Listen to the Stock Club Podcast

Why Is Everyone So Worried About Evergrande?

The Stock Club team is back once more this week to discuss the ongoing Evergrande issue, what it means for us, and two top stock picks.

Global markets have been rattled this week by fears over the Chinese company Evergrande. Why is the world so worried about this company defaulting and could this really be the Lehman’s Brothers of China?

In this episode, we also discuss:

  • The latest brand crisis for Facebook.
  • Our first thoughts on Allbirds, a soon-to-be-public sneaker company.
  • And two stocks that we’re researching at the moment, including a yoghurt that causes people to “lose their minds”.

Transcript

James

Hi there. Welcome to Stock Club, a podcast brought to you by the MyWallSt. I’m James, joining me on today’s episode is MyWallSt head analyst Rory Carron and Anne Marie Kingsland from our analyst team. Today, we’re talking about Facebook’s latest brand crisis, why everyone is so worried about the demise of the Chinese company Evergrande, and all you need to know about Allbirds ahead of its IPO.

So guys, a wild story to start today’s podcast asked off with. So I was reading that last week, the multinational tobacco company Philip Morris successfully bought a pharmaceutical company called Vectura. The real kicker in this story is that Vectura is a company that is best known for producing inhalers. Rory, maybe I want to come to you first on this because this is insane. It sounds to me like the plot is one of those old James Bond movies where the villain buys this company and it just defies belief.

Rory

Create a problem solve a problem, basic business isn’t it? It’s like the worst razor and blade model I’ve ever heard of.

James

Yeah, it’s like they’re really trying to own both ends of this market. The problem and the solution. It’s insane, though. It really reminds me of that old Peter Lynch thing of diworsification, but it might not actually be a bad move for a tobacco company.

Rory

I mean, I don’t follow the tobacco companies. I don’t know what their margins profile’s like, what is gonna add in incremental revenue but it sounds messed up I’ll give that much.

James

It’s pretty wild. Well, speaking of evil, companies, or reportedly evil companies, let’s talk about Facebook — see what I did there? So Facebook is back in the news again and surprise, surprise it’s for all the wrong reasons. So last week, the Wall Street Journal published a series of articles which revealed a startling amount about the way Facebook works behind the scenes. So based on internal reports and documents compiled by Facebook itself, these articles catalog a wide range of the controversial practices related in the company, including — Deep Breath here —

Confirmation of the so-called elite users who are exempted from platform rules, sever shortcomings in the platform’s response to serious issues like human trafficking and terrorism on the site, and perhaps most worryingly, recognition through the company’s own research that the harmful effects of platforms like Instagram on its users, particularly teenagers and young girls. Just before we get into the story, Rory I’m gonna come to you first, but just want to flag to our listeners that some of the content mentioned in this report might be upsetting for some listeners, so discretion advice.

But, Rory, I want to come to you. Are there any parts of this report or these reports that were particularly shocking to you?

Rory

I mean, this is one of the most, I mean, outrageously bad two weeks in terms of PR I think I’ve ever seen from one business. Possibly only surpassed by the Cambridge Analytica scandal. That was also Facebook famously.

James

Yeah, I mean, taking down modern democracy is pretty bad. I didn’t think it could get worse than that.

Rory

Yeah, I think, like with the Cambridge Analytic, I think that was kind of one story. This is like loads of stories and they’re just dripping out on basically a daily basis. Like, I can’t imagine what it’s like in their corporate coms office right now. But as you said there’s so much to talk about for those who want to delve into every part of it, I cannot recommend highly enough the podcast the journalists produced covering each story in depth. I put it on my Twitter profile there. It’s just fantastic journalism.

Yeah. Loads to get to. I think a lot of what came out people probably already knew, even if we didn’t have any kind of direct proof of it. So you mentioned the cross chat thing, basically whitelisting VIPs. It’s like Facebook has denied this for a long time and said everyone on the platform has to follow the same rules. But of course, there’s been loads of examples over the years because it just clearly wasn’t the case, and they always had some excuses to why certain individuals are getting away with it.

But now we know that there was a system in place for a lot of these VIPs, and there was a lot of them; 5.8 million of them.

James

Yeah

Rory

So it seemed like any Facebook employee, you just add someone to this list who are not subject to the same rules. And Facebook knew that the whole time. And with that story, I mean, what was so shocking was how it just become so uncontrollable. The company had no idea what to do about it. They were the ones going, what the hell we do to to fix this. It’s just completely out of our hands. And so this idea that Facebook is, like, knows what’s going on and has control of everything that’s happening on this platform just isn’t true. They really were kind of scratching their heads, run around like endless chickens, particularly on some issues. And there was a terrible story of Neymar the football putting nude videos of someone online. And it got left up for a 24 hours.

And the Instagram one as well. I think instinctively, people kind of knew this was harmful for people’s mental health, particularly teenagers generals. But now we know that it was actually being studied by Facebook, and they had hard data on exactly how harmful it was. And for years they kind of brushed this off as well, social media is complex, and all the other platforms have these problems. But Facebook actually knew that Instagram was particularly bad even in comparison to other social media platforms. Like it noticed that TikTok, which is also very popular with teenage girls, was very much more focused on kind of being funny. And Snapchat, even though that was kind of very visual, was focused on kind of the face and the use of these silly looking kind of filters on their app. Whereas Instagram was very much focused on the lifestyle and body image. And this was the stuff that was causing the majority of the mental health problems that they found in about one-third of young teenage girls who use it. And not only did the company do very little about this, they hide the research. They tried to prevent other research groups from conducting their own studies. Then we get into the algorithm issues where documents showed the change in 2018, that was supposed to make it a better place, supposed to make people kind of happier, actually made the anger.

And I mean, it does really highlight the complexity of Facebook. And this is kind of this social engineering element of what small change can do. But again, when they find out about it, they were like, okay, it’s making people angrier, but that might be better for us, actually, as a business that actually might help us. So when data scientists believe they could make really positive impacts, they even at one point suggested removing the reshare button. This was not even considered because it was going to hurt the business. I think when you talk about shocking, I think the story about human trafficking, which Facebook has known has been happening on the site for years, is probably the most shocking. Mostly because time and time again, it seemed like it was being flagged to the company by their employees, by media organization. And every time the company made these tiny little changes but never really tackled the problem fully.

And it was only in 2019 when they got a call from the BBC. The BBC was doing a report into this that had found plenty, plenty of examples of women in Kuwait being essentially bought into domestic services. They contacted Facebook and said, look at all this stuff that’s going on on Facebook went, oh, God, that’s terrible. And they went in and they deleted all the content, but they didn’t really make any changes to the system to try and prevent further content. It was only when the BBC contacted another big tech company, a little company called Apple and said, do you know, there’s an app on your store where there’s human trafficking happening and Apple lost it, absolutely lost it, and contacted Facebook. And were like, we are thinking of taking you off the app store.

It was only then the Facebook were like, okay, we need to solve this problem. So I think, you know, even what emerges from all these stories is this kind of pattern within the business. It’s a culture where the company is happy to do things like form working groups. They spent hundreds of millions on things like their oversight board or their integrity team or their civics team. And they collect all of this data and they read all the data. But when the groups make suggestions, they basically look at the suggestions. And rather than saying, oh, that’s a great suggestion that’ll solve our problem. They look at them and go, what can we do that kind of looks like we’re tackling the problem while causing the least amount of disturbance.

James

Yeah, it seems to me that up until this point, Facebook kind of toed the line of; this is kind of like Frankenstein’s monster. We’ve pioneered social media, these things happen, we can’t foresee them. Now, it’s quite obvious that not only can they see these things happening, they know they’re happening and they’re purposefully covering them up.

Rory

Yeah, and the company would point to the fact that they are doing all this research and they’re looking at all the stuff and they’re spending all this money. And yes, they are, they’re spending more money than probably anyone else at this stuff. But they should be because they’re making more money than anyone else on this stuff. And I think these are coming from leaked documents. And I don’t think anyone would like an unvarnished version of something that they may have said in confidence becoming public because there’s always issues with total accuracy when you don’t have the full context.

But that argument, I think, kind of falls a bit flat here because Facebook has the full context. And yet we see time and time again. They’re just not acting that. And what’s worse is the company came out with the response that was delivered by the ever slobbering Nick Clegg, basically says this is just another case of the media targeting Facebook and only focusing on the bad. Meanwhile, just this week, The New York Times published an article about a project within Facebook called Project Amplify, in which it’s going to promote pro Facebook stories in its own timeline and try to shelter Mark [Zuckerberg] and other executives from any public scrutiny. So there’s something deeply hypocritical about that response where they’re like, oh, you guys only focus on the bad. And then secretly they’re like, we are going to push in front of people how great we are all the time, and try to hide bad stories.

James

Well, let’s move on for a moment though. And I suppose there’s all of this, I suppose, wider criticism of Facebook, but with our investor hats on, Facebook is probably, as I mentioned, had a brand crisis in 2018 and the whole Cambridge Analytica scandal. But since then, the company’s market cap has doubled. Is another case of bad press like this really going to impact Facebook as an investment. And, as, you know, impede its growth?

Rory

I mean, it’s tough. I think we know that Facebook has this kind of almost this kind of teflon element to it where no matter how bad the scandals are, it doesn’t seem to impact the business because it’s so diverse, it’s so everywhere. It’s like, even if someone decides I’m gonna go off Facebook, they’re probably using WhatsApp, they’re probably using Messanger, they’re probably using one of the properties, Instagram. But I suppose this isn’t necessarily, I don’t know, going to be a major impact by itself. But then you look at the other things that could happen, you know, like this could prompt Apple again to go: ‘hold on a second. You guys said you were fixing stuff, and clearly your not.’ We know, of course, that Apple changed its iOS this year. That’s definitely hurt Facebook’s ad business. There’s a couple of lawsuits coming up about the board of Facebook paying billions of dollars to protect Mark and Cheryl Sandberg. There’s a lot of things kind of happening with Facebook right now. There’s a lot of good things happening in the business, but there is other elements that could very much hurt this business, and this definitely isn’t good for them, I’ll give it that. I don’t know what the long term impact is going to be, but there’s a lot of things that this could sort of set off.

James

A lot of the pieces I’ve read about this. I’ve seen a lot of comparisons with Big Tobacco, and obviously we mentioned Philip Morris at the start. Do you think that’s fair? Do you think Facebook have now ventured into that area where they know they’re a net-bad for the world, but they’re gonna keep going?

Rory

Yeah, I saw the comparisons as well, it’s difficult. Like in terms of the fact that the company is causing harm, knowingly and try to hide it from the public and from regulators, they’ve refused to hand this research over. That does sound a lot like what tobacco companies were doing all those years ago. And if we’re gonna take mental health seriously, which we should, particularly the mental health with children, then there should definitely be a kind of heightened public outcry about this. Yeah, I mean, I don’t know, the tobacco comparison might be a bit extreme, but there’s definitely bad things happening here that the company really needs to address.

James

We’ll keep an eye out for Facebook buying an inhaler company; that might be our signal. All right Rory, the final question here, and it’s a big one: here at MyWallSt we consider ourselves ethical investors. And we only choose companies for our shortlist that we believe in and align with our beliefs. Do you see foresee a day where we remove Facebook from our shortlist for those reasons?

Rory

And its a discussion we have on a regular basis, not going to lie. Ethics is tough. Everyone has to kind of decide themselves, I think what they’re comfortable in investing. I’ve heard Facebook be called a kind of hold the nose investment. It’s something we talk about.

Is Virgin Galactic Stock A Buy?

James

Okay, okay. Something to keep an eye on anyway. Let’s move on then to another story that when I saw this pop up my news feed first, probably on Facebook, by the way, I actually taught that a ship had gotten stuck in the Suez Canal again. But then I realized that we were talking about Evergrande, not EverGiven, shows my ignorance on global affairs. But in any case, markets, globally, have been shook this week over fears that this Chinese company, which is the world’s largest property developer, I believe, is on the brink of collapse. I’ve even seen one commentator called this the Chinese Lehman Brothers moment, which, as a millennial, stoked some deep-rooted fears in me kind of nearly got some PTSD over that. Anne Marie, I know you’ve been doing a lot of research on this whole Evergrande thing. Can you catch us up on it? What’s going on? Why is it making everything so nervous?

Anne Marie

Yeah. So basically, Evergrande is a property developer. They develop everything in China from infrastructure to retail to residential space. But they’re arguably most known for massive apartment buildings that it builds in basically every city in China. And they really rode the wave of urbanization that took over in China. And the process of urbanization in China is quite dissimilar to what we would maybe be used to in the United States or anywhere else in the west, where we kind of think of urbanization as being a gradual process, that kind of kicks off in the 1910s or 20s as more manufacturing jobs are created and people move into cities to make more money. Well, in China, that process really didn’t start until the 1980s and early 1990s because the country was focused on developing its agriculture. And during the Cultural Revolution, it actually encouraged you to leave cities and move elsewhere and go and work on big communal farms. So essentially, China then had to move all of its workers back into its cities in order to increase its ability to fabricate goods to ship abroad in order to strengthen its economy.

So essentially, when they were building these apartments, it was at an incredibly rapid, rapid, rapid pace. And Evergrande was really the leader of this process. And because they were building at such an incredible rate, debt was always a part of the company. It was just inevitable. There was no way that they were going to be able to build the number of properties they wanted to build without taking on massive amounts of debt. But it was always okay for the company in the past because they could sell the apartments before they had ever broken ground on anything.

And so it meant they were comfortable taking out billions of dollars because they would say it’s fine, because as soon as we release these apartments to the public to be purchased, they’ll all be purchased, and we’ll make back money to at least pay our interest or even pay down our debt. So that’s kind of always been part of the equation really, for them. The issue has kind of kicked off for kind of two reasons. And these are: one is urbanization in China is beginning to slow down. And this is because the number of young people in China is lower than it was in the 80s and 90s because of things like the one-child policy. And it means that there are just fewer people to move into cities. There are fewer people who are now in a position that they have the money to buy a house. And so it means that the number of apartments being bought, the rate they’re being bought is naturally slowing down.

And then on top of this, wherein this period in China, where things are kind of being reconsidered, the economics of the country are being reconsidered. And one of the main things that they seem to be reconsidering is the amount of debt that the country is relying upon. China has always used debt in order to continue its high growth rates. It’s done that for the last two decades. It’s just kind of a part of Chinese economics. And I think the current administration is really considering how much they want to be reliant on debt. I think they’re a little bit uncomfortable with it. Both the debt that their citizens are taking on, but also the country. And so they began to clamp down on mortgages, and they brought in new mortgage restrictions. And that meant that now even fewer people were qualified to buy these apartments. So then the purchase rate just began to slow down. And then that was bad news for Evergrande. Number one because they were so reliant on people pre-purchasing these apartments. But then number two, Evergrande spent basically the last 10, if not 15 years buying the most random assortment of companies it could possibly find in pouring tens of billions of dollars.

James

I’m just gonna stop you. There are because I read you wrote a report about this in MyWallSt App which you can read now, but I’m looking forward to this part because I just want you to list out some of the absolutely insane things this company has bought. Start off with the football team, maybe.

Anne Marie

Yeah. Okay. So in 2010, they purchased the football team, which sits next to their headquarters, which is Guangzhou F.C. So they bought the football team. That was great. But then they were, of course, like, we need to be the best football team. So then they poured millions of dollars in bringing European football players over to play for them. So that was fine. They put millions of dollars into that. And they actually did end up winning the European League, I think in 2015. So that’s great.

James

Why were they in the European League?

Anne Marie

No, sorry. Not the European League its the Asian League sorry

James

I’m not great at geography, but I know China’s not in Europe.

Anne Marie

Yeah. Sorry. So that was great. But then they poured $150 million into making a football school there to train local talent. And it made it the most expensive football school to ever be constructed in the entire world. And then from there, they’re like, let’s have a music production company. So then they spent millions, if not billions of dollar building this music production company, which then closed down in 2015. So that wasn’t great for them. And then in 2014, they’re like, let’s launch a mineral water company. So they launched this mineral water company. They spend $55 million on the marketing in a single year because obviously, they needed to hire a Jackie Chan.

James

Obviously!

Anne Marie

Yeah. So then they have this mineral water company. And then less than a year later, they spend half a billion dollars on a life insurance company because that’s, they go “perfect”. And then you know what the perfect pair to a life insurance company is?

James

Go on.

Anne Marie

Theme parks. Theme parks. Perfect.

James

Is there any industry they don’t have a finger in?

Anne Marie

No. And so they spent $7.3 billion opening the first theme park.

James

That is an expensive theme park.

Anne Marie

But don’t worry. They’re going to build 15 more, so we’re all good.

James

I think I can connect the dots to why this company might be in big trouble.

Anne Marie

And then, this is the worst part. Then they said, let’s get into electric vehicles. Yeah. So then they spent tens of billions of dollars acquiring stakes in electric vehicle companies, buying electric vehicle companies from all over the world. And then they launched their own electric vehicle company last year. And then they were like, we need a new soccer stadium. So then they spent $2 billion building a new soccer stadium for their soccer team.

James

So pretty wide array of interest there. I think it’s pretty clear why this company might be facing a bit of a crunch at the moment. I’m supposed to get on so to something more relevant to our listeners; why is the threat of Evergrande defaulting, why is that shaking European and US markets so much?

Anne Marie

I think it kind of had a couple of buzzwords that got people really freaked out. I think obviously homeowners, that got people freaked out. And also, I think real estate sales in China, the growth in the real estate market is often a key indicator for people about just China’s overall economic growth in general. So I think when people saw this, they began to panic. I think it’s also the idea that you assume that if a major owner of housing is going to go under, they’re going to drag massive financial institutions down with them. And then you start thinking about; oh, my God, all these financial institutions are interconnected. People own each others debt. If this company defaults, how many defaults are coming down the line for hundreds of companies.

James

So what’s the latest? And do you think this is going to be another the Chinese Lehman’s Brother, as I’ve seen written?

Anne Marie

No, I don’t think so. Because the way banking works in China is different. So the vast majority of this debt, I think it’s, like, is owned internally in China. So it’s local banks, it’s local governments. Some of these banks are actually owned by the state. And so the vast majority of this pain is going to impact Chinese banks themselves. And it could trigger a credit crunch if it goes under without any sort of bail out. It’s going to trigger a credit crunch for these banks, who are not going to have lending capacity to give to other businesses, to give to even individuals. And it means that that’s going to slow down growth in other companies and other sectors and other industries. And then on top of that, I’d say probably the biggest impact is going to be the psychological impact. I think this really reminds people that China is a risky investment. There are a number of conditions that are dissimilar to the west. And sometimes I feel like as an investor, you’re like, I don’t know, do I understand it enough? And I think this is a reminder of that. And so I think we are probably going to see foreign investment begin to cycle out of China, just as people are a little bit uncomfortable with what this is going to do to the Chinese economy.

James

Yeah, absolutely. And on that theme of, I suppose, the risk of investing in a country like China, there was recent turbulence in the casino industry, particularly companies Wynn and MGM, who were rocked by proposed changes to licensing laws in Macao, which is a region in China sometimes called, I think the Las Vegas of China, the Las Vegas of the East. Basically, what was happening is that there was these proposed laws being brought in that would favor Chinese operators in Macao, and it would be harder to get licenses and stuff. What’s your thought on that, is this is another example of, I suppose, the risks inherent in investing in the Chinese market?

Anne Marie

Yeah. I think there’s always been risks in investing in the Chinese market. I think the risk profile is changing, though. Right now, I think the current administration and President Xi Jinping and China is really attempting to consolidate power. I think for decades now, at this point, China has kind of walked the line of saying that it was a Communist country, but a Communist country that participated in the free market because they understand that that’s an important driver of geopolitical power and influence. And I think now China is in this kind of uncomfortable place where they have this government that likes a lot of control. And it has a lot of companies that are now so big and powerful and wealthy that they don’t like that. In theory, they can’t control these companies because they have so much influence and so much money. And I think even individuals, something that they’ve been discussing a lot recently in China is income inequality. They’re really uncomfortable with the number of billionaires that they have. It seems to be something they don’t like. And so I think regulating these businesses and these CEOs, really, we see it with AliBaba as well, and we see it with DiDi, which is their version of Uber. I think it’s just a way for the President and the regime to solidify its power. And so I think it really raises another kind of risk because you don’t know what this regulation is going to look like. You don’t know what industries are going to target. And you know, this could go on for years as they kind of continue to shake things up in China.

James

Yeah, absolutely. Well, I’m off to look up now, Evergrande’s football team. Any famous players I know who’ve gone over there to play? Rory your football fan, have you ever followed Evergrande?

Rory

No, I know there’s a load of football teams inchina. They just have like, millions of dollars, players, huge amounts of money. But I never know which ones they are.

James

It’s kind of where, like the best European players have always gone to kind of retire, make their money towards end of their career. But yeah, I can’t say I can name any players off the top of it.

Rory

There was one particular player who played for Barcelona, who I think I retired from European football a bit too early because they saw clips of him playing in the Chinese League, and it was like one man versus the team he just run circles around them.

James

So let’s move on there and talk about some of the things going on in MyWallSt at the moment. So we actually added a brand new stock to here shortly list this week , a 170 year old company with one of the most powerful brands in the world. Rory, I was skeptical when I saw that this was the stock being added at first, but it seems to be really a case of amazing turnaround for quite an old world business. Is that the case?

Rory

Yeah, it’s a turnaround. Play it’s well on its way into a turnaround to be fair. And it’s one of those companies. It’s built up a very nice little portfolio of businesses, and I think it could be a real kind of nice bedrock stock for people. I don’t know, I don’t believe it’s going to be a ten-Xer anytime soon, but certainly a kind of stock that you can kind of hold in your portfolio and kind of watch grow kind of slowly.

James

Might be a nice antidote to Facebook.

Rory

Exactly, you can have one Facebook share if you buy one share of this company.

James

So in addition to that, you can read Anne-Marie’s full write up about the Evergrande crisis and what it means for investors, along with two First Look reports on companies that we’re researching at the moment, but haven’t made a final decision on yet. Those two companies are Lightspeed and Toast. If you missed it, you can also catch up on Emmet’s Wild Card & World Changers workshop for a limited time only. You can access this recording, just follow the link in the notes for today’s show. It was a great workshop, we had it there on Tuesday night, and I’d really recommend catching up at it, especially considering Emmet’s annoying habit of picking a great wild card stock and telling us and then me never doing anything about it until they doubled in value. So yeah, definitely tune into that one.

Onto the mailbag then. So for this week’s mailbag, Rory, we’re taking a request from our listener, Franco, who has asked for our thoughts on Allbirds. Allbirds is a New Zealand-American fashion company that filed for IPO a few weeks ago. What have you found out about Allbirds?

Rory

Allbirds is a very interesting business. It’s a business that was actually founded in 2014 and began life as a Kickstarter campaign. Yeah, they came out with this, this New Zealand guy used to play football — I think he was on the national team at one point — and he had this idea because New Zealand, as we know, is well known for having lots of sheep. And he had idea of what if you made trainers out of Merino wool?

James

Okay.

Rory

Alejandro, our former Head of Product’s a big fan of Merino wool, he’ll be doing to get investing in this business. But anyway, the idea was to make sneakers that were kind of better for the environment. So they make their shoes with kind of all natural materials, it’s very ethically sourced, and it’s very kind of stripped back. So there’s not a lot of branding, for example, but very cleverly, you can always tell a pair of Allbirds; they look very distinctive. So even though they haven’t got a big swoosh on them or anything, you can kind of tell their Allbirds from a mile away.

And they claim that these shoes are produced with 30% less carbon than a typical pair of sneakers. So the company had a fantastic kickstarter, it raised $120,000 in just three days. They sold their first pair of shoes in, I think, 2016. By 2018, they’d hit the million mark. Today, they have 27 stores around the world. So far they’ve sold 8 million shoes to over 4 million people, which is phenomenal for a business that’s only been around seven years. In terms of the revenue, they made $128 million in sales and 2018 had a nice big jump in 2019 to $194 million. In 2020, they made $219 million. So growth was only 14% in 2020. But of course, it was a worldwide pandemic. They’ve seen kind of some nice margin expansion as well, 51%. A lot of that has to do with their kind of DTC model. Like almost 90% of the revenue comes from digital. 53% of their purchases come from repeat buyers. So they’ve got this kind of very kind of loyal following. There’s a lot of word-of-mouth, so they keep their kind of cost of acquisition quite low. And they’re very kind of healthy MPS in the 80s, which is kind of unheard of. And I actually bought a pair a couple years ago and I had to say they were incredibly comfortable — not probably as kind of robust as perhaps a pair of kind of leather Nikes.

James

Yeah. The first thing that comes to mind is: Ireland’s a pretty rainy country. Wearing a pair of wool runners doesn’t sound like the best strategy.

Rory

Yeah, they’re definitely gonna have some geographic issues in some places of the world.

James

But New Zealand is pretty rainy too, I believe I haven’t been there but…

Rory

Yeah, neither have I. I’ve been to it’s hotter cousin, Australia. Yeah, looking at the business I think it’s so early in this business’s life. It’s rare to get a company IPO, and it’s only been kind of seven years old and doesn’t have a huge track record. It’s one of those ones where you’re like this, there’s so much competition as well, taking on is not an easy task. And sometimes companies can do it for a little while, like Under Armour, then just kind of sweeps by them again. But then there’s also the potential they’re getting into apparel. Well, they released apparel last year and they’ve kind of done some kind of partnerships with Adidas and stuff. So could this be a Lululemon story rather than an Under Armour story?

James

Interesting.

Rory

I don’t know yet. I think it’s an interesting space. I think there’s not only does it have to compete with the likes of Nike and Adidas, loads of other companies are coming out with more sustainable shoes, my partner wears runners with vegan leather and things like that. So it’s far too early. I definitely wouldn’t invest just yet, it’s a company that I would put on a watchlist. And I think it would be fun to watch them grow because like I said, they’re young. They’re doing something a bit different. They’re taking on the big guys, and it could turn out to be a very good stock. We’ll have to see what the evaluation is as well. I think the last time I looked, it was something like $1.7 billion, which isn’t it outrageous multiple. But like I said, growth isn’t quite as robust as you would expect from a business kind of this stage. But we’ll see what happens post-pandemic suppose.

James

Okay. Interesting. Thanks for that. Let’s move on to the Elevator Pitch them to finish out today’s show. So we’re going with a classic Elevator Pitch this week. I just want you guys to pitch me a company you’re researching at the moment in 30 seconds. Anne Marie I’ll come to you first. What company are you looking at at the moment?

Anne Marie

I am in the beginning stages of looking at Sovos Brands, which is actually a Colorado based company, which is nice, cos so am I. And they acquire basically up and coming prepackaged food brands that are very small, kind of known for high quality. And then they basically helped them reach the entire United States and expand their shelf space and kind of help them with their marketing and their branding. And they own a yogurt company called noosa, which this is why I knew who Sovos was. And I remember when Noosa premiered on the scene, probably when I was in middle school and people lost their minds for this yogurt. They lost their mind.

Rory

What? They lost their mind for a yogurt?

Anne Marie

Yeah, I remember the woman who lived across the street from us coming over to our house with a noosa because you couldn’t get it anywhere because it was sold out everywhere. And she came across the street with the yogurt, and she was like, “have you tried noosa yet?” It was insane. So I’m having a look at the company because it’s always nice when you’ve interacted with the company’s products and you know that they’re good.

Rory

But I need to know what makes this amazing. What is this?

James

What’s so good about this yogurt?

Anne Marie

I don’t know, it’s just excellent yogurt.

Rory

No, I need more Anne Marie, what?

Anne Marie

I don’t know, they put it in these weird looking containers. I don’t know. I think it’s just the whole thing. Like, you know, when the brand’s name is all in lower case letters, and you’re like, that’s a cool brand, noosa does that.

James

You know, the threshold for losing your mind these days has really been lowered.

Rory

I assume you can’t get them here can you?

Anne Marie

No, but my parents are coming over in October. So do you want me to ask them to bring some?

Rory

Yes, absolutely. We need to try to research, also get some Celsius drink as well.

Anne Marie

Oh, yeah.

Rory

This energy drink that’s taken the world by storm.

Anne Marie

Okay. Yeah.

James

Rory, what stock are you looking at? Does it make you this is your mind?

Rory

No, it’s actually the complete opposite, it’s one of the most boring businesses I’ve ever seen in my life, but we like boring business here. Boring businesses can be great. The company I’m looking for it at the moment, is a company called Core & Main they’re the leading specialized distributor of water, waste water, storm drainage and fire protection products and related services to municipalities, private water companies and professional contractors. So they sell a wide range of products and services used in kind of maintenance, repair, replacement, construction of water and fire and structure.

Rory

It’s a new business in some ways. It was only founded in 2017, but it was after the waterworks HD supply was bought out by private equity — and I’ve gone way over my 30 seconds haven’t I? Anyway, yeah, lots to talk about in a very boring water business. I’m keeping my eye on it could be a kind of Home Depot style play.

James

Oh, you know how to get me Rory, you know I love Home Depot. It makes me lose my mind. So that’s it for today’s show. So 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 @MyWallStHQ, on TikTok, that’s @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 listen to us on.

Thanks for joining us here today and we’ll talk to you next week. Happy investing.

If you want to catch up with all the latest stuff in MyWallSt, just tap here to start your free trial now.