Business characteristics I don't like.
1) No moat/shrinking moat
Q to ask: What prevents competitors from stealing customers?
"Nothing" = not good
Ex:
No moat: Most marijuana stocks/retailers
Shrinking moat: $UA / $WU / $GRUB
1) No moat/shrinking moat
Q to ask: What prevents competitors from stealing customers?
"Nothing" = not good
Ex:
No moat: Most marijuana stocks/retailers
Shrinking moat: $UA / $WU / $GRUB
2) Customer concentration
>10% sales/accounts recievable w/ 1 or more customers = risk
Search 10k for word "concentration"
Ex:
$AMT 51% of rev from 4 cust
$OLED 80% of rev from 3 cust
$SWKS 51% of rev from 1 cust ($AAPL)
>10% sales/accounts recievable w/ 1 or more customers = risk
Search 10k for word "concentration"
Ex:
$AMT 51% of rev from 4 cust
$OLED 80% of rev from 3 cust
$SWKS 51% of rev from 1 cust ($AAPL)
3) Industry disruption
Active / possible / none
Ex:
Active:
electrifiation/autonomous - $GM $F $TM
download vid gmz: $GME
Possible:
crypto $MA $V
Active / possible / none
Ex:
Active:
electrifiation/autonomous - $GM $F $TM
download vid gmz: $GME
Possible:
crypto $MA $V
4) Outside forces
Success depends on something outside of management control going right = too hard.
Ex:
Interest rates: banks $JPM $C
Oil prices: $XOM $CVX
Strong economy: Most industrials $AA
Success depends on something outside of management control going right = too hard.
Ex:
Interest rates: banks $JPM $C
Oil prices: $XOM $CVX
Strong economy: Most industrials $AA
5) Big market loser
#winnerswin
#loserslose
I pull up 5-yr chart vs $SPY & since IPO date
Good = market beater
Bad = big loser
Ex:
$MNKD / $CHK / $GRPN
#winnerswin
#loserslose
I pull up 5-yr chart vs $SPY & since IPO date
Good = market beater
Bad = big loser
Ex:
$MNKD / $CHK / $GRPN
6) Binary outcomes
Business is hard enough as is. Why bother with 50 / 50 shots?
Ex:
Key patent being challenged in court
FDA approval for a single drug: most small-cap pharma/biotech
Business is hard enough as is. Why bother with 50 / 50 shots?
Ex:
Key patent being challenged in court
FDA approval for a single drug: most small-cap pharma/biotech
7) Extreme dilution
Stock-based comp a fact of life now. I get it. I still don't like excessive dilution >5%/yr.
Some companies dilute to stay in business $TNDM
or
Excessive employee compensation $TCOM / $CRM
Stock-based comp a fact of life now. I get it. I still don't like excessive dilution >5%/yr.
Some companies dilute to stay in business $TNDM
or
Excessive employee compensation $TCOM / $CRM
8) Growth by acquisition
Acquisitions are hard. Numbers show most don't work out.
If growth thesis = constant acquisitions, I pass.
Ex:
$MIDD
$TDG
$HAIN
Acquisitions are hard. Numbers show most don't work out.
If growth thesis = constant acquisitions, I pass.
Ex:
$MIDD
$TDG
$HAIN
9) Excessive leverage
Some companies are WAY too comfortable w/ debt.
Super ugly balance sheet = pass.
Ex:
$TCS
$SBH
$HZN
Some companies are WAY too comfortable w/ debt.
Super ugly balance sheet = pass.
Ex:
$TCS
$SBH
$HZN
Some of these risks I can live with (dilution/cust concentration)
Others I can't (moat under attack/industry disruption).
Business is hard.
Investing is hard.
Don't make it even harder by assuming unnecessary risks.
Others I can't (moat under attack/industry disruption).
Business is hard.
Investing is hard.
Don't make it even harder by assuming unnecessary risks.
