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Stock Club: Were Peloton’s Earnings Really THAT Bad?

It was another busy one last week for the Stock Club crew, who dove into all things Peloton, Metromile and Lemonade, and more.

Let’s face it — Peloton’s (NASDAQ: PTON) earnings were a bit of a bloodbath last week. However, our analysts reckon that things might not be quite as bad as they first appear, especially in terms of the digital part of the company’s business. 

In this episode, we also:

  • Chat about Lemonade buying Metromile.
  • Give Teladoc the First Look treatment
  • And talk about two companies we’re researching at the minute, Magnite and Clearfield.

Transcript

James

Hi there and welcome to Stock Club, a podcast brought to you by MyWallSt. I’m James. And joining me on today’s episode are Mike and Emmet from the MyWallSt analyst team. Today, we’re talking about the silver lining from Peloton’s bloodbath earnings report, our thoughts on Lemonade buying Metromile, and Emmet gives the First Look treatment to Teladoc, ahead of next week’s Academy course kicking off. So, guys, let’s address the big elephant in the room right at the start. I don’t think it’s any coincidence that Rory happened to be on holiday again this week after Peloton stock crashed more than 40% last week after a disappointing earnings call.

To go into it a bit, the earnings call was a bit of a bloodbath for the company, with Peloton reporting a wider loss than expected, revenue growth only coming in about 6% year on year, and a full year out of being pulled back. Mike, I’ll come over to you first on this. Do you think Rory has just run for the hills and avoided this podcast?

Mike

Yeah, well, I think he missed a big opportunity there, James. It’s the elephant that isn’t in the room.

James

That aside, Rory avoiding responsibility aside, let’s talk about Peloton because we have talked about Peloton quite a lot. And it’s been one of the massive successes of the pandemic, just to bring that up again. Surely this year or this quarter, at least everyone was expecting a slowdown in growth propelled, considering such a blockbuster year it had last year.

Mike

Yes, I’m glad you find out the question this way because I’m planning on going off on a tangent, but it seems related now. But yeah, you said it there. Looking at Peloton, it made me think of the wider trend we’ve seen this year on the pandemic stocks or the stay at home stocks that did so well last year. So I got a few examples. Peloton in 2020 was up 396%. It’s down 66% year to date. Zoom was up 400% in 2020, it’s down 30% year to date.  Teladoc, up 140% in 2020, and down 32% year to date. And then Roku up 140% in 2020 and down 14% year to date.

So look, there’s going to be more stocks that do well in 2020, that also do well in 2021, but they already fit my narrative. So I’m not including them here, but I think, kind of, we’ve seen there’s a trend there, and I think the success we saw in 2020 and like not just 2020, but the meme stock craze in AMC and GameStop, and even crypto as well. It kind of gave a lot of investors unrealistically high expectations for stock market returns. There was a study that found U.S. investors now expect annual long-term returns of 17 and a half percent from stocks with maybe five hedge funds in the world who might be able to do that long term.

So I do think we have to chalk up some of Peloton’s woes to a wider trend and the sad fact that a company can’t grow fivefold every year. I think before the earnings report, it was down about 40% year to date, so it wasn’t too far away from where Zoom was, and probably a fair enough pullback considering the 2020 it had. But we have to address the earnings report as well, which was, as you said, a bit of a bloodbath. I think that’s appropriate enough analogy.

So let’s break down what happened. This is Q1 of 2022 now for Peloton. So that’s kind of important for guidance and stuff and thinking but. So revenue only grew 6% year over year, and it’s down sequentially for the second quarter in a row. It also cut full-year revenue guidance by a billion dollars at the low points, and it’s forecasting EBITDA loss of $425 – $475 million for the year. Engagement for the platform is down, as you mentioned. And Rory pointed out this in the act as well.

The costs have been skyrocketing, which would portray a company that wasn’t really expecting this kind of dip. Operating expenses actually grew 140% year over year to $622 million. So all in all, not great.

James

Where’s the silver lining here?

Mike

Well, here we go. It isn’t all doom and gloom. So you kind of notice a bit of a divergence between the hardware and software side of the business. So the software side actually did quite well. Connected fitness subscriptions grew 87%, and it added 161,000 new subs in this quarter. Digital subscriptions, so these are not connected to hardware, have also seen an increase of about 74% year over year. So it’s not completely F’d, but it’s not great either.

James

Well, let’s talk about that. So you mentioned the kind of, the digital side of Peloton. I think that’s something a lot of people forget. Obviously, they sell very expensive bikes, and treadmills, and rowing machines. But the thing that differentiates or did differentiate Peloton in the start from other companies like that was its digital offering, and it’s the kind of connected side of the business. One of the company’s key engagement metrics, Connected Fitness workouts was down this quarter, so it dropped from an average of 20.7 workouts per month last year to 16.6 workouts per month.

So to me, is this a concerning thing to you, Mike? Is engagement dropping? Are Peloton’s bikes eventually becoming what lots of bears said, which is really expensive clothes hangers.

Mike

Yeah, I noticed a lot of them bears are back, back writing on Twitter after 18 months, but that’s actually responsible journalism for you there, James. You said 20.7 workouts. The quarter before that was 26 so, an even bigger drop if you wanted to be a sensationalist. But, I think one factor that went unnoticed last year because of lockdown and everything, Peloton was going up and to the right. This is a seasonal business. We talked about engagements, and its members are doing a few workouts. Of course they are.

It’s the middle of summer. People are exercising outside. They’re going for cycles and runs. They can go on holidays. They’re playing team sports. They’re going drinking, out for restaurants. Perfectly logical. It’s perfectly logical we would see a different engagement. 26 workouts a month, on average, is not going to be maintained year round, but it’s members, on average, are still working out more than every second day. There isn’t a gym in the world whose average members go on every second day. So yeah, I think the engagement is more for headlines than anything else.

James

Okay. Interesting. And then you mentioned that the seasonality of the business in terms of its engagement. It’s also a hardware business. So surely, there’s seasonality in terms of this quarter is the quarter where we’re going to have things like Black Friday. We’re going to have things like the Christmas and holiday period, and we’re going to even kind of bleed into people in January saying this is the year I’m going to get fit. How does that square with the fact that Peloton are pulling back their revenue expectations for this quarter?

Mike

Yeah. Well, I think in the first line of the shareholder letter, so they did like a little excuse. Bingo.

James

Yeah.

Mike

Where they went for supply chain constraints, the reopening of the economy and tough comps all in one line.

James

Pretty much copy-paste from every single company this quarter.

Mike

Basically, yeah. I know what you’re saying. That’s another thing. So maybe the engagement for two quarters ago, is their Q3, I think, would be the peak for engagement and probably Q2 for them in terms of revenue and especially hardware sales. But yeah, I think like every other hardware company right now, they’re just preparing for the worst in terms of what is about to happen on the supply chain.

James

Yeah. Absolutely. So Peloton actually might have a valid excuse in terms of supply chain issues. So let’s talk about the company more generally then. So Peleton is still a company in our shortlist. Rory, I’m sure is screaming back down his headphones listening to this about how much we are long-term investors. One bad quarter doesn’t spell end for the business. Do we think that Peloton might actually be sitting on more of an attractive valuation right now considering the lofty heights it was at last year?

Mike

Yes. I don’t think, let’s park valuation now, and kind of dig into this quarter, and the real optimist around there could kind of make the argument that this isn’t too bad. I think Peloton deserves a bit of leeway with regard to the fact that it’s kind of in this limbo between a hardware and a software company. There’ll be a day soon when subscription sales take over hardware sales. The bikes and treadmills become a way of selling this high-margin software. We’ve seen this model work and loads of other industries like think of Square or Roku, where the hardware is just a way of signing up a customer who then pays their monthly subscription. Obviously a bit more difficult when the hardware part is an exercise bike for two grand and you’re selling to customers rather than businesses.

But it’s definitely where the company sees itself going. And in terms of that and this earnings report, the software side of the business actually did very well. And I think the line in the sand here was reducing the price of the standard exercise bike. I think they cut it to $1,500. $1,495 or something. And they mentioned that they did this because they see more lifetime value in subscribers. And the main key to getting these subscribers is reducing this cost and making it more accessible. So I think there’s absolutely no need to run for the hills just yet with that Peloton.

James

Of course. Cool. And of course, I am just giving Rory an extra hard time. He did give his comments on Peloton in the MyWallSt app, and you can catch up with them now, if you’re interested in hearing his perspective on that. I’m sure he’ll come back blazing now in next week’s podcast so I’ve really set myself up here. Let’s move on then. And anytime we talk about potential acquisitions here on Stock Club, they seem to end up failing almost straight away. So PayPal and Pinterest recently DraftKings and Entain.

We talk about the potential of these, and then the next week, pretty much, they say the deal is off the table. Well, one acquisition that definitely seems set to go through for now anyways, is Lemonade’s purchase of Metromile. Lemonade is a fintech company that currently sells renters, homeowners and pet insurance, primarily in the US through its AI powered app. Metromile, on the other hand, is a pay-per-mile auto insurer that’s focused on offering cheaper premiums to motorists by tracking how much mileage they cover in their cars.

Interestingly, both of these companies are actually part of your Horizon portfolio. Is this the first time one Horizon company has bought another?

Emmet

It is yeah. Oh, definitely. I’ve pitched around, I suppose, 30-something stocks in the Horizon service, and I’ve bought around 24 of them. And definitely it’s the first time one has bought the other. Yeah.

James

And it’s funny because they’re two of the smaller companies in the portfolio, too, so more broadly. Look, I’m really interested here. What do you think of this deal? Both of these companies, on the surface, seem fairly well aligned as the insurance angle there. Lemonade, maybe a broader insurance scope, Metromile, a very specific one. But do you think this is a good match? Do you think they fit in terms of what they’re both trying to do more broadly?

Emmet

James, I have Encyclopedia Britannica open here, so I’m going to go back in time to get to the answer to the question you’ve just asked me.

James

Just one second there — Mike. You were worried about going off on a tangent. This podcast is just one giant tangent.

Mike

Emmet should preface every answer with: I really appreciate the question James, but I’m going to answer a different one.

Emmet

Yeah, that’s right. I really should have gone into politics. So what it says in Encyclopedia Britannica is, the first American insurance company was organized by Benjamin Franklin in 1752 as the Philadelphia contribution ship. The first life insurance company in the American colonies was the Presbyterian Minister’s Fund, organized in 1759. But you have to suspect, James, that the intellectually elite of ancient Greece and Turkey, while sitting in Ephesus, figured that it made sense to take a few drachmas off someone today in return for the outside chance of having to pay out in the future.

It’s such a simple concept. But either way, let’s just say that there is a dotted line from the Lemonade family tree all the way back to Benjamin Franklin and then all the way across the world to ancient Greece. So insurance is a really, really, really old business. We are now looking at one of the new disruptors to an industry you could argue that’s as old as record-keeping itself. Now the stock market is a voting machine that appears to be faulty on any one day, and it’s an always slightly broken thermometer.

An example of the week, in my opinion, was Lemonade, who, as you said, use AI bots on their website and in-app, to create what they describe as hassle-free insurance. Well, basically, again, as you said, Lemonade, you get homeowner renter pet insurance and now car insurance, in seconds. Your claims are paid more or less instantly and you can cancel in-app. And there’s a flat fee. They’ve really gone for utter innovation in an industry that is very old. And as you said on Monday and market close, the company announced that Q3 revenue jumped over 100% year over year to 35.7 million.

Customer count jumped 45% year on year to about 1.3/1.4 million, and that they bought a cutting-edge auto insurance business, Metromile for like the price of a full Irish breakfast. And shares fell.

James

Wait, where are you buying your full Irish breakfasts?

Emmet

It’s true, they’re not 500 million, but anyway. But the shares fell from around $71 to $61 a pop. And the shares are now down from a February high of $164, which, in my mind is absolutely nuts. It’s crazy. So let me just tell you a little bit about Metromile. It is a business based on the fact that about two-thirds of motorists overpay for insurance, and therefore by only paying for the miles you drive, you can save money. And they do that by posting you out a Dongle, which you plug into the USB port on your car.

And you guessed it, an app that’s paired with it. And you can suddenly prove to Metromile that you’re driving less and you can even find your car if you’ve lost it. So the point is, Metromile is now going to power Lemonade car, the new product. And for $500 million, Lemonade has bought the following $100 million of enforced premiums around $250,000,000 in cash, which means they effectively only paid about $250,000,000, and ten years of experience and expertise in pay-per-mile insurance, which comes with billions of road miles of data.

And to me, this is like strapping a rocket onto the side of a Tesla on Ludicrous Mode, and the voting machine that is the stock market said, no, don’t like this. And that, to me, is why I think it’s utterly nuts. Now. I do acknowledge there is, of course, a risk. And we all know that acquisition or grown-through acquisition is notoriously gnarly. Actually, I’ve never used that word. I think it’s bad. What I mean is that they fail way more often than they succeed. Acquisitions, they are tough.

And there’s a shopping list of reasons why acquisitions fail, usually, center around things like integration of products, and people, and the company culture, and the customer getting confused with what in fact, who owns what, and who am I a customer of? So, there’s an awful lot of reasons why an acquisition will fail. But, if this works out, I think that Lemonade will be one of the great industry disruptors. I mean, it’s still a toddler. This is a brand new, tiny baby of a company. And we’re looking at something that’s out to change.

Something that I’ve decided must have started in Ephesus in Turkey long before Benjamin Franklin came up with it. So the deal is set to close Q2 2022. And at that point, Metromile shareholders will receive one share of Lemonade for every 19 shares of Metromile, I think was the deal.

James

Okay, from your perspective, it seems like a great deal for Lemonade. Great acquisition for them. Hopefully it works out. What about your perspective as a Metromile shareholder? We’ve had this in the past for, like, really exciting small companies like this have been bought out from underneath us. Are you disappointed as a Metromile shareholder about this news?

Emmet

I’m disappointed at when I bought Metromile. That’s a fact. I mean, I pitched it and I bought it near enough to its all time highs. I don’t have it open in front of me, but I think it’s an all time high was around $19 and it’s $3’s and change now. So that was bad timing. Bad luck. But it is every bit as much the quality business today as it was when I bought. And I am disappointed at one level, because I had conviction that Metromile would figure it and recover.

I mean, they were fairly new to being a public company. They went to market, through a SPAC, they were finding their feet. They had a really nice product that was licensed to operate. They have a really nice product that’s licensed to operate in 49 of the 50 States. So the business was ready, like, the hardest work was done. And had that merger not happened, I believe Metromile would have recovered to the price that I paid back when and gone even further still, because it’s kind of a no brainer. Like most of us.

Sorry, most of us here in Ireland don’t drive a whole lot anymore. And I presume over in America during the pandemic, most people were the same. But there is something nice to saving money or just paying for what you drive, pay for what you eat. And I think that’s a nice model. It was a unique model. But look, now it’s gone into Lemonade, and I do believe that, I do believe that Lemonade will be one of the great investments for the patient people of this generation.

James

Okay. Interesting. I seem to remember that when Metromile first went public, Chamath Palihapitiya compared Metromile to him, to Warren Buffett’s investment in Geico, however, many years ago. Mike, do you think that’s a fair assessment now looking back at it?

Mike

100%. Everything Chamath has said equates him exactly to Warren Buffett, but no, I just wanted to add that there’s an interesting aspect to this acquisition as well. So, Emmet mentioned, I think it’s between $250 million – $300 million in cash that Metromile have, as part of the deal, but it’s actually an all-stock deal. So, 19 shares of Metromile to one share of Lemonade. So, Lemonade is actually through this acquisition, making a capital raise, too.

James

Okay.

Mike

Yeah. They’re raising between $250 and $300 million in cash through this acquisition, while also taking kind of a big risk out of this data accumulation phase of their driving product as well. So it’s a really interesting acquisition. I think Lemonade got a steal. And as a Metromile investor, I’m annoyed but, as a Lemonade investor, I’m kind of delighted, too. So it’s an interesting kind of.

James

Yeah, it’s very bittersweet. And the big question is, now, what are you planning on doingyour with your Metromile shares? Are going to hold on, or are you going to sell them before the deal goes through?

Emmet

James, that’s really the preserve of Horizon, and I’m going to keep that information for our members. I’ve already broadcast my intentions for my shares in Metromile, and I also have some really exciting companies that I’ll be adding to the service very shortly.

James

Ever the salesman. What’s that? Abc. Always be closing. Before we move on from the story as well, we need to give a shout out to Horizon community member Josh Wall, who actually managed to call Lemonade buying Metromile. I think it was like a day or two, Mike, before the deal was actually announced in the community.

Mike

Yeah, I know. We’re going to chat with him next year.

Emmet

Oh, yeah, that’s true. That was amazing. And also another one of our MyWallSt members, Ivan Perevic. I think he’s in Croatia, said, Tweeted Chamat way back when saying, do you like Lemonade? What about Lemonade? Rory tweeted this during the week or kind of retweeted it, and Chamath responded, per unit economics, Metromile is, in my opinion, the best of the bunch. So one of our own members caught Chamath out.

James

I hope Chamath’s not listening. So let’s move on then. And last week, I announced that the very first course on the MyWallSt Academy platform, called The Fundamentals of Stock Picking, was being launched. The first of these two weeks courses is kicking off next week, where Emmet will mentor you on the investing strategy that he’s fine tuned over the past few decades to show you how to follow the most crucial parts of his stock picking strategy. At the end of those two weeks as well, there’ll also be an opportunity for you to use everything you’ve learned to submit a stock pitch to Emmet and get feedback on it. In anticipation of this

Emmet, you’re going to take us through one of the key parts of this investing strategy here on the podcast today, how to take a first look at a company. So in the past few days, we polled our followers on Twitter to see which company they’d like you to give the first look treatment to. And it was a resounding result for Teladoc. So, Emmet, let’s pretend you’ve never heard of Teladoc before. This is a brand new company in your shortlist. And let’s dig into it to see how you take a quick five minute first glance at this company.

Emmet

We’re doing what now? Okay, well, what I’d say is just about MyWallSt Academy before I go there, me doing the tangent again. But before I go there, a couple of years ago, MyWallSt rolled out a very short and time-limited product called InPerson, where we got 20 or 30 people together in to a room, and it was the I suppose, the earliest version of what MyWallSt Academy is today. And really, what was amazing about that when you get a bunch of people together with a shared interest and who want to learn about a specific subject is really the community that builds after that.

And to this day, I have this WhatsApp group with the in person attendees. And we are now constantly sharing stock ideas. And I think that that’s going to bubble up out of MyWallSt Academy, which is online for all the obvious reasons. Anyway. So I’m looking at Teladoc, right?

James

The pitch is that Teladoc is a company on your shortlist. You know nothing about it. And you’re taking your first look, which is part of the Academy. You’re going to assess what Teladoc is, what they do, and if it’s worth investigating further.

Emmet

Yeah. Well, okay. As a lot of our listeners know, I apply an art and science approach to selecting and investing. And the left side of the human brain loves numbers, and the right side loves blurred lines and qualitative considerations. And really, what we’re going to do at the moment is just stick with the left side of the brain, which we dive into in detail in the MyWallSt Academy. So as you said, we want the first thing you want to do when you hear of any business.

An awful lot of our listeners are very experienced investors, and this was going from rudimentary level. And I’m sure a lot of our listeners eyes will roll backwards. But let me just take it from the absolute basics, as if I was talking to a seven year old. The first thing you want to do when you hear of a business is go to Yahoo Finance, go up to the very top in the search bar and type the name of that business in to see if it is listed at all.

Can you buy shares, or is it a private company? And if it’s a private company, Yahoo Finance will tell you. If it’s a publicly listed company, you will click on its ticker and you’re brought through to its dedicated page. And as I’ve said, far too many times, Yahoo Finance is to stock research what Google is to online search. And Yahoo Finance has been around forever and ever. It’s been around since well before Google was invented. So the first thing we know is when we type in Teladoc into Yahoo Finance, is that it is indeed a listed company with a ticker TDOC, and we see just underneath the ticker and Yahoo Finance that it’s on the NYSE, the New York Stock Exchange and the two biggest and arguably most powerful stock exchanges in the world are in New York City.

They are, of course, New York Stock Exchange and the Nasdaq. And that is really why the island of Manhattan is the center of the publicly listed company world. So we know the Teladoc is now a public company. It’s on the New York Stock Exchange. So if I Scroll down on the Yahoo Finance page, the next thing I observe is it’s market cap and the market cap, again, a lot of our listeners will know, is if you take every issued share, every share that exists for this company, and multiply it by the share price.

It gives you a number. That is a very rough guide for what you’d have to spend to buy the entire company. Now, other dynamics come into play when you go to buy an entire company. But at the moment, at this very minute on 11 November, Teladoc is $22.9 billion in size. So if you want to buy the whole business, that’s pretty much how we’d have to write a cheque for. The reality is we’d have to write a cheque for more because not everyone would sell for that price.

And then the next thing that my eye goes to is the share price graph, where you can select the range and it’s the rear view mirror, because all the share price graph tells you is what the world taught us up until this moment in time. If you click on five years, a couple of pieces of information become available. The first is, has it been around on the public markets for five years or longer, which can introduce immediately by looking, and then you see the shape of the graph.

How’s the market priced this company? And you can also tell by looking at a share price graph, sharp points of growth and precipitous drops. And you can infer that there was news about the business at that time, but it gives you a very quick oversight as to what has the world thought of this business to this point? And then finally, I guess, for just a first look while we’re on a podcast, if you click on the profile tab of Yahoo Finance, you can tell quickly where this business is located and what it does.

Teladoc Health is on Number 2, Manhattanville Road in New York in the United States, of course. And it gives a description of what the business does. And I think an awful lot of our listeners will know what Teladoc does. It’s virtual health care services, primarily business to business. So if you’re sitting in a giant company and you need to see a GP or a consultant or specialist, you can do so. You can make an appointment online and you can speak to them. In fact, I used a Teladoc-like service just the other day and it’s really so impressive.

It takes the pain out of going to see a GP. So that’s a very first look. By no means does that make, as most of our listeners know, that does not make for an analysis of the business, but very quickly, I can tell that this is a floated business on the New York Stock Exchange, valued at something like $23 billion headquartered in New York. And it does tele-health. And honestly, in 30 seconds flat or less, you can get that first read off any business.

James

Yes, absolutely. And as you mentioned, that’s just the very first, I suppose, step even half step, maybe in the process you typically go through in finding stocks in the MyWallSt Academy course, “The Fundamentals Of Stock Picking” you will go on then to show the ten-point checklist you go through, covering everything from earnings per share and PE ratio, on to competitive advantage, and company culture, and not only the things you look out for, but how you look out for them as well as giving you students access to exclusive resources like the MyWallSt Investing Journal, the Academy community, as you mentioned, and loads of other things.

So as I mentioned, the first course of My Wall Street Academy is going live next Wednesday. Listeners to Stock Club can actually get an extra $50 off that first course in the Academy if they use the coupon code stockclubpod. So that’s all one word, stockclubpod, at the checkout page. But remember, attendance in each course is capped at just 50 people. So you’d want to be quick to get this deal and you can find more info in the link in the notes for today’s show.

Thanks a million for that first look Emmet. I’m sure you’ve never heard of the company Teladoc before. So, folks, that’s about it. We’re running out of time. But before we end today’s podcast, I want to do the elevator pitch. So we’ll go with a classic one this time just the company you guys are interested in at the moment. Mike, I’ll let you go first seeing as Emmet was talking so much.

Mike

Yeah, just waking up, sorry. So, any MyWallSt subscribers kind of see me go down this rabbit hole recently of ad tech and trying to figure out who’s going to capitalize from this iOS Privacy update and IDFA, at least who’s going to capitalize, that isn’t called Google or Apple. So the one company I’m looking at is called Magnite. It’s the largest independent omnichannel sell-side advertising platform. So, to kind of dumb that down it’s to publishers what the trade desk is to advertisers, although at a much smaller scale.

So if you were the BBC and you had ad space to sell, you will go to Magnite, and they would pair you up with an advertiser trying to buy that ad space. It’s kind of established itself through some acquisitions as one of the pre-eminent names in the connected TV advertising landscape. And this is kind of looked at as a key growth driver for the wider programmatic industry. It’s got some big publishers like Disney, Hulu, AMC, and Warner media as customers, and it’s kind of banking on the future of streaming and that future being ad-supported.

So I think it could provide an interesting play on the ad sector.

James

Yeah, definitely an interesting company. But the one problem I have with them is every time you mention them, I think you’re talking about Mag-Lite, the company that make those big, heavy lights that security guards use. I just can’t get that association out of my head, which probably says a lot more about me than the stock itself.

Mike

I’ll add it to the list of cons.

James

Yeah, that’s the bare argument. Emmet, what about you? What company are you looking at, or interested in at the minute?

Emmet

A stock I had a close look at the night before last is very niche or niche, as you’d say in the US. And it’s Clearfield, ticker CLFD. And just to be clear, I think it’s going to perform well. I actually think it could be a pretty nice investment at the moment, but I don’t think I’m going to buy. So, what they do is fiber to the home solutions known as FTTH, fiber to the home, which is notoriously messy. I mean, we’re all comfortable knowing our telecom providers can bring fiber to some junction box near enough to our house, but it’s getting it right up inside our front door.

So they get fiber broadband into your home. And it is not glamorous. It’s not the glamorous end of broadband in its own right, which isn’t all that glamorous, but it’s absolutely critical. And the catalyst for Clearfield’s growth is 5G, believe it or not. And it’s a small business. It’s only capitalized, its market cap is only $817,000,000. It has 17% insider ownership, of which a large portion belongs to cofounder CEO Cheri Beraneck. Its return on equity is nearly 22%. It has $23 million in cash and a tiny little splash of debt, about $2 million in debt.

And every quarter it’s smashing. It’s just smashing the consensus EPS. Such to the point that analysts keep raising their anticipated EPS, for the next earnings per share for the next quarter. But now the kind of consensus EPS for Q3 is considerably below what the actual EPS was for Q2. So I’m of the mind that, this kind of boring, sleepy Middle-American, maker of rooters and gooters kind of, is going to do very well, but is it going to be a ten bagger? I don’t think so, but I think it’s a pretty good investment.

James

I was just thinking fiber to your home sounds like a tagline for Kellogg’s as well. Come on, that deserves a laugh.

Emmet

All Bran, fiber to your home, brought to you by Clearfield.

James

I am wasted on this podcast. So that’s it for today’s show folks. Remember, if you have any questions you’d like us to answer or elevator pitches you’d like us to tackle, make sure to get in touch. You can find us on Twitter that’s at MyWallStreetHQ, TikTok at MyWallSt, or simply just email us at pod@ mywallst.com. If you’re enjoying the show, make sure to tell your friends about us, and don’t forget to leave a review or a rating for us on whatever platform you listened to us on. From three of us here today,

Thanks for listening and we’ll talk to you next week.

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