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Ranjit Thomas, CFA  

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  • The Short Case For Vulcan Materials Is Rock Solid [View article]
    We're already more than midway through a business cycle, so if you're going to assume that your profitability is going to double, that would be the peak (or more likely hope). The company saying something is normalized doesn't make it so. You would have to show it mathematically, like taking the last five or ten years' figures and averaging them, which would give you much lower normalized figures. No view on end markets being substantially different in the future than they are now. Don't think there is any upside from M&A or becoming investment grade (the stock is already trading like it is). When I see a company and analysts projecting that profits will double or triple, sure I think that's too bullish, even with some operating leverage. Funny, I never see a company or an analyst projecting that profits will ever fall, and yet they frequently do.
    Apr 4, 2015. 06:28 PM | Likes Like |Link to Comment
  • The Short Case For Vulcan Materials Is Rock Solid [View article]
    Thank you for your comments.

    Cash: You have to ask yourself how it is that a company with such incredible pricing power and a great business has been barely profitable over the last few years when the economy has been humming along and most other companies have been generating record profits? I haven't provided any reasons for why VMC will lose pricing power or their business will deteriorate because that is not my argument. Under those conditions, the company will go bankrupt and the stock will go to 0. My argument is that it is unlikely that conditions for the company will get significantly better to justify a forward PE of 40x. There are plenty of great companies with pricing power, etc. trading for under 20x multiples. Waiting (and hoping) for housing starts to jump is not wise in my opinion. Home builders are trading at 16x EPS, so clearly this is not being priced into their stocks.

    Sam: It is not easy for a company to more than double its operating income in two years. And 12x EBITDA (equating to about 25x taxed EBIT) is too high a multiple for peak projected earnings. Agree that it is better to short a stock at a higher price, but if you'd like to have a number of small short positions in a diversified portfolio to hedge it, this is as good a stock as any.
    Mar 22, 2015. 08:27 AM | Likes Like |Link to Comment
  • The Short Case For Vulcan Materials Is Rock Solid [View article]
    If your investment case relies on a company's operating income going up 5x, I would be very careful. Why take the risk when there are plenty of other companies where you don't have to depend on a huge increase in profitability? Also, consider the recession case where the company may be unable to service its debt. You are right about transportation costs providing some barrier for pricing, but only up to a point. And I'm sorry, I think most people do understand a business that knocks out rocks and sells them. But hope springs eternal, and it is easier to make fanciful projections than conducting a dispassionate analysis.
    Mar 17, 2015. 11:30 AM | Likes Like |Link to Comment
  • How The Economic Machine Works [View article]
    I'm sorry, the basic premise in this video is fundamentally flawed. Credit is not created out of thin air. One person's borrowing is another's saving. One person's accelerated spending is another's delayed gratification.
    Oct 8, 2014. 01:21 PM | Likes Like |Link to Comment
  • SALE Is On Sale, Thrown Out With The Momentum Bathwater [View article]
    I'd like to offer a mea culpa for this recommendation which hasn't quite panned out. What I thought was a solidly profitable company focused on GAAP earnings run by a good management team has in a few months turned out to be a marginally profitable company focused on adjusted EBITDA and run by a poor management team. Unfortunately, you can't buy anything to eat with adjusted EBITDA, which ignores real and recurring expenses like a growing amount of stock compensation. My original recommendation was predicated on the fact that SALE was one of the few Web 2.0 companies that was generating a GAAP profit, with solid revenue growth and steady margins. It turns out now that they are no different from the others, and are more interested in passing along the revenue generated to themselves through a huge amount of stock compensation, which has tripled YoY. The management team has exhibited no discipline over expenses, allowing them to grow much more than revenue, causing a contraction in profits. GAAP net income this year will be only half what I expected it to be. There are other factors like a mild decrease in revenue due to changes in Google's search algorithm, but a competent management team would have been able to address these issues without much of an impact to profits. I struck out on this one, and my apologies.
    Aug 5, 2014. 11:47 AM | Likes Like |Link to Comment
  • SALE Is On Sale, Thrown Out With The Momentum Bathwater [View article]
    Thanks to all for your engaging comments. SALE is cheaper than COUP on a multiple of revenues. COUP has no operating or net profit to speak of, so one cannot compare the two companies on a profit basis. I don't find EBITDA to be a useful metric (just one step removed from revenue, and excludes significant recurring costs), so I haven't calculated EBITDA multiples for the two, but I would wager that SALE is significantly cheaper on this metric. On the point about SALE being dependent on search engines, I'd like to make the following points:
    1. The company's brand awareness leads to a significant amount of traffic that goes direct to their website or from people who have downloaded their app.
    2. They pay for less than 10% of traffic; admittedly, as a source of new users this is likely more important
    3. Search engines optimize their algorithms in order to provide better results, which rarely displaces relevant and high quality links. If SALE is the top brand/company/link for a search term, then the objective of the search engine's algorithm would be to show them on top.
    May 7, 2014. 09:09 PM | 2 Likes Like |Link to Comment
  • Imax Has a Collapse in Its Future [View article]
    One point to note is that IMAX is a company that has cumulatively not generated any cash in the last 3 years, has issued equity in the secondary market and liberally awarded stock to its management. In the last twelve months, if you back out the stock comp add-back, free cash flow is close to zero. So the bulls who are buying the stock at 30x EPS based on abstract conceptual arguments should ask themselves why the company is incapable of generating any cash even when things are going swimmingly well.
    Jun 9, 2011. 10:11 AM | 1 Like Like |Link to Comment
  • Ariba: A Dot Com Survivor Primed for a Fall [View article]
    As mentioned in the article, the stock was around 28 when the article was published and is currently at 31.4, an increase of 12% vs. the market up 5% in the same timeframe. One of the things to keep in mind when writing or reading a short idea is that a stock can remain overvalued for a very long time. Unlike measures that a company can take to correct an undervaluation of its stock (like buying back stock with its free cash flow), there is no impetus for a stock trending down to its fair value in a rising market unless there is something like outright fraud that gets exposed. It's only when the economy is about to enter into a recession that investors get more discriminating about their stock picks. Until then, they chase everything that looks like a good story, fundamentals be damned. This is especially true in today's easy money environment, where there are near worthless companies (when evaluated on their current and future profit potential) in "hot" sectors trading at multi-billion dollar valuations. I certainly wouldn't recommend that a regular retail investor short stocks; it should only be used to hedge a large long portfolio.
    Apr 26, 2011. 10:25 AM | Likes Like |Link to Comment
  • Ultimate Software and the Art of Non-GAAP Earnings [View article]
    A good article. You are completely right in your analysis. It's incredible that near worthless companies like ULTI have > $1Bn of market cap. Some others that have suckered investors into ignoring their huge stock comp are ARUN, ARBA, SFSF and N.
    Mar 29, 2011. 09:53 AM | 3 Likes Like |Link to Comment
  • What is Amazon's True Free Cash Flow? [View article]
    Good question. The item enters as a benefit to taxes payable in the working capital section.
    Feb 13, 2011. 06:23 PM | Likes Like |Link to Comment
  • What is Amazon's True Free Cash Flow? [View article]
    You are right that the entire $577Mn for capital leases is not paid out right now, but will be over time. Including interest, the actual payments will be higher than this amount. So one can either use this amount (equivalent to assuming they are acquiring the assets with a loan that will be gradually repaid), or use the actual cash outflow (including interest) on account of capital leases. The latter figure is not disclosed explicitly by Amazon (or most companies) and is difficult to discern. On your second point, I do not agree that you need to add back the excess tax benefit amount. This is the amount by which tax paid by the company has been reduced and is already accounted for in the cash flow from operations in the form of lower tax payments.
    Jan 29, 2011. 08:41 AM | 1 Like Like |Link to Comment
  • Update on Netflix and Akamai Story With Comments From Both Companies [View article]
    Well written piece. Perhaps you can expand on what services Akamai will still provide Netflix if streaming is not one of them? I imagine it's something like caching, but that would be a small bit of business.
    Nov 10, 2010. 08:12 AM | Likes Like |Link to Comment
  • GeoEye: Insiders Prep for Mega-Growth [View article]
    All very good, except for the fact that the company has never generated any cash. All the cash that comes in has to go out to replace aging satellites, which have a life of about 10 years and cost $500Mn to build and launch. A buyout seems unlikely as a buyer will find it hard to put on any more debt on the company. Incidentally, the company just issued debt at a high 9% yield, which tells you something about what the debt markets think of its prospects. There are few barriers to entry in this business (other than capital which is plentiful), and a 3x price to book value seems grossly overvalued. Every few years, investors get excited about a satellite business that subsequently crashes and burns (Iridium, Sirius, etc.)
    Oct 18, 2010. 08:35 AM | Likes Like |Link to Comment
  • Just One Stock: A Trade-Oriented Educator Booking Organic Growth [View article]

    What you see as insider sales of 3 million shares in the last 6 months is the sale by Stonington Partners (a private equity firm) in a secondary offering in April. They have been gradually reducing their stake, which is now down to about 10%.
    Jul 13, 2010. 04:09 PM | 2 Likes Like |Link to Comment
  • High Conviction: This Hard Drive Maker Will Outshine the Competition [View article]
    Have you had a conversation with management on their capital allocation strategy? Why do they continue to stockpile cash without returning any of it to shareholders through a dividend or buyback?
    Jun 9, 2010. 09:03 AM | Likes Like |Link to Comment