Newsletter XVII - Speculative Stocks, $SWAV, & Netflix Flops
Joby Aviation Takes Off
Joby Aviation took flight for its first exhibition air taxi flight in Manhattan earlier this week. Joby’s electric aircraft, which looks sort of like a drone on steroids, are being supported by the city in an effort to both electrify the city’s airways and keep them quiet.
Joby, which has never made a dollar over its entire corporate history, has a market value of $4bn and is expected to begin commercialization in 2025 by offering their electric air taxis for passenger services.
Netflix Tries a New Kind of Streaming
Netflix made its foray into live sports this week with the Netflix Cup, a live broadcast golf event that partners PGA players and Formula 1 drivers, with ad placements reportedly costing ~$2m.
This seems to be Netflix doing some A/B testing on whether this could be a profitable revenue stream for them to pursue further – the company has already expressed potential interest in boxing as well. However, based off the flood of negative reviews that poured in after the event, it may not be something they decide to continue with.
While some saw it simply as Netflix’s cheaper and less celebrity-endorsed version of Capital One’s ‘The Match’ with Patrick Mahomes, Stephen Curry, Klay Thompson, and Travis Kelce (which also saw significantly reduced viewership in its second season), others saw it as a strange and inevitably uncompetitive hybrid sport that would fail to capture the attention of fans of either F1 or PGA.
Heading to that dark dungeon of unfiltered popular opinion, Reddit, tells a more frank story. Viewers took to the threads to express their disgust, desire to curl up in fetal positions, and the horrendous quality of both the action itself and the announcers for the event. I searched for a long time to find a positive review, but it never came. The overwhelming consensus was negative, with most saying they couldn’t watch any longer than 10-minutes.
Sports livestreams and subscriptions have been a tricky market for companies to capture, with Netflix being just the latest to seemingly flop in an attempt to corral some of the significant market potential in this region. Don’t be surprised if they don’t find much success treading down this path, but Netflix does have very adept management and may be able to find more success with genuine sporting events, rather than the gameshow-like setting that this event seemed to be.
Weekly Watchlist Stock
Shockwave Medical – SWAV -1.52%↓
Even after an 11% YTD drop in the share price, and more recently a 20% drop after the release of Q3 results, Shockwave Medical has returned >40% compounded annual returns to shareholders since its 2019 IPO, with revenues compounding at nearly 100% over that same period.
Founded in 2009, Shockwave is a medical device manufacturer specializing in creating small & simple intravascular lithotripsy (IVL) devices that use sound waves for the treatment of cardiovascular disease. These devices offer benefits to care providers, who are easily able to integrate the products into practices with minimal training, as well as to patients through safer and more effective treatments.
There’s a lot to like about the business outside the products, too – Shockwave sells their products in more than 60 countries across the world to address a significantly larger market, have more than 170 patents to protect their intellectual property while continuing to invest heavily in R&D, and with declining SG&A expenses as a percentage of the company’s net revenues.
Sitting at 10x sales at 33x EV/EBITDA, the name definitely doesn’t come cheap. But with rapidly expanding sales (56% TTM), a very attractive (and growing) margin profile for a manufacturer, and sexy free cash flow growth, Shockwave ticks all the right boxes for being worth an elevated price.
I’ll definitely be adding this one to the watchlist and diving into it in the future to fully get a sense of its industry, future growth runway, and whether the price tag on the shares offer enough upside for the name to be attractive. I also want to look further into how Shockwave devices are differentiated compared to other treatment methods, as well as the total addressable market (TAM) for their products, as these are my initial concerns on whether this business is capable of supporting extended growth.
Nevertheless, there’s a lot that’s appealing on both the balance sheet and business model from a surface scratch, and I’m excited to dive further into Shockwave Medical – SWAV -1.52%↓.
Quiet: The Power of Introverts in a World That Can’t Stop Talking by Susan Cain
I had a few days off recently and slammed through this book in just a few sittings. It made a great balancing act with several other books that I’ve recommended through these newsletters, like the ‘Charisma Myth’ and ‘How to Win Friends & Influence People’. Where those books are focused on enhancing and bringing out characteristics of extroversion, ‘Quiet’ is all about embracing introversion.
Cain dives deep into the world of introverts, arguing against the romanticizing of extroverts in North America and demonstrating that introverts, as much as extroverts, can make effective leaders and valuable members of work environments. Exploring the biology behind introverts and their natures, she makes the point that introverts may require more specific circumstances than extroverts in order to thrive, but should nevertheless be valued equally with extroverts for the things they bring to the table.
The book gets capped off with my favourite section, wherein Cain talks about situations where it’s necessary to blend extroversion and introversion, as well as tips for introverts trying to leverage their skillsets and find their niches in a world skewed towards extroverts. I really enjoyed the book overall, especially as someone with some introverted tendencies – I highly recommend the book for anyone like myself (or even more introverted) that are in a workplace and struggling to find their role.
The Dangerous Thrill of Speculation
Speculation can be fun. Investors get caught up in it all the time – they hear about the junior mining stock that’s sitting on a high-grade deposit that will supply the market for years to come. Or perhaps the technology that will cure a disease, disrupt a multi-billion dollar industry, or change the lives of every single person waiting in the world. And they want in.
The examples are endless – stocks propped on the speculative dreams of both investors and businesses have been around as long as the stock market. Everyone’s trying to find the next big thing before it really takes off. But there couldn’t be a less appealing way to invest.
As fun as it is to dream about a new wave of some exciting new technology, investing in them can be dangerous. For every winner, there’s 100 losers, puffed-up duds, or flat-out lies getting pumped as a “get-rich-quick” scheme. I find this is a classic theme among new investors that want to get into investing because they’ve heard about one of these speculative options.
Venture capitalists can get away with speculation, given the completely different set of circumstances they make their investments under, and even they often lose out. Great investors, however, rarely speculate. They don’t rely on luck to make fantastic gains. They don’t chuck money towards unproven dreams or ambitious companies that have yet to make a dollar in revenue.
Stay steady, stay boring, and restrict gambling to the casino – it doesn’t belong in the stock market.
Michael Spencer – AI Supremacy
While it’s not exactly the type of article I normally recommend for these investor spotlights, Michael Spencer of AI Supremacy wrote a great article on Microsoft’s Copilot – MSFT -1.64%↓. This is a feature that I’m extremely excited, as a consumer, to get integrated into the suite of Microsoft’s tools that are already being extensively used across the globe.
Microsoft is already one of the most valuable companies in the world, and Copilot offers a unique opportunity for some of their most widely-used tools to become considerably better. Spencer’s article is a fantastic overview of the tool and its potentially monopoly-driving value as it’s integrated into the Microsoft 365 suite and workplaces around the world.
I won’t do it justice here, so please check out the article (linked below) for the AI Supremacy dive into Microsoft’s potential through the 2020’s as Copilot and generative AI as a whole are increasingly combined across the company’s business units.
Find the article here
What’s New at Hourglass
Episode XVII: Jamieson Wellness ($JWEL.TO) – Balancing Health & Wealth?
This week’s podcast episode was a request from a listener to dive into a Canadian vitamin and supplement small-cap, Jamieson Wellness.
This was my first look into the business, and it was a fun one to look into – Jamieson has an intriguing business model with an international presence and a fairly steady balance sheet as well. I also get into the industry they operate in, as well as some of the growth levers and competitive advantages that Jamieson has, before I reveal my final verdict on whether I’m more or less interested in diving deeper into the stock.
Check out the dive into Jamieson and drop a comment on the episode what you think about the industry and business!
Deep Dive – Dentalcorp ($DNTL.TO)
I was able to release my latest research article this week, deep diving into dentalcorp, a Canadian consolidator in a fragmented dental industry that’s made up of 93% private practices. With 535 practices under the dentalcorp network, dentalcorp is larger than its top 2-5 competitors combined and has a further 8-10K more practices that meet the criteria for acquisition.
The growth potential for dentalcorp’s business model is huge relative to dentalcorp’s $1.1bn (CAD) in revenues. Operating in a $20bn, recession resistant healthcare sector, this name is mixing high-growth into a defensive name.
Concerns over its leveraged growth strategy and the exodus of arbitrage investors from the opportunity have hammered dentalcorp shares, which are down nearly 40% YTD. Shares currently trade at historically cheap multiples: 0.75x TTM revenues, a FCF yield of 5.9%, and 8.7x PF EBITDA. Dentalcorp has the opportunity to grow either through a re-rate to its averages, and/or through continuing to execute on the acquisitive flywheel at the core of their business model. Either could drive massive returns for shareholders.
This is a company in my personal portfolio, and I remain extremely bullish on the growth opportunity and potential expansion of this business in the long-term despite the rough year that dentalcorp has had. Click down below to get the full deep dive into this interesting opportunity and some of the potential concerns surrounding the name.
That’s all for this week. Have a fantastic weekend and happy investing over the upcoming week! If you want future newsletters, research articles, and weekly podcasts sent straight to your inbox, make sure to hit that subscribe button below.