a direct listing.

    Some of these — Airbnb, Beyond Meat, Pinterest, Lyft, and Uber — are well known by most members of the American public. Others — like Zoom Video and CrowdStrike — have less of a following.

    What are the top IPO stocks to buy now?

    It’s impossible to tell with 100% certainty which new stocks will be the big winners over the next three to five years, though we can try. I pored through the cohort of companies listing shares starting on January 1, 2017. Of those, I have picked five such companies that are top stocks to buy right now, none of which is included in the above list of big IPOs.

    Company IPO Date What It Does
    Okta (NASDAQ:OKTA) April 2017 Helps companies manage access to online documents
    Roku (NASDAQ:ROKU) September 2017 Offers a single platform for all of your streaming services
    MongoDB (NASDAQ:MDB) September 2017 Provides database and search capabilities for companies
    Zuora (NYSE:ZUO) April 2018 Manages billing solutions for subscription-based companies
    PagerDuty (NYSE:PD) April 2019 Helps respond to technical outages on websites and servers

    My conviction in these five stocks isn’t just empty words, since I own all five in my personal portfolio. Combined, they currently account for more than 10% of my real-life holdings.

    We’ve already covered why I think PagerDuty is such a promising IPO, but to read more about the other IPO stocks to buy today, click here.

    A final word on IPO stocks

    When you invest in companies that have been public for a long time, you have a much longer track record on which to base your decisions. The market is also much more of a weighing machine than a voting machine. That’s why such companies deserve a huge allocation in most portfolios.

    That said, IPOs can be very exciting to invest in. And if you do your homework, you can end up owning a piece of a great business at a price that, 10 years later, looks like a steal.

    It’s worth investigating — cautiously and with eyes wide open.

    Source:

    “ipo” – Google News


    Author:

    Posted on

    Tencent-backed live-streaming firm DouYu prices U.S. IPO at low end of range -sources

    -sources@

    NEW YORK/HONG KONG, July 16 (Reuters) – DouYu International Holdings Ltd, China’s largest live-streaming platform, on Tuesday sold $775 million in stock at a $3.73 billion valuation after pricing its U.S. initial public offering (IPO) at the bottom of an indicative range, people with direct knowledge of the matter said.

    DouYu sold American depositary shares (ADS) at $11.5 each, compared with a previously stated target of $11.50 to $14.00, the people said, requesting anonymity to speak freely about the deal.

    DouYu, which is backed by Chinese social media and gaming giant Tencent Holdings Ltd, declined to comment.

    ($1 = 6.8769 Chinese yuan renminbi) (Reporting by Joshua Franklin in New York and Julie Zhu in Hong Kong; Editing by Christopher Cushing)

    Source: IPOs
    Author:

    Posted on

    The Price of Knowledge

    “You pay a high price for a cheery consensus.”
    Warren Buffett (Trades, Portfolio)

    The stock market has a history of torturing highly-valued knowledge. About every seven years, a consensus forms around the fastest-growing sector of the stock market, or the fastest-growing country or the fastest-growing industry. Do you remember how excited everyone was about investing in China and other Asian growth economies seven or eight years ago? Where did those 500 million new middle-class citizens go, which many of us “knew” were going to make companies rich? History shows that themes of popularity are an invitation for poor forward returns.

    Simultaneously to the overpricing of well-known facts is the underpricing of the futures of meritorious companies which are suffering temporary forms of tribulation. History shows that the stock picker can add alpha by wading into fear when certain qualitative characteristics exist. The underpricing of good quality shares with positive futures is a regular phenomenon in the stock market, but has reached a crescendo recently.

    We will hypothesize on knowledge we believe is well known and overpriced and on what isn’t well known or well believed and could be underpriced.

    Everyone thinks they know that artificial intelligence and big data are the future

    Source: Forbes.

    When we go to industry conferences, artificial intelligence and data analytics seems to be all anybody talks or thinks about. In 1999, it was “the internet will change our life.” They were correct about the internet, and investors got slaughtered investing in internet darlings. Will artificial intelligence and data analytics be any different?

    The chart below shows the biggest parabolic moves in price in the past 45 years. We believe investors have expressed their excitement about artificail intelligence and data analytics first through the most successful e-eommerce companies.


    Source: DoubleLine Funds, BofA Merrill Lynch Global Investment Strategy, Bloomberg.

    Everyone thinks they know that interest rates will remain low

    Everyone thinks they know inflation is dead and that interest rates are permanently going to stay near historic lows. Longtime bond market watcher and veteran financial writer and historian James Grant, however, thinks otherwise.

    “Interest rates tend to change course only once or twice a generation. In 1981, investors could look back on 35 years of generally rising rates. In 2016, a different generation of investors could look back on 35 years of generally falling rates. In bonds, you can profitably spend a whole career not changing your mind.

    Humans eat, sleep, and extrapolate. What we think we can foresee is often nothing more than what we have recently seen. “More of the same” is the sensible default prediction in politics, baseball, and interest rates alike. In rates, it actually tends to work. [1]”

    The Federal Reserve Board flooded the U.S. economy with liquidity in the aftermath of the financial crisis to help us recover. They have succeeded in getting past the crisis, but they have not withdrawn the liquidity. If 89 million millennials get married in large numbers, have kids and buy houses like polls show they will, there could be an inflation surge like we haven’t seen for years. If interest rates normalize in the next 10 years, capital markets will get repriced and risk premiums could adjust extensively.


    Source: Freddie Mac, The Major Challenge of Inadequate US Housing Supply (The Major Challenge of Inadequate US Housing Supply), Dec. 5, 2018.

    As the chart above shows, the U.S. might be the most underbuilt on single-family residences as any time since 1960.

    Everyone thinks they know all you need to do is invest in the consistent growers

    Source: JPMorgan, The Value Conundrum, June 6,  2019.

    Mature and slower-growing growth stocks are opening investors up to large risks. Paying 30 times profits for established growth companies like Nike (NYSE:NKE), Costco (NASDAQ:COST), Visa (NYSE:V), Mastercard (NYSE:MA), Starbucks (NASDAQ:SBUX) and others could be a ticket to misery when the price of money rises and price multiples contract when risk premiums return to the levels of the past. If and when price multiples return to their historical norms (15 to 20 times earnings), heartache and incrimination could ensue.

    Everyone thinks they know millennials will attempt to keep their adolescence

    While the deep recession and more years devoted to four-year college degrees have pushed maturity back five-plus years in the U.S., our research shows that 25-year-old women want very similar things to women in prior generations. Their favorite cable channel is HGTV and one of their favorite shows is TLC’s “90-day Fiancé.”

    Most of them ultimately want a husband and a home they can call their own. These are college-educated women and the best educated group of people we’ve ever had. Even Warren Buffett (Trades, Portfolio), who owns the second-largest real estate brokerage company, mentioned at the Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B) annual meeting that he has become bewildered by the slow pace of home buying and residential construction. We advise Buffett to strap himself in for a good 10-year ride.

    Everybody doesn’t know we are in the “crazy stage” in growth stocks

    Source: The Wall Street Journal (IPO Market Has Never Been This Forgiving to Money-Losing Firms)

    Source: GMO White Paper “The Late Cycle Lament” December 2018.

    A rash of explosive initial public offerings of common stock has punctuated every historical growth stock binge. Fortunately, we don’t have to wonder if we have entered this crazy stage. Every week Wall Street brings a new series of exciting growth stocks public and many of them are tied to the most exciting and well-known themes (artificial intelligence, data analytics, healthy eating, delivery via technology, etc.). Historically, you can anticipate the bloodshed within a few years when the oversupply of new growth stocks overwhelms existing supply and crushes prices for growth stocks.

    Everybody thinks they know that value investing is dead

    Source: JP Morgan “The Value Conundrum” June 6, 2019.

    In a low turnover discipline like ours, it is hard to do, but we must tack away from some winners of the past decade and gravitate toward companies which meet our eight criteria for common stock selection and are deep in the investor dog house. We are finding bargains in energy, 5G cellular technology, real estate, banks and old media. This forces us to make some hard choices, which are made easier by the fact we have created a great deal of wealth in our portfolios in the last three, five and 10 years. We believe these adjustments will justify some capital gains taxes when value investing makes its historically-normal comeback.

    Everyone thinks commodity prices will stay lower for longer


    Source: Bloomberg.

    Rarely does the index get this underinvested in the energy business. As the chart below shows, it could pay going forward to bet on a rebound in commodity prices and inflation.


    Source: Stifel, Macro & Portfolio Strategy, dated June 6, 2019. Data for the time period Jan. 1, 1805 to Dec. 31, 2018.

    Occidental Petroleum (NYSE:OXY) is new to our portfolio and deserves an explanation. It is buying Anadarko Petroleum (NYSE:APC) to create one of the world’s largest oil companies. Berkshire Hathaway has pledged to invest $10 billion in preferred shares attached to 8 million warrants to buy Occidental stock at $62.50. Officers and directors have been backing up the truck to buy shares of Occidental. The stock is very depressed, the industry is undervalued and we get a juicy dividend to wait for the companies to combine, sell unneeded assets and hopefully gush free cash flow over the next 10 years.

    In conclusion, we are very comfortable stacking long-term probabilities in our favor by being very contrary to today’s popular and unpopular knowledge. We are getting very favorable prices on the unknown futures of our value stocks and are avoiding getting caught in overpriced and well-known trends with loads of momentum attached. We think we have a handle on the price of knowledge. We thank you for trusting us with your capital and believe you will get well rewarded over the next five to ten years.

    [1] Source: Barron’s (Jim Grant: Low Interest Rates Forever? Don’t Get Used to That Idea).

    Disclosure: Smead Capital Management, Inc. (“SCM”) is an SEC-registered investment adviser with its principal place of business in the State of Washington. SCM and its representatives are in compliance with the current registration and notice filing requirements imposed upon registered investment advisers by those states in which SCM maintains clients. SCM may only transact business in those states in which it is notice filed or qualifies for an exemption or exclusion from notice filing requirements. Registered investment adviser does not imply a certain level of skill or training.

    This newsletter contains general information that is not suitable for everyone. Any information contained in this newsletter represents SCM’s opinions, and should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results. There is no guarantee that the views and opinions expressed in this newsletter will come to pass. Investing in the stock market involves gains and losses and may not be suitable for all investors. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security. SCM cannot assess, verify or guarantee the suitability of any particular investment to any particular situation and the reader of this newsletter bears complete responsibility for its own investment research and should seek the advice of a qualified investment professional that provides individualized advice prior to making any investment decisions. All opinions expressed and information and data provided therein are subject to change without notice. SCM, its officers, directors, employees and/or affiliates, may have positions in, and may, from time-to-time make purchases or sales of the securities discussed or mentioned in the publications.

    For additional information about SCM, including fees and services, send for our disclosure statement as set forth on Form ADV from SCM using the contact information herein. Please read the disclosure statement carefully before you invest or send money.

    Read more here:

    Not a Premium Member of GuruFocus? Sign up for a free 7-day trial here.

    Also check out:

    About the author:

    Source:

    Initial Public Offering & Preferred Stock News


    Author:

    Posted on

    The Price of Knowledge

    “You pay a high price for a cheery consensus.”
    Warren Buffett (Trades, Portfolio)

    The stock market has a history of torturing highly-valued knowledge. About every seven years, a consensus forms around the fastest-growing sector of the stock market, or the fastest-growing country or the fastest-growing industry. Do you remember how excited everyone was about investing in China and other Asian growth economies seven or eight years ago? Where did those 500 million new middle-class citizens go, which many of us “knew” were going to make companies rich? History shows that themes of popularity are an invitation for poor forward returns.

    Simultaneously to the overpricing of well-known facts is the underpricing of the futures of meritorious companies which are suffering temporary forms of tribulation. History shows that the stock picker can add alpha by wading into fear when certain qualitative characteristics exist. The underpricing of good quality shares with positive futures is a regular phenomenon in the stock market, but has reached a crescendo recently.

    We will hypothesize on knowledge we believe is well known and overpriced and on what isn’t well known or well believed and could be underpriced.

    Everyone thinks they know that artificial intelligence and big data are the future

    Source: Forbes.

    When we go to industry conferences, artificial intelligence and data analytics seems to be all anybody talks or thinks about. In 1999, it was “the internet will change our life.” They were correct about the internet, and investors got slaughtered investing in internet darlings. Will artificial intelligence and data analytics be any different?

    The chart below shows the biggest parabolic moves in price in the past 45 years. We believe investors have expressed their excitement about artificail intelligence and data analytics first through the most successful e-eommerce companies.


    Source: DoubleLine Funds, BofA Merrill Lynch Global Investment Strategy, Bloomberg.

    Everyone thinks they know that interest rates will remain low

    Everyone thinks they know inflation is dead and that interest rates are permanently going to stay near historic lows. Longtime bond market watcher and veteran financial writer and historian James Grant, however, thinks otherwise.

    “Interest rates tend to change course only once or twice a generation. In 1981, investors could look back on 35 years of generally rising rates. In 2016, a different generation of investors could look back on 35 years of generally falling rates. In bonds, you can profitably spend a whole career not changing your mind.

    Humans eat, sleep, and extrapolate. What we think we can foresee is often nothing more than what we have recently seen. “More of the same” is the sensible default prediction in politics, baseball, and interest rates alike. In rates, it actually tends to work. [1]”

    The Federal Reserve Board flooded the U.S. economy with liquidity in the aftermath of the financial crisis to help us recover. They have succeeded in getting past the crisis, but they have not withdrawn the liquidity. If 89 million millennials get married in large numbers, have kids and buy houses like polls show they will, there could be an inflation surge like we haven’t seen for years. If interest rates normalize in the next 10 years, capital markets will get repriced and risk premiums could adjust extensively.


    Source: Freddie Mac, The Major Challenge of Inadequate US Housing Supply (The Major Challenge of Inadequate US Housing Supply), Dec. 5, 2018.

    As the chart above shows, the U.S. might be the most underbuilt on single-family residences as any time since 1960.

    Everyone thinks they know all you need to do is invest in the consistent growers

    Source: JPMorgan, The Value Conundrum, June 6,  2019.

    Mature and slower-growing growth stocks are opening investors up to large risks. Paying 30 times profits for established growth companies like Nike (NYSE:NKE), Costco (NASDAQ:COST), Visa (NYSE:V), Mastercard (NYSE:MA), Starbucks (NASDAQ:SBUX) and others could be a ticket to misery when the price of money rises and price multiples contract when risk premiums return to the levels of the past. If and when price multiples return to their historical norms (15 to 20 times earnings), heartache and incrimination could ensue.

    Everyone thinks they know millennials will attempt to keep their adolescence

    While the deep recession and more years devoted to four-year college degrees have pushed maturity back five-plus years in the U.S., our research shows that 25-year-old women want very similar things to women in prior generations. Their favorite cable channel is HGTV and one of their favorite shows is TLC’s “90-day Fiancé.”

    Most of them ultimately want a husband and a home they can call their own. These are college-educated women and the best educated group of people we’ve ever had. Even Warren Buffett (Trades, Portfolio), who owns the second-largest real estate brokerage company, mentioned at the Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B) annual meeting that he has become bewildered by the slow pace of home buying and residential construction. We advise Buffett to strap himself in for a good 10-year ride.

    Everybody doesn’t know we are in the “crazy stage” in growth stocks

    Source: The Wall Street Journal (IPO Market Has Never Been This Forgiving to Money-Losing Firms)

    Source: GMO White Paper “The Late Cycle Lament” December 2018.

    A rash of explosive initial public offerings of common stock has punctuated every historical growth stock binge. Fortunately, we don’t have to wonder if we have entered this crazy stage. Every week Wall Street brings a new series of exciting growth stocks public and many of them are tied to the most exciting and well-known themes (artificial intelligence, data analytics, healthy eating, delivery via technology, etc.). Historically, you can anticipate the bloodshed within a few years when the oversupply of new growth stocks overwhelms existing supply and crushes prices for growth stocks.

    Everybody thinks they know that value investing is dead

    Source: JP Morgan “The Value Conundrum” June 6, 2019.

    In a low turnover discipline like ours, it is hard to do, but we must tack away from some winners of the past decade and gravitate toward companies which meet our eight criteria for common stock selection and are deep in the investor dog house. We are finding bargains in energy, 5G cellular technology, real estate, banks and old media. This forces us to make some hard choices, which are made easier by the fact we have created a great deal of wealth in our portfolios in the last three, five and 10 years. We believe these adjustments will justify some capital gains taxes when value investing makes its historically-normal comeback.

    Everyone thinks commodity prices will stay lower for longer


    Source: Bloomberg.

    Rarely does the index get this underinvested in the energy business. As the chart below shows, it could pay going forward to bet on a rebound in commodity prices and inflation.


    Source: Stifel, Macro & Portfolio Strategy, dated June 6, 2019. Data for the time period Jan. 1, 1805 to Dec. 31, 2018.

    Occidental Petroleum (NYSE:OXY) is new to our portfolio and deserves an explanation. It is buying Anadarko Petroleum (NYSE:APC) to create one of the world’s largest oil companies. Berkshire Hathaway has pledged to invest $10 billion in preferred shares attached to 8 million warrants to buy Occidental stock at $62.50. Officers and directors have been backing up the truck to buy shares of Occidental. The stock is very depressed, the industry is undervalued and we get a juicy dividend to wait for the companies to combine, sell unneeded assets and hopefully gush free cash flow over the next 10 years.

    In conclusion, we are very comfortable stacking long-term probabilities in our favor by being very contrary to today’s popular and unpopular knowledge. We are getting very favorable prices on the unknown futures of our value stocks and are avoiding getting caught in overpriced and well-known trends with loads of momentum attached. We think we have a handle on the price of knowledge. We thank you for trusting us with your capital and believe you will get well rewarded over the next five to ten years.

    [1] Source: Barron’s (Jim Grant: Low Interest Rates Forever? Don’t Get Used to That Idea).

    Disclosure: Smead Capital Management, Inc. (“SCM”) is an SEC-registered investment adviser with its principal place of business in the State of Washington. SCM and its representatives are in compliance with the current registration and notice filing requirements imposed upon registered investment advisers by those states in which SCM maintains clients. SCM may only transact business in those states in which it is notice filed or qualifies for an exemption or exclusion from notice filing requirements. Registered investment adviser does not imply a certain level of skill or training.

    This newsletter contains general information that is not suitable for everyone. Any information contained in this newsletter represents SCM’s opinions, and should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results. There is no guarantee that the views and opinions expressed in this newsletter will come to pass. Investing in the stock market involves gains and losses and may not be suitable for all investors. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security. SCM cannot assess, verify or guarantee the suitability of any particular investment to any particular situation and the reader of this newsletter bears complete responsibility for its own investment research and should seek the advice of a qualified investment professional that provides individualized advice prior to making any investment decisions. All opinions expressed and information and data provided therein are subject to change without notice. SCM, its officers, directors, employees and/or affiliates, may have positions in, and may, from time-to-time make purchases or sales of the securities discussed or mentioned in the publications.

    For additional information about SCM, including fees and services, send for our disclosure statement as set forth on Form ADV from SCM using the contact information herein. Please read the disclosure statement carefully before you invest or send money.

    Read more here:

    Not a Premium Member of GuruFocus? Sign up for a free 7-day trial here.

    Also check out:

    About the author:

    Source:

    Initial Public Offering & Preferred Stock News


    Author:

    Posted on

    Anheuser-Busch InBev Stock Is Rising Despite Loss of Asian IPO – Barron’s

    Anheuser-Busch InBev

    stock (BUD) was rising on Monday, after dropping last week on news that the initial public offering for its Asian business was withdrawn. The end of the IPO may not be the company’s fault, but it does constrain some of the hopes analysts had for the spirits maker.

    The back story. Even with Friday’s 3% decline, AB InBev shares are up more than 32% since the start of 2019, comfortably ahead of the
    S&P 500
    ’s 20% gain. The rally hasn’t all hinged on the IPO. The company has made progress in paying down debt, delivering strong earnings and winning back the confidence of some analysts after a tough 2018 that has left the shares down nearly 16% in the trailing 12-month period. Investors are upbeat about other prospects, including the company’s home bartending products and potential cannabis offerings.

    What’s new. The shares fell on Friday after the company confirmed it wasn’t going ahead with an IPO for a minority stake in its Asia-Pacific business, Budweiser Brewing Co. It was to be the biggest IPO of the year on the Hong Kong stock exchange.

    Editor’s Choice

    Macquarie analyst Caroline Levy reiterated a Neutral rating on AB InBev, writing that the decision to call off the IPO “may be reflective solely of market conditions rather than any issues with ABI’s Asian operations,” but it is still a “meaningfully negative development,” leading her to lower her price target for the company’s European-listed shares.

    Looking ahead. There is no doubt that many analysts had high hopes for the IPO. After all, it would have raised billions of dollars for AB InBev. Also, leverage was a major component of bearishness on AB InBev last year, and the funds raised would have gone toward further improving the company’s balance sheet.

    Levy estimated that the IPO would have allowed AB InBev to pay down $8 billion in debt, improving its leverage ratios, and without it she warns that the company could have to cut its dividend again if it wants to speed up payments.

    With the stock up Monday, investors are clearly not too concerned. Levy notes that the company did achieve its goal of highlighting the Asia business, which it said was underappreciated. In addition, Guggenheim’s Laurent Grandet writes that every other major catalyst is intact for AB InBev, making the weakness a buying opportunity.

    AB InBev stock was up 1.5% to $88.23 Monday morning.

    Write to Teresa Rivas at teresa.rivas@barrons.com

    Source:

    “ipo” – Google News


    Author: