TBW

Can someone help me see the value here? I want to like this idea as I have followed the company for years, like the product, and my view was that they always had a good Cad business but they ruined it by their US expansion and bad management. So a Canadian focused biz, with a cleaned up balance sheet is interesting. However, say they do $150mil in revs in a 'normal' 2022. With 40% margins, and say $50mil in G&A (I would expect G&A to be higher than last q annualised, that would only be $10mil in EBIT. And considering those are $cad, and $cad mkt cap is roughly $120mil that doesn't strike me as cheap. Especially as they don't have that much cash on hand if sales start off slow, management is unproven, you are a minority holder to Segal family, etc... Over time, there could be good growth in a rebuild out of Canadian stores, but that business is somewhat cannibalised by the new focus on grocery store and online sales. They just emailed me yesterday with an offer of free shipping no matter the order size, which may be an indication that lockdowns are hurting their business at the moment. I think it looks ok, but I don't think cheap enough for the risks. Would love to hear if I am missing something, which I easily could be.

Conveniently leaked on day of massive recall. Tesla is very good at SEO. Once you notice it, like carbon capture prize day before report about natgas drilling for SpaceX it's hard not to see alot of Musks actions from this lens.

Were they able to rid themselves of many leases during the bankruptcy process? Did they close most of their US stores? What about the family running the business, they have proven to be pretty bad, though the disaster that was the US expansion wasn't totally their fault. The Cad business was always very good. I stopped paying attention when it looked like they had to file for bk, but if that process helped them shed bad leases, then perhaps it is worth a second look.

Isn't the key here interest rates? If they go up, IBKR will earn a lot of money and stock will go up a lot. If they don't it will be slow and steady, but I would guess growing, profits inline with where they currently are.

I think those are very good questions and ones I have for many SaaS type companies. The simplest, but largely accurate, answer is that investors don't know. This is far from a usual investment for me, so I have struggled with some of the same questions, but I came away comfortable given the history. This is a company that has been very good with capital, that usually goes hand-in-hand with decent business sense. Operating within their means is very different ethos than most tech companies, and thus I think the capex spend is largely reasonable too. I also think that SGA cost increases since IPO largely have to be new investments, as what else is it? SFIX leases its facilities, it's just people, computers and data storage, in terms of costs. The big unknown to me is how much shipping costs run through SGA. The new business should see far less in terms of returns and that should help overall margins. In my mind this is a bit of a story stock, where I happen to believe the story. Previously it was cheap, I thought, for the potential upside 'direct buy' had, and the likely stable, but growing, economics of the current business model. I don't know that there is direct proof that SGA difference is capex, as I stated, but I haven't been convinced of the converse yet either.

I think this is a bit of rorschach test. I have had a small long for a while now, and can somewhat see both sides. In summary, I think SFIX is doing better than you think but unless the new initiatives work out, scepticism here is warranted. To start, SFIX business has been to mail clothes to a person who then keeps or sends it back. The secret sauce, if it exists and I think it does, is the AI that selects the clothes. The market for people that want this service is somewhat limited and I think that, and the pandemic, explains the lack of scale on the ad spend side. But now SFIX is branching out and is creating personalised online shopping where the AI selects what you see. The big idea is that online shopping can be more interesting and a chance to find new stuff like the traditional store browsing experience, that due to the AI you are picking from items that you are likely to like, this is different than the current online model where typing in socks into amazon yields many generic options and you tell the store what you are looking for. The market for this is magnitudes higher than the current market SFIX is targeting. There is also adjacent areas where other brands may pay SFIX to advertise amongst their curated offerings. The lack of scaling in SGA costs is due to these investments. This is similar to many tech companies where capex flows through income statement. There is other interesting 'flywheel' type aspects in their relationship with suppliers, but this is too long already to get into that, but there are many aspects to their business model that I think are really interesting. Management at SFIX has been excellent. The whole operation has been mostly self funded with all money raised to date mostly sitting in cash on the balance sheet. The CEO, who I think is awesome, has a thorough deliberate approach to rolling out new projects constantly testing along the way. That also is part of the lack of scaling as there is a few year gap between capex and product roll-out. From this perspective, the SGA and ad spend may not be as bad as it seems as the ad spend is building the brand and making the new 'platform' that they are building bigger when it is launched. Also the valuation isn't terrible at 2x 2022 sales (ex cash), given their recent growth, high gross margins, and future growth potential (altho I would say that long term 11% EBIT margins don't really justify high p/s ratios...). If however, the new initiatives aren't successful then everything you pointed out is a real concern. Other things I don't like are SBC is super high. I think it's annoying that companies exclude SBC from ebitda and speak about being profitable. But it is overlooked that working capital helps fund this business. Taken all together I come on the side that SFIX is not that expensive at its current price, and it is a company that could be significantly bigger in the future with an undemanding valuation (especially relative to most tech companies). With some many large and dubious tech companies, that unlike SFIX are completely reliant on capital markets, I do find it strange that there is so much short attention on this name. So I do wonder what I am missing, so if there are other bear cases I should consider I would love to hear them.

Not sure if it's been noted, but the cars under potential recall were built in Fremont. So tsla has to make this a regional issue or they could see the recall broaden...

Basic question, how do these companies calculate NAV? Are they realistic? How does the current nav's compare to scrap value? And another begginer question, what is the factor limiting supply, hasn't this industry been in oversupply for over a decade now?

Interesting what you are alluding to. But HIIg did just pay up to cover those loss development issues. And Mr Way is getting up there in age, so not sure why he would spook investors that much (but would be interested to hear more if you can share). I think these reasons are why Wed never got the above 1.5x book bid they were hoping for. In some ways HIIg has been setup for this. They had lots of reinsurance waiting for a hardening mkt. And they say they have no direct pandemic exposure, which I have to believe them. But then they did raise money at a huge discount... I have no idea what the right value for HIIG is now. Certainly below book value. But then you do have the option that things are as they say and they could do quite well in the future. No idea.

This presents an interesting thought I have been thinking about in regards to other companies. I think 20% down is pretty conservative guess for the hit they take in attendance. And I think tripping covenants seems likely, but does that matter? For example, I have looked a lot at AMC. I think they will almost certainly trip their 6.5x leverage covenant this year due to the virus. However, in a normalized world their leverage would be more like ~4.7x. So is the bank really going to mechanistically shut the company down due to a covenant breach during a pandemic? I am not sure, still thinking about this, but I would think they wouldn't. For FUN, this is also my thinking. They, like AMC, have termed out their debt so there isn't any big amount due that they can default on. I think you need to consider if they can cover interest costs in the worst case. For AMC I am still not sure. During the GFC there was come companies that filed even though they were fine, but cause their debt was due when the market froze. Most others were able to work with lenders. In this situation, I think there may even be govt support for banks to help get companies over any such bumps. That said, FUN looks cheap at 1x sales with over 10% net margins, but not crazy to me. I would rather buy CNK the movie theatre chain at 20% FCF yield with less leverage which the market is scared will be hit hard. Any other names where there is covenant concerns? Looking for more situations like this.

That is helpful. I think you can look at the data and make both the case for and against secular decline. I lean toward not in decline, but I have only a low conviction. You highlight, but don't provide an answer, why are margins so low? If I look at CNK, or other competitors, Q3 was weak, but not crazy out of line with historical margins and in general margins seem ok at others. Why are things so bad at AMC? If you can make the case that margin are temporarily low, than stock is probably a buy. Given leverage, if margins stay low this is one to avoid. I have no idea yet, but interested to hear people's thoughts.

This is interesting, but the financials are a bit confusing to parse through. Can anyone explain to me why rent went up, I know its due to accounting change, but still find it a bit hard to understand. Other questions: - what are landlord contributions in the cashflow statement, and are they recurring? They are a large part of current CFO - why are net operating margins so low? They are ~2%, rest of industry appears to be at 15%, why? - EBITDA expectations have steadily decline, were $900mil, then 2018 was ~$800mil, now its run-rate of $600mil, what exactly has happened here? - why hasn't there been any talk of management change? If net operating margins could stabilize at even 5%, this looks cheap. But I don't really understand why cash generation has been so much less than expected when revs have been roughly flat. I also don't understand why there hasn't been any visible scale benefits. Just digging in, so appreciate any help getting up to speed.

Oops! Sorry didn't realize that. Thought the amount of comments on sec website was low and that perhaps people hadn't seen it. I too would be interested in reading the other thread.

Not sure if everyone saw this SEC document https://www.sec.gov/news/press-release/2019-189 or this blog post about it http://www.nonamestocks.com/2019/10/sec ... tocks.html (where I found out about this) but it discusses possible SEC changes that would not allow stocks to be traded unless there has been published financials in the past 6 months. It puts the onus on the broker to make sure they have the information, or the broker cannot quote the shares. This is clearly backwards. Fine companies for not providing the information required! I don't think the SEC realizes that companies go dark on purpose, some of the reasons being, to try to ultimately take their company out at a cheaper price, or to conceal how much management is paying themselves, etc. I plan on commenting when I have more time and I encourage everyone else to do so.

To clarify, that was my question too. What can Lsyn board, if it changes, claw back. My quick read suggests maybe 10mil shares, but I could be v wrong on that. I don't see a tonne of value here if share count is 29mil, but could be some if less shares are outstanding. I would also be worried what will be discovered once a new board can take a look.