Dollarama Keeps Rolling and Another Canadian Company Goes Private

[00:00:00] Welcome back to the Canadian Investor podcast. I'm here with Dan Kent. We're doing our usual Thursday earnings in news. I'm trying to sound as good as I can. I think we were hoping to say we were both feeling 100%. I think we're probably at the top of the list.

[00:00:20] I'm getting close to the 100%. So maybe we'll have to wait until next week until we're both fully healthy.

[00:00:38] Yeah, we're pretty close because I'm going on a couple weeks now of 100%. That's the first time I've been 100% like pretty much all of 2024.

[00:00:47] Yeah, I'm definitely feeling a lot better than last week. So just a little bit of stuffiness left. But I think we'll start off right away. We have a lot to go through some news, some earnings. You want to get us started on the Canada and US job reports that came out last week?

[00:01:03] Yeah, it was a pretty notable job report for Canada because it came in quite a bit below estimates. So the unemployment rate rose to 6.1% versus expectations of 5.9%. And when I'm using the expectations, I just grabbed these from Royal Bank. They aren't like an overall consensus or anything. It's just what the Royal Bank of Canada predicted.

[00:01:28] So they predicted unemployment to sit at 5.9%. It came in at 6.1%. And the country actually cut 2200 jobs, lost 2200 jobs, whereas they expected them to add 25,000 jobs.

[00:01:41] So this is the largest rise in unemployment, which would be 0.3% since August of 2022. And the unemployment rate is nearing its 6.5% highs we witnessed during the pandemic lockdowns in January of 2022.

[00:01:59] So outside pandemic conditions, the last time the unemployment rate was this high in Canada was in November of 2017. And for the United States, it was quite a bit of a different look for the United States. So their unemployment rate sits at 3.8%.

[00:02:16] So it's significantly lower than ours. This is just overall generally a pretty low rate of unemployment. And I found some pretty interesting data on this. I grabbed it from an article, I believe it was from BNN.

[00:02:28] So the United States has been sitting at a sub 4% unemployment rate for 26 straight months. The last time this happened was in the 1960s.

[00:02:37] So it's been quite a while since unemployment has stayed this low for this long. So the US added 303,000 jobs when expectations were calling for an addition of 200,000.

[00:02:50] Obviously apples to apples comparison in terms of like raw numbers and for jobs like the United States is nine 10 times the size of Canada but the numbers clearly are painting a completely different picture in terms of, you know, the Canadian economy versus

[00:03:06] the US economy. And then you have the pretty consistent criticism in Canada, due to how fast the public sector is growing versus the private sector. So I took grab some data from that same article that stated there was 18,800 job creations in the public sector in February in Canada

[00:03:26] while the private sector lost 16,600. And the Montreal Economic Institute released a report back in February that stated that the rate of growth in the federal workforce is at a pace unmatched at any point in the previous 40 years.

[00:03:43] So there's a lot of, you know, kind of arguments that these jobs don't really add as much to the economy as like a private sector job, something like that. And just the overall growth in that both economies are showing signs of slowing down but it's pretty obvious that Canada is in

[00:04:00] is in a much worse situation. And I think it's going to be very interesting to see if they end up having to cut rates before the States, I would definitely expect them to lead the charge. I'm not sure if you had a look at this report last week.

[00:04:12] Yeah, I saw the headlines mostly the US as well. I know the US won something to keep an eye on for people like the headline number is good. Sure, obviously it's very good. But I think looking at the underlying numbers tends to paint a slightly different picture,

[00:04:27] especially the trend that there's been with permanent jobs and I mean full time jobs versus part time jobs. I think it's been going on for quite some time now probably over a year I don't have in front of me where there's been a kind of level off if not a bit of a decline from the

[00:04:45] full time jobs and then a lot of the increases in employment are actually related to part time jobs and you're also seeing people holding multiple jobs for economic reasons trend up steadily. So, you know, I think it's just wanted to provide some context here because yes, the headline numbers go well.

[00:05:04] It also provides ammunition to the Fed if they want to keep rates higher for longer because they can just point to that, you know, high employment and the unemployment being historically low to say look, I mean the economy is doing fine we can keep the rates as high as they are right now and,

[00:05:23] you know, not hopefully not impact inflation too much so that's kind of that's probably the angle I think they'll play again I think there's no way to know for sure. It's just looking at the various data and trying to understand how the Fed is thinking but one thing for sure is rate

[00:05:41] rate cut expectations in the US have been trending down pretty significantly I posted something on X where since the start of the year for the June meeting for the Fed, it was almost like not I think it was a high 90s probability that rates would be lower by then. Now it's around like 60% chance which is a very massive change in expectations like it's still you know it's almost getting to a coin flip type of situation.

[00:06:11] I think that kind of paints a pretty bleak picture for Canada who clearly needs some relief in a way I mean the one interesting thing about these the job creations as well I think I can't remember the exact numbers but I believe a lot of the overall job creations in February for Canada was self employment as well.

[00:06:30] So the bulk of them were coming from you know self employed jobs and just you know pretty much government related jobs. The one interesting thing about here like the rate cuts the housing market here in Alberta is going absolutely nuts so I can't even imagine what it will do in the event that rates are cut like where I had a friend who just they put an offer in so this house was listed for 24 hours.

[00:06:54] It had seven offers in 24 hours and they had to offer above list to get it.

[00:07:01] And we're talking yet like you I haven't seen that like in Alberta for quite some time but our real estate market is just going nuts so I can't imagine you know if they go down 150 200 basis points like what's even going to happen.

[00:07:15] Yeah exactly and I think that's what they're dealing with and then you add in the fact if they cut obviously rates even in a con don't cut by a whole lot and may stimulate the housing market obviously I think Calgary and maybe not Alberta is old but definitely Calgary has had a pretty sustained real estate market so they have to factor that in and they can be if they're cutting

[00:07:36] in because they know that the Fed will be cutting soon. Yeah so yes I think I agree that it may come before the Fed but at the same time they would need some assurance that rate cuts are coming because we've talked about it on the podcast before if they cut and the Fed is not cutting then you're putting downward pressure on the Canadian

[00:07:54] dollar which is also inflationary for things that we import so it's not an ideal situation and I'm not even talking about potential housing prices going up. Of course you know the offset in higher rates will help people that are renewing their mortgage kind of lowering the

[00:08:11] increase but it's still going to be you know a significant increase unless you know magically they're cutting by 202 or 200 plus basis points in the next six months to a year. If that's the case obviously there is bigger problems or probably in pretty severe

[00:08:29] recession if they're going that deep so I don't know I think they're really I'll say it again I think they're between like they're in between a hard rock and a hard place. It's not easy for them. They're probably looking at the data I'm sure they have really smart people at the Bank of Canada

[00:08:45] and trying to figure out what they are doing going forward. I just have a hard time thinking that they will be cutting their next meeting which is it this week? Can't remember? Let me see here. Or next week potentially?

[00:09:00] It's soon April 10th. Okay yeah so it's tomorrow. Yeah so it is soon. Yeah we were right. So after that long pause. It'll be interesting I mean I could very well be wrong and I think that's what people need to take away here is you know you can make your own assumptions here but no one really knows.

[00:09:21] We don't know. You can just try to look at the information available and try to put your shoes in the Bank of Canada shoes or the Fed and try to come up with what you think they might do but again I think it's important to plan at least for investments to plan or if you buy a home and stuff like that plan for the worse and then if it gets better at least you're prepared for it.

[00:09:46] Yeah it's pretty much guessing you know these policy rate changes is just pure speculation from like a retail investor standpoint at least or consumer. It's tough enough for economists to predict it almost impossible for us.

[00:10:01] Yeah yeah exactly. Now I think we've talked enough about jobs and the central banks here so let's move on to Indigo. Last week it came out that Indigo chapters or I mean they are listed as Indigo would be going private mainly being bought by Trilogy investments.

[00:10:20] Shareholders will receive $2.50 per share in cash that's an increase of 69% compared to the price on February 1st 2024. I did not misspeak that's because the reason I'm saying February 1st is because in early February they did announce that they had received an offer to go private which resulted in the shares jumping at the time from $1.48 to above $2 a share.

[00:10:45] And as part of the deal a formal valuation and fairness opinion was requested from BMO capital markets which put the fair value of the you know of the company at a range of $1.90 to $2.90 so the $2.50 that was actually agreed upon is not a bad outcome I think for a shareholder just based on this assessment that was done by BMO capital markets because it would place it above the mid point or the median which would be $2.40

[00:11:15] they did get a bit above that. Shareholders will vote on the proposal in May and assuming the vote passes the transaction is expected to be completed in June and if you bought the company in the last year you're going to be up on this deal so congratulations you probably made decent returns depending on when you did buy it.

[00:11:33] Unfortunately it's been a rough go for longer term shareholders. The stock is down 75% in the last five years and it really hasn't come close to fully recover from the COVID-19 pandemic so I think it's fair to say that it's been it was definitely a company that was negatively you know impacted by that since in the past five years the stock is down close to 75% even with the bump here that we saw because

[00:12:03] of the take private offer and then you also have I pulled in revenue so for our joint TCI listeners you'll see the first graphic here is the total returns over the last five years and then you see the revenues that have essentially been flat kind of up and down over the last five years so it's been hovering between you know a billion in revenue

[00:12:27] or a billion fifty in revenue and 900,000 so it's not really been growing kind of stagnating so it is a company that's you know not doing all that great but they are producing some free cash flow so that is the positive but on a net income basis it's mostly been net losses again in the last five years.

[00:12:49] That's kind of what I was looking at they had a market cap of they have a market cap of like 67 million but free cash flows of like 15 million so I mean it kind of looks like on that surface level looks pretty cheap but I didn't even know like I don't think I've been into a chapters in like it has to be at least 10 or 12 years.

[00:13:10] I think they had one by like a movie theater in Calgary that we used to go into the odd time but it's a business model that I wouldn't have even expected were to last this long I know you had mentioned they transitioned into like kind of offering what are they offered like toys and clothes and stuff like that like I didn't even know they were offering that I haven't been one for so long.

[00:13:32] They have baby stuff so I mean I don't blame you for not knowing that if you do have kids you'll probably learn about them but yeah they have other stuff so baby goods is one of the things I mean I do go in the store from time to time when Brayden and I had talked about that I actually was a one that brought it up as a stock that could do well coming out of the pandemic because people were as lockdowns were kind of stopping right and people were seeking experiences.

[00:14:01] My idea here was that people would actually like to go into chapters. There's usually a Starbucks in there you grab a coffee read some books and buying something you don't need or a book obviously because there is a lot of stuff that you don't really need there so that was the premise behind it I mean I don't think it was fully wrong but I think I thought they do better than they did and then last year they also had that pack where the website was down for like over a month that impacted sell pretty negative.

[00:14:31] I don't think they really recovered last year so I think the whole year was kind of put into a bit of a tailspin because of that it didn't end up being like that terrible of a year compared to previous ones but it was definitely I think it lasted like a month basically.

[00:14:48] I didn't know about that I saw there like they have a huge decline in price from twenty eighteen to twenty twenty did they almost like it looks like they almost went under really.

[00:14:58] They traded at twenty dollars a share in twenty eighteen and then went down to almost a dollar. Yeah it's been a rough go for him to go I mean like you said if you bought it though.

[00:15:08] From the last year probably you're probably pretty happy.

[00:15:13] It's all about I guess the price you pay that's at the end of the day it's a price you pay in you so but I think that's it for Indigo do you want to talk about the WSP Global Short Report which is I think it's a company that's pretty widely held by people that listen to this podcast I know Brayden owns it I know stock trades I think it's a recommendation or you got to go to the

[00:15:37] guys follow it.

[00:15:38] It was back in like twenty nineteen we don't anymore but we have in the past.

[00:15:44] Yeah this is going to be like a reasonably sized segment and I haven't I didn't even get to go over a fraction of the short report like it's just absolutely huge so Spruce Point Management came out with another short report on Canadian company they've made some pretty notable short reports on Canadian companies especially tech companies so light speed

[00:16:05] Nouveau are two that you know you can think of over the last while here especially during the peak of the pandemic they they pretty much shorted these two companies at their absolute highs and both of them are down quite a bit.

[00:16:19] Other shorts would be Dalarama and Canadian Tire those two didn't really work out all that well but they've also had a few other you know small cap shorts eight or nine years ago one of them was a gambling stock and the other one was a healthcare stock.

[00:16:34] So the light speed of Nouveau shorts I would argue weren't you know really a result of any sort of skill in particular there were so many tech stocks that were like you could pick quite a large basket of tech stocks.

[00:16:46] Yeah just like just basically build a basket of unprofitable tech stocks at the time that they put out the short report and just short like this list of tech stocks just because evaluations were crazy.

[00:17:01] Exactly.

[00:17:02] And you know you would have done well and obviously there's a name I'm hoping we'll get to it Teladoc I used to own it.

[00:17:08] I mean Teladoc is in that same kind of situation I think it was down like 80% 90% since then.

[00:17:12] I mean you even think of a company like Shopify I think even Shopify still way off from those highs even though over the last year Shopify's gained like you know 100 some percent but there you know those two worked out as I mentioned the Canadian Tire and Dalarama shorts didn't really work out that well the Dalarama one was a horrible call.

[00:17:35] They stated the company had and I guess we'll go over Dalarama today too which is it's pretty interesting because they stated that Dalarama had unsustainable margins their growth targets were unsustainable they had huge refinancing risks all of which have just not turned out to be true at all.

[00:17:53] So they mentioned it had more than 50% downside and that was a price target in the low 20s I think it's like 115 bucks a share right now but in terms of WSB global.

[00:18:05] This is the one they just issued a short for and they said it had 50% downside so I should mention that it is impossible to digest these entire reports without spending I'm talking literally days analyzing all this information so I personally believe this is intentional

[00:18:23] to create confusion uncertainty among holders in an effort to get them to just kind of say screw it and sell to give you an idea the size of the report it's a total of 14,000 words and it's 68 pages long.

[00:18:37] So they mentioned that the company so the bear case for them in terms of WSB I'll get into you know the most key points that I found but there's multiple others but they mentioned that the company can only grow through acquisition and eventually its targets will run dry.

[00:18:53] I also mentioned that their margins are so much higher than their competitors talking you know stand tech SNC Laveland that it should be raising red flags for investors and I'll get to that in a bit because they do mention how that happens.

[00:19:07] So they claim that they're producing false free cash flow data so WSP stated that free cash flow comes in at around 110% of earnings spruce claims that it should be closer to 38%.

[00:19:20] The report also states that WSP has continually made worse and worse acquisitions over the last few years ones that are recline resulting in declining margins.

[00:19:30] They even go as far to state that the CEO has been misleading investors by stating that their acquisitions have similar margin profiles to WSP despite margins being like materially worse when you actually run the numbers.

[00:19:44] It claims that WSP's backlog has been weakening so they simply change the definition of their backlog to prop up their numbers and they had a whistleblower in 2018 a former employee which is always a bit controversial when a former employee kind of blows a whistle.

[00:20:01] They allege that the company has been evading taxes I believe this was in India and this could potentially be leading their cash flow to be artificially high as well.

[00:20:10] There's no actual proof of any of this the investigation I looked as of February 2024 is still underway.

[00:20:17] And finally the report states that WSP is placing interest expenses as a financing cash flow which doesn't impact free cash flow because it's not represented in operating cash flows.

[00:20:29] So they believe that the company should be reporting like S&C, Laveland and Stantec do and reporting them as an operating expense.

[00:20:39] And if you do their free cash flows would be apples to apples pretty much.

[00:20:44] So if they did this Spruce says it would impact cash flows by about $200 million in 2023 and the company only had around 800 million in cash flows in 2023 or sorry over the last trailing 12 months.

[00:20:59] So this would be a 25% hit to free cash flow so it's a reasonable case if all of this were true.

[00:21:07] Accounting fraud tends to scare the crap out of investors because of the horror stories that there's always been historically with stocks that have just gone belly up essentially due to sneaky accounting.

[00:21:21] So this is generally where the bulk of these short reports narrow their focus on.

[00:21:26] I can't remember what it was in terms of Nouvea and Lightspeed but there was a lot of accusations of fudging numbers as well.

[00:21:34] Overall, I took this information from probably only around an eighth of the report so even spending an hour or two reading through this thing I got a headache.

[00:21:44] I mean as mentioned I think this is pretty intentional.

[00:21:48] I mean very few retail investors have the commitment and dedication to read this whole thing.

[00:21:53] It's absolutely huge some of the sheets are just text, pure text for three or four pages.

[00:21:59] I guess I should mention that I have absolutely no idea if the claims are true or anything like I'm simply pulling the information from the report and talking about it.

[00:22:07] I haven't verified any of this stuff but yeah it's a lot of these reports like on the surface level look pretty damning but generally you know a lot of it is I guess it's not proven.

[00:22:22] None of it is ever proven for the most part.

[00:22:24] Yeah and a lot of short reports will be like that.

[00:22:28] There's just so much information it's hard to comb through.

[00:22:31] It's very hard to verify a lot of the time the information and we spoke a couple weeks ago, Brayden and I about the Indenberg research reports or the short report on Equinex.

[00:22:43] And first of all, Indenberg research does a much better job at making the information more digestible like I've seen the WSP report that was one on BIP that I own as well that I had seen.

[00:22:56] Compared to that, HiddenBurn research does a really good job.

[00:23:00] They also have a much better track record and what I tend to look in short reports in general is things that I can actually validate with the financial statements.

[00:23:11] So and that was one of the things about the Indenberg research report for Equinex that they were talking about adjusted from operation.

[00:23:19] For those not familiar just a profitability metric for real estate investment trust.

[00:23:24] It's widely used, but it's an adjusted metric.

[00:23:28] It's not a gap metric which is a generally accepted accounting principle or IFRS, which is the same thing for Canada and kind of the rest of the Western world I would say.

[00:23:39] But those adjusted metrics can be calculated differently depending on who it is.

[00:23:44] And that was one of the things they were saying is that it was not being calculated properly by Equinex comparing to their peers, but also the fact that management and the executives were actually benefiting from that because their compensation was tied to that.

[00:24:00] And I was actually able to go in the statements and validate the information not only for the executive compensation, but also in the calculation and the huge discrepancy between them and their competitor.

[00:24:12] There were other items that were alarming.

[00:24:15] There was also accounts of talking to former employees, but that part I always take with a grain of salt because you know someone leaves an organization and oftentimes they won't necessarily be the most in love with the former organization.

[00:24:30] I'm not saying that's always true, but they you know they could have an axe to grind.

[00:24:34] So I always take that part with a grain of salt, but the way I approach them is trying to at least validate a big part of their thesis with the actual reports that the company puts out.

[00:24:47] Yeah, and it's all like you were speaking on just those adjusted numbers.

[00:24:51] So one of Spruce Point's main issues is with WSP versus its competitors is gap numbers requires interest expenses to be an operating cash flow whereas IFRS the guidance is less clear.

[00:25:07] So they're kind of saying that you know WSP should be following its peers and reporting on an apples to apples basis, but I don't really think they're doing anything wrong here.

[00:25:18] But I mean they also they just they go into a bunch of I mean I would just call them scare tactics like I know there's a portion in here that the chairman they speak on the chairman how he was like the head of a fraudulent company like a few years ago and now like

[00:25:33] now that the case has been settled he's like removed it from all his bios you know that he was never involved with that company and they kind of create like a scandal in that regard to try and scare people a bit.

[00:25:45] But I mean these reports are just they're massive they're hard to read and I mean yeah you really got to spend a lot of time digesting this stuff and I do feel like a lot of people just say like

[00:25:59] yeah and they and they sell right because they don't there's just so much information overload here.

[00:26:05] Yeah exactly and I think it's just a good reminder you know for people just make sure you understand don't panic you know do the research look the one for BIP I did not end up selling my my share just because a lot of this stuff that he was alleging was just very hard to prove again they are adjusted their like metrics that they use over at Brookfield infrastructure partner is BIP which I think

[00:26:29] is what I'm referring to but they were also questioning the net asset value of certain assets and again that can be very subjective and there were things in the report where they were questioning like the enter care business which I'm pretty familiar with enter care we used to be publicly

[00:26:46] traded I mean we literally rent a boiler from them like I know it's a legit business like I know it's not like so they were like basically saying that it wasn't a legit business at all so that's where I kind of started scratching my head a little bit and kind of took the report with a grain

[00:27:05] grain assault maybe you know maybe was right under certain issues I don't know but when it's when you can't really verify at least a good chunk of what they're saying I don't know I tend to err on the side of kind of staying with the company and believing management that point.

[00:27:22] Well I think that's for the most part that's what most people are doing like WSP hasn't really changed in price all that much when the report came out they were about $230 a share and now they're 215 whereas I know like in the past popular like lights being in Nouveau absolutely tanked once they had those short reports

[00:27:41] like I think they fell 30 plus percent in a single day and I know it wasn't spruce but it was what was that company Citron did it to Shopify back in I think it was 2018 or 2019 and Shopify absolutely tanked.

[00:27:57] I think it's like you know it's a bit you know more volatile stocks like that are probably going to react a bit more but WSP really hasn't been impacted much at all off the news so obviously there is a ton of you know unproven stuff in this report and I think you know it's better for as you said to just not panic.

[00:28:17] Yeah, yeah exactly.

[00:28:20] Now we'll move on so anything else you wanted to add or we'll go to one of the other short targets that they had a while back Dalarama.

[00:28:29] Yeah, it's been pretty bad short hopefully they covered that short position because there will be in a lot of pain.

[00:28:37] I imagine it's closed.

[00:28:39] Yeah, so they had their Q4 and full year report so I'll focus more on the Q4 result but we'll say this. I'll definitely say this for the full year. I mean they had a really strong year once again.

[00:28:52] A couple of things that I'll mention on a full year basis because it makes more sense like free cash flow but for the rest I think Q4 is more telling here especially since we try to cover it as often as we can when they come with their earnings.

[00:29:05] Now sales increase 11.3% to 1.64 billion, comparable store sales grew 8.7%. Again these two are very impressive considering that you're seeing inflation I think last year was probably at a clip of what like 4% for the year roughly as a whole.

[00:29:24] Yeah.

[00:29:25] 4 or 5%.

[00:29:26] That's probably about right. Just going ballparking here.

[00:29:30] A bit of was increased 19.5% to 559 million, EPS was up 26% to $1.15, net income was up also pretty close to 26% to 1.05 billion, free cash flow was up 74% to just shy of 1.3 billion for the full year.

[00:29:51] Gross margins have been pretty stable over the last few years but operating margins have been steadily going up. That's actually quite impressive that their margins are operating margins have been going up that well.

[00:30:03] As people can see with joint TCI you'll have the top one is the gross margin which has been hovering between 46% around 46% for the last three years or so since May 2021.

[00:30:18] And then you have the operating margins that have literally gone up 600 basis point from that in that timeframe. So I think that's really the impressive part to have your operating margins go up 600 basis point especially when a lot of retailers and grossers are struggling with higher costs as well.

[00:30:39] You're operating margins, there's a lot of cause that goes in there inflation and so on. So the fact that they were able to improve their margin is pretty significant. They announced a 29.9% increase to their quarterly dividends.

[00:30:52] So dividend stock lovers or people that like dividend growth stocks this is definitely for you here. And in terms of guidance for 2025 I think that's where it's kind of funny.

[00:31:08] I think the market clearly liked you know the quarter and obviously the performance in the last year but the fiscal 2025 guidance which is starting now. It's not as good as I would expect.

[00:31:20] It's not bad per se but they're planning to open 60 to 70 new store same as last year. Last year they ended up operating 65 comparable store sales are going to be their guidance is between 3.5% and 4.5%.

[00:31:36] That's down from 11 to 12% last year. So this is the part that I think it's starting to it's still good don't get me wrong but it's definitely starting to go down and then the gross margins are in the similar range as last year as GNA again similar range

[00:31:55] I would say as last year in capital expenditure pretty similar range as last year as well. So I think it's just the comparable sales. I don't know what you think Dan but that took me by surprise. I thought it would have been better in terms of guidance.

[00:32:09] I wonder if they're thinking that a lot of people over the last year or two kind of migrated to them and now they're going to see a slowdown in that. A lot of people maybe who shopped at Walmart before kind of gravitated towards dollarama because they're cheaper and now they expect a slower new customer base.

[00:32:30] I'm not sure because that is that's quite the decline and I think they've had double digit comparable store sales for for quite a bit so like three three and a half to four and a half is that's pretty low.

[00:32:42] Yeah exactly so I mean I don't know it just that really stood out because for the most part like the markets tend to brush off really good results. I mean at least in the past year or two if there's like the guidance disappoints.

[00:32:58] The guidance as we can.

[00:33:00] Yeah exactly if there's weaker guidance and that would kind of fit the bill for that but I mean the stock really popped on the earnings and now it's been trending down ever slow slightly and I'm not saying like I obviously this is a great company but it's just I haven't had the chance to listen to the conference call

[00:33:18] but I'd be interesting to see if they had question or the address the guidance for comparable sales because again it's just a sharp drop off. I don't know maybe it's also the fact that governments are federal government saying that immigration will be slowing down in the coming years

[00:33:36] maybe they're starting to factor that in into their models because obviously the more people you have the more people that will be attracted to value proposition being offered by dollar ammo so I really don't know but that was a big one that stood out to me.

[00:33:50] Yeah it's definitely a huge decline if like I said if I were to guess it would just be that you know the huge influx of people over the last few years as people start pinching pennies it's eventually going to slow down.

[00:34:01] Yeah and maybe they're expecting that next year. Yeah you're probably right but so do you want to go on and talk about the other four more short target. Yeah there's a lot of spritz point companies today.

[00:34:13] Yeah exactly light speed layoffs unfortunately obviously it's not great for anyone impacted with that but you want to go over that.

[00:34:21] Yeah so light speed has been said by their CEO who just took over a few months ago from the CEO who took over from him. They said they're entering a new phase focused on profitable growth so as a result they're trimming around 280 jobs so according to

[00:34:41] why charts the company has around 3000 employees and they said it will represent about 10% of its salary related expenses so I mean to me this kind of shows that it's just you know the average average salary type layoffs and not like any you know large scale

[00:34:55] upper level or else you'd probably see this represent a larger portion of salary related expenses and they also mentioned that it is going to take some restructuring costs to kick off fiscal 2025 so this would be their next quarter

[00:35:10] they're one of those companies who's kind of a year a fiscal year ahead in terms relative to the calendar year so this isn't an effort to essentially you know reduce costs improve the efficiency of the company

[00:35:22] but the real interesting thing here is light speed has stated it is going to start buying back shares so it wants to buy back 10% while it can buy back up to 10% of its total outstanding float.

[00:35:35] The company's had like it's been pretty close to a billion dollars in cash on the balance sheet for quite some time I think actually at one point it had nearly one and a half billion in cash it hasn't really done anything with that money for quite some time

[00:35:49] so the buyback is definitely interesting and it's definitely interesting that you know a company like Lightspeed is buying back shares.

[00:35:56] The buybacks from Lightspeed and the dividend from Nouveau they're really confusing like both elements are kind of confusing I mean this is a cash burning company like they're not they're not profitable

[00:36:08] and I mean they've effectively doubled their share count over the last five years so it's pretty surprising to see them turn around things and start to buy back shares.

[00:36:16] The one thing about the share issuances from Lightspeed they did the bulk of their issuances during like that just pure market euphoria in late 2020 and late 2021 so they did issue shares at least at you know insanely high valuations

[00:36:33] since the stock has taken a well not a bit of a drawdown a huge drawdown it's only issued around 3% of its total shares outstanding over the last few years so

[00:36:43] it definitely tapped into pretty sky high valuations. Dax De Silva who is the company's CEO now said that a this was just a few weeks ago too that a major shareholder approached him at a meeting and said

[00:36:56] I want Lightspeed to be a real business it can't be growth at all costs with large losses just to capital mark just to capture market share forever when is this company going to have a balance of growth and profitability

[00:37:08] and he said that this was you know kind of one of the main reasons they've shifted to this I mean right now the market just doesn't really have the time for cash burning unprofitable companies growth at all costs is certainly something that has gotten punished severely

[00:37:22] and the company trimming a bit of the fat and focusing on profitability is certainly a good thing in terms of like valuation on how cheap Lightspeed is which could you know be maybe a bit of a reason for the share buyback

[00:37:35] Nuve sold for 4.7x enterprise value to sales so this was a profitable fintech company with a reasonable amount of free cash flow as of today Lightspeed trades at 1.6x EV to revenue so this is a you know Nuve sold for pretty much triple the price at Lightspeed is trading at right now

[00:37:55] so I mean it'll be interesting to see if they can carve out you know a bit quicker path to profitability and post reasonably strong growth and maybe the market will start to reward it with you know a higher valuation multiple but I do have a bit of a feeling that this entire thing is a bit related to the Nuve you know going private being scooped up it's just a big shift in mentality

[00:38:17] and there's definitely been some management shuffles here now employment shuffles big changes with Lightspeed

[00:38:24] yeah yeah I think I mean obviously he's feeling pressure somehow he's talked about the one of the major shareholders but I mean I do question like that's is a very you know lovable guy if you hear him talking interviews and stuff he's very passionate so I'm not taking that away but I've always I don't know I've never had really a lot of confidence in it

[00:38:46] it's just me I know you're like it's a small position for you so I do get that and I do have here a graphic that shows their cash positions so kind of shows what you were saying so they obviously got cash somehow I'm assuming like it was by issuing shares around the peak in 2021 and then that they had over a billion in cash

[00:39:07] and then it's been you know steadily going down ever since now it sits at around 750 million so it's been going down my biggest criticism here is you don't have anything better to do with the money than buying back shares I mean you can just like I asked just for fun chat GPT to you know what can you do with excess profits which is not even

[00:39:31] the case for light speed because they are burning money but you know here's if you answer and obviously I knew pretty much all of these but you could invest in R&D and CapEx marketing and sales employee training and development technology upgrades and so on so there's just you know there's

[00:39:49] just I think better things that they could be doing with the cash especially when they're not profitable if you're profitable and you want to buy back shares because they are too cheap in your view then have added but as a shareholder I just would kind of scratch myself and kind of question

[00:40:05] management's ability to actually like you know properly invest that money if they're thinking about buying back shares that's the main criticism I have for them and also I've said it before where I just think they're in a really competitive space

[00:40:21] and I just you know I'm sure they if they continue they'll probably achieve profitability but I just don't know if that profitability will be you know sustainable for the long term on the one hand and if it'll be very profitable it may just be kind of volume thing you know where they make enough to be profitable.

[00:40:42] Yeah it's definitely an insanely competitive space and that was one of the main reasons why it made a few acquisitions back in the pandemic days and it I mean looking back now it's severely overpaid for them probably because it is so competitive I mean you know back then you're probably paying a premium for any company

[00:41:02] you want to acquire just because competition I mean when there's more competition there's higher prices to acquire and I think like you could use a lot of this capital to acquire companies as well but you know just two three months ago they had stated you know acquisitions weren't off the table and the stock absolutely bombed on that news

[00:41:22] because I think maybe a lot of people realize they overpaid a few years ago and they you know don't want them to waste this cash pile on more more overpaying so then you know the CEO was replaced and they come in then they they change the tune to like a profitability

[00:41:37] turnaround things like that I mean it seems like there's a lot going on here. Yeah and you know too with how much DAX is involved like I know he's a major shareholder doing the business like there's no way he wasn't on board with what the former CEO

[00:41:51] said for sure yeah it just didn't didn't work out well. Yeah exactly probably said it took the fall for it and then DAX kind of comes back and says like oh actually our focus is profitability yeah that's I don't know if something fella smells a bit fishy.

[00:42:08] Yeah there's there's so many changes going on and in the background here clearly yeah there's I mean it's a relatively small position for me and I ended up like buying and selling this thing like probably five or six times during the pandemic like I bought it on its IPO and then when it bombed to like $10 a share during the peak of covid like

[00:42:30] I mean it's a very small position for me so I'm willing to wait it out to see if they can turn it around but there's a lot of stuff going on right now the buybacks are the buybacks like I said are just as confusing to me as the Nouveay dividend which was extremely confusing.

[00:42:53] It just seems like yeah I don't know. Yeah it's just trying it feels like it's trying to peace shareholders which is never you know that's never what I want to see from a CEO I want a CEO to think longer term but again we'll see how it goes but we'll move on and probably finish with this one I know you had prepared no style for with Tesla but we're running a bit long and I do have another recording right after this so speaking of you know highly valued stocks during the pandemic

[00:43:22] Teladoc so Teladoc had its CEO I leave pretty abruptly I don't know if this was in the works or not does not sound like this so they announced last week that their CEO Jason Grovick was leaving the company effective immediately.

[00:43:37] Malah Murthy the company's CFO will act as interim CEO until they find a permanent successor. Grovick was CEO of Teladoc for 15 years and he was CEO when the company went public in July 2015.

[00:43:52] If you've been following the podcast for a while you'll know that I used to own Teladoc. I sold my remaining share in early 2023 and the main reason for selling is I simply did not trust Jason Grovick anymore as CEO of the company.

[00:44:09] And the reason I lost this stress was because of the Livongo acquisition they had made at the time even Braden and I said that it was a high price to pay but I said I was going to give them the benefit of the doubt although I did trim some of my position around that time which was basically around the peak.

[00:44:26] And the idea was to create a platform that would be unique in the range of services that it would provide and that the chronic care services brought in by Livongo would really help send set them apart and fuel growth for years to come.

[00:44:41] And that was in the summer of 2020 and in early 2023 when they provided their guidance for the year. That's when I decided to sell the stock because the Livongo acquisition was supposed to fuel growth and they were forecasting growth to be 8% for 2023 which was definitely not in line with what management had been saying years prior.

[00:45:03] They basically said like I'm vulgarizing or kind of putting in my own words but they would see like double strong double digit growth for years to come based on that.

[00:45:13] And it was obvious that they made a bad acquisition at that point when you consider that they wrote off more than 13 billion in 2022 related to the Livongo acquisition.

[00:45:25] So you have that plus the weak guidance that they provide in 2023. That was just kind of the tipping point for me and I decided to sell my shares and obviously at this point looking back it was a good decision but to be fair,

[00:45:41] Kurovich did do good as CO so the company grew revenues at a keiger compounded annual growth rate so keiger of 66% from the time it IPO'd in July of 2015 to 2019.

[00:45:53] They even generated 26.5 million in free cash in 2019.

[00:45:58] Notice how I'm stopping at 2019 here because I think the pandemic ended up being a blessing and a curse at the same time for Teladoc so obviously it boosted demand for its offerings but also increased competition and probably was a driver behind the overpaying for Livongo.

[00:46:16] And I ended up selling the last of my shares like I mentioned in early 2023. I sold them at the time I checked back what price I sold them at and it was essentially $26 a share and the shares are down more than 40% since.

[00:46:31] I wanted to mention this just because I've done plenty of mistakes in the past and obviously this was a good sell at the time but clearly I should have sold before.

[00:46:40] But I did trim the position at the peak and despite making money on the overall position I sold the remaining shares at a lower cost than my average costs for the ones that were remaining at that time.

[00:46:53] And clearly in hindsight it was a good move because Teladoc underperformed the S&P 500 by a whopping 70% since and it would have been easy for me to keep the position in the hopes that it would get back to the average cost I paid and sell

[00:47:09] but you know I just was looking at the information I had and I decided not to do that that the right decision for me was to sell at the time.

[00:47:17] And I don't know what you think about that Dan but a lot of people get kind of focused on what we call the Nanker bias so they may have a position that's down 10%, 15%, 20%

[00:47:28] and the writings on the roll that it's not going well for the company but they focus on that purchase price and they just say I'll sell them when it goes back to that initial purchase price.

[00:47:41] And that can really be dangerous because at the end of the day you have to look at it at what is it right now and what do you think it will do in the future?

[00:47:51] Not try to get back even with your position.

[00:47:55] Yeah it's sunk cost fallacy really. You buy it and I think it's also like a mental block of not wanting to take a loss on something so it's difficult to explain but if you have something that you're 20% down on

[00:48:10] and you want to somehow get it back to even before you sell it and invest in something else it's almost like you just want to worry about where that money is today moving forward.

[00:48:20] You know what I mean? Like you can sell something at a 50% loss and invest in something that is going to provide better returns than kind of holding that bag per se to recover that 50%.

[00:48:33] But a lot of people get hung up on the fact that oh I don't want to sell this at a loss so I'll wait until my brokerage turns from red to green and then I'll sell it.

[00:48:42] I've trimmed plenty, plenty of losers and I mean it's something you just have to get used to for sure.

[00:48:49] I didn't realize Teladoc was down this much though. 96% from the peaks.

[00:48:56] I mean it's down 40 something percent since last year and I said this 70% figure because I'm adding like the total returns from the S&P 500 so I am adding the gap between the two so what that money would have done with just being in the index.

[00:49:15] Exactly. So I mean obviously I'm glad in hindsight that I did but it just had the time was like okay you know what I just don't see where this company is going moving forward and I think there's a real risk that the share price will continue trending lower.

[00:49:31] I could have been wrong right like they could have come out with much better results and maybe the stock would have been like $35-40 and wish I would have kept it but at the time with the information I had to me that was the right decision to make

[00:49:45] and kind of you know forget about that anchor bias and you know it's just a it's a song cost, it's a song cost that's it.

[00:49:52] Yeah it's the most important thing to is to look at you know what how much money you have today and where it's best best invested because like you said even if you say bought Teladoc at you know even $291 absolute peak and you're you know in 2021 you're thinking about selling it at 100 but you

[00:50:10] don't want to because it's a big loss you probably would have not made all your money back but you would have made more just by selling that and buying say like you said the index whereas with Teladoc you'd be down what another 90 some percent from that 100% price

[00:50:26] point so yeah not doing well yeah no I think that's great perspective just because I think it's really you know it's easier said than done I totally understand it it's hard to it's not fun to take a loss you know the I've read enough

[00:50:41] investing psychological books psychology of investing to know that you know the pain you feel from a loss is much greater than the enjoyment that you feel from a massive game so I understand it's not easy but sometimes you just have to take a step back

[00:50:58] remove the emotions out of it and then just take the best decision you can take yeah yeah it happens to me all the time like everybody is going to feel that way you'd never want to sell anything in the red I had a position in Ovin

[00:51:11] they used to be in Canada and during during the pandemic I was down 96% on it and I was the same way like it was complete sunk cost but at that point I was like I'm down 95% I'm just going to keep holding this thing and that was extremely rare case I ended up selling it in the green

[00:51:30] oh wow okay because of the right when the right when the oil and gas like boom came in 2021 2022 that's like that's not going to be the case for the most part yeah I should have sold it like long before that type of situation

[00:51:45] happened but I had that same mentality I didn't want to sell it at a loss and I just kind of kept holding on and just ended up getting lucky in a way it's that's not going to be the case for the most part like I don't see tell it off getting back to $291 anytime soon

[00:51:59] I think that's fair to say yeah yeah no I think that's fair to say well I think on that we'll call it an episode for today thanks everyone for listening of course you know if you haven't done so if you can give us a good review on Spotify or Apple Podcast 5 star there we do appreciate it helps people find us if you have a friend family member that is interested in learning more about investing

[00:52:25] you can send them our way that's how it helps us grow and keeps us motivated to keep doing this although we love doing this but having new listeners all the time makes it all worthwhile you can find me at fiat underscore iceberg on twitter slash x and then at dan at stocktrades underscore ca

[00:52:45] and also stocktrades dot ca you go on the old browser whichever browser you're using it is compatible with everything yeah thanks for listening everybody

[00:52:57] the Canadian investor podcast should not be construed as investment or financial advice the host and guest featured may own securities or assets discussed on this podcast always do your own due diligence or consult with a financial professional before making any financial or investment decisions