Watch Our Earnings Recap on Uber, Disney, DoorDash AppLovin, and More

Thanks everybody for joining today. I'm David Trainer. I'm here to talk with you about earnings for 6 stocks today: Fortinet, AppLovin, Disney, Uber, Arm, and DoorDash. Let's jump right in. I'm going to share my screen and we will start talking about these stocks. So let's take a quick look at the action today. The market is flat to up and the stocks that we're talking about— Fortinet's not looking good, AppLovin looking great, Disney had a great day yesterday after a good report. Interesting. Let's see, DoorDash, it's mostly down. Here, Uber flat. Arm, yeah, down 2% while the market's up a percent or so. We've got a lot of mixed signals here, a lot of different things. But some of these companies, most of them, have certainly one thing in common, and I'll show you that in a second. Uh, let's go, let's go back to our portfolio page here. So I just created this, I just paste in the tickers and you get to see The portfolios, or you get to see all the stocks in a portfolio. This is our institutional membership. Let's start with that. This has been one of my favorite stocks because it is ranked as having the number one return on invested capital in the S&P 500 for a few years now. It used to be quite a bit higher, but this is what you would call classic great company, bad stock. You guys have heard me say that a lot. There's a lot of crowded trades out there. We can find the right stocks in this market because we're able to look at what's got good quality of earnings and a cheap valuation. All the easy stuff's been taken away by now. I think it's fair to say that's what happens when you've got a market that has excess liquidity. People are going to put money in anything that moves or that looks good, right? Or even the surface. You got to dig a little deeper. That's what we do. But let's take a little second here to talk about Fortinet. Look, just great earnings. You get nothing to kind of complain about here. Economic earnings heading up. You can see return on invested capital was a lot higher. It's up 550%. It dropped and it's back up pretty high level. I mean, these are super high levels to be maintained for this many years in a row. Amazing. Amazing. No question about it. Margins are great. Capital turnover probably had a drop here just on the capital turnover side. Maybe there was an acquisition that happened. Free cash flow, you know, not huge, very small percentage of enterprise value, but getting better. Again, I got no problem. I got nothing to say about the fundamentals. They're awesome. The valuation is where you've got an issue. I mean, look, the economic book value of the business is in the low 20s. The stock price is over 100. So what does that mean? A price-to-economic book value ratio of 4.5%. That means the market believes that the operating profit of this business is going to get to 450% greater. Than where it's sitting on a present value basis. So effectively saying the business is going to 4.5x on profits and maintain that. That's expensive. How expensive is that? Let's take a look at our reverse DCF model. This is an institutional-only tool. So you click on this button and the model pops up. And you can see that when we use consensus numbers, we've got some high growth in here. So the stock, the economic book value, remember, is around $23, $24. So that's why it starts here. These are the implied values per share in a 100-year DCF. And so, we have a flexible timeframe on purpose because we want to give ourselves an opportunity to look out as far as the market is looking. Because I will tell you, a couple quarters or a couple years out is nowhere close to capture what kind of cash flow the stock price implies in the future, not even close. And Wall Street likes it that way. They want you to focus on a penny here, a nickel here, and obsess about that kind of stuff because it keeps you distracted from what matters most, which is really the, the, the whole amount of cash flow required to justify the price. So what do we need to do here? We need to put in a forecast that is even more aggressive than what we have for consensus. So why don't we— let's see, quick, quick look here. So the stock's at $106. We're not getting much above $50. So we got to be pretty aggressive here. So I'm going to say instead of 12%, let's go 30% for 5 years. And we'll say 20% for 10. And we'll drop down to 15% over 15, 10% over 20. We'll leave margins really high. Well, actually, you know what? Let's go as high as margins. Let's assume they can maintain the super high margin as well. So be very optimistic. Save that off. Anytime you guys have any questions about this, let me know. I'm happy to explain a little bit more. But what I just did on this forecast page was create a new scenario that has really optimistic forecasts to see what kind of share prices are implied by that more optimistic forecast. So we can then rerun this. Okay, now when we look at this, this neutral scenario, we'll just conduct— so it only takes 7 years. Okay. So 7 years at 27% compound annual growth in revenue with the return on invested capital spread significantly better. And that's what they got to do. So, how realistic is that? I mean, that's a pretty fast growth rate for 7 years. And that assumes that returns on capital continue to improve. So, why don't we take a look at some comparisons here and see what that implied revenue means? So, what I'm going to do is I'm going to say, okay, it's $32 billion in implied revenue. What's the NOPAT? And $8.5 billion in implied NOPAT. Where would that rank in the S&P 500? Well, this is a report I pulled down from our website. This is, again, an institutional-level kind of product here. But what we can sort by here is NOPAT. And so we come back here— and I'm sorry, I already forgot. The implied NOPAT was $8.5 billion. And so that would rank the top 50 in the S&P 500. I think a lot of people potentially think that's possible. If we sort by revenue, that $33-something billion, that would rank in the top 115. So maybe that's possible. Maybe that's possible. That's what the stock price implies. And we could do other scenarios here as well. So instead of neutral, Let's call it, you know, we'll call it pessimistic because it won't be quite as as as nutty. We'll keep let's keep let's say 25% because let's see they've they've never been they're down in the teens. So let's just maybe say 20% 20% 20% 15 15 10 10 and we'll keep margins up really high. Probably a more realistic scenario here. The point here part of part of the point here is that. You can do as many of these scenarios as you want. And the benefit is that you get a completely clear-eyed, 100% detailed, transparent, auditable assessment of what the future cash flows have to be to justify the price. I mean, I think that's kind of as good as it gets, right? If you really want to understand valuation, this is how you do it. You can see this institutional tool, like this is really getting in behind the numbers. to understand this. And you also can see the actual discounted cash flow scenario model behind it. So, here's our neutral scenario. Here's the model showing getting to $95 in 7 years. So, that's the price closest to but still less than. So, the stock's a little over $100, but it's growing so fast that in year 8 of the model, it goes to $107. And so, the model just pulls The 7 years. So that's a little bit conservative, I guess. And you can see here, here's the CAGR in revenue that we're, that we're pulling to the discount, to the decision page, the average economic earnings margin that we're pulling to the decision page. And then the actual ROIC is going to be up over 1,000%. So it's going to more than double really from where it is right now. Yes. Good question. So in, in this model where we're looking the financials of Fortinet in either the pessimistic or neutral scenario, okay, in that pessimistic scenario I can't even get there with that, that last scenario I just did that was still pretty optimistic. But in the, in the neutral scenario that we were talking about a minute ago where we were looking at this $8.5 billion, yes, That would be the financials of Fortinet in 2032. So yes, it's not quite apples to apples, but it's a benchmark, right? Because we can't forecast all the companies 7 years out. We could, but it's just that the idea is to just get a sense of where it is. I think maybe the number that's most difficult to potentially believe here is the return on invested capital implied, right? I've already mentioned to you, they got a huge return on capital. Huge, amazing return on capital. Probably not sustainable. Like, Apple had a high return on capital like that for a while, and it's now down to about a 4th, 5th of what it used to be. And so I just don't know that assuming the return on capital continues to skyrocket up to 1,300% is a tough— is a good one. But you get the idea. You get the idea. It's expensive. So when we're looking at earnings, not surprised at all. To see the stock taking a tumble because the results were great, but not good enough. Record earnings beat, revenue outlook is light. Everything's going to be light compared to really what it needs to do. And that's the beautiful thing about New Constructs is what we're doing is we are steering you through all the noise, all the tariff-twisted narratives, and we're telling you what's really got to happen. So unless Fortinet had a 50x earnings number, they were able to provide guidance that showed how they were going to grow at 27% compounded annually. For 7 years, the stock's too expensive, right? They're not going to talk about that. They don't want to talk about it. Wall Street doesn't want to talk about it. You start having a conversation like this as part of the prevailing narrative for any major stock, then everyone's going to say, well, why don't we talk about all stocks like this? And then Wall Street's not going to be able to sell any IPOs at anything close to the valuation they want because no one's going to be able to sign off on the price implied expectations at those IPO prices. All right, let's do AppLovin. I get questions about AppLovin all the time, so I'm looking forward to talking about this one. We got a model for AppLovin open here too. So a strong miss is what we projected here. Great, great fundamentals, great quality of earnings, expensive valuation. This one's even more expensive. I think the price-to-economic book value ratio for Fortinet's 4.6. That's a big number, don't get me wrong. AppLovin's at 11.2. And Apple doesn't have quite as good a credit rating. We're getting a new Q any day now, so that's why we're suspended. But the EBIT to the interest to the interest to EBIT interest coverage ratio, EBIT to interest ratio doesn't look so great. Interesting. I would take that as another red flag because what we're talking about here is like a really expensive company. All right. I've already got a neutral. Well, that's that. This is Apple. So it's got a 7-year. Interesting. I got a 7-year timeframe for them too. Let's do a different forecast here. Okay, 40% is what they did here recently. We got 40% going out for 10 years. Let's knock that down to just to be more, a little more realistic, 30, keeping margins at a super high level. And we'll see what it says here. All right, smaller models, less history makes it a little bit easier. All right, so it only adds a year. So for AppLovin, Now, as you can see, when you have really high growth for a long time, the price implied values really skyrocket up. So you're going to go to $900 here. And why don't we just keep this all on neutral, keep it a little bit simpler to understand. All right, so let's take a look at the implied revenue. $53.6 billion in implied revenue for AppLovin. Where does that rank in the S&P 500? 53.6. It's you know where where HBQ, Hewlett-Packard. Again, this is the financials eight years in the future, but it gives you a benchmark. That's where they got to be. What is the let's see what does the notepad have to be? Twenty billion. Where does that put them compared? Twenty billion in notepad puts them in the top fifteen. So I, you know, with Visa, AT&T, Walmart, you're talking some big companies, bigger than Chevron, Comcast, J&J. I'd say there's a lot of good news priced into this stock. And I, you know, if I were redoing this model by doing it a different way, I'd probably say 40%, you know, for 4 years is probably good. It's probably more like 25, drop down to 25, 20, 10. That's probably more realistic. Margins probably don't get to stay this high forever. But we're going to give them that kind of credit. And the cool thing about this, you can tweak this all we want. We look at like, you know, 100 different scenarios and just get a sense. And this is kind of what fundamental analysts are supposed to do is to go in and see what does it take? What is realistic? And now if it takes 14 years, you're going to go at a slower rate. So time value of money is going to give us a different NOPAT here of 30.6. Which is quite a bit higher than where it was before, that puts you, you know, more like in the top 10 for NOPAT. I think we'll see something similar for revenue, but you get the idea. And I think the point is here with respect to AppLovin, look, this is a popular stock. They've got good earnings. Uh, how have they done the last 5 days? Yeah, it's done really well. A popular stock. I get asked about it a lot. It's moving. It's got a lot of momentum, a lot of sentiment. I would say very dangerous. Watch out. Because if we see any more market turbulence, we're going to see what we saw earlier in the year, which is that when there's market turbulence and people don't think that the Momo FOMO game is still on, they're yanking their money real fast. And these stocks like AppLovin at the top of the list because they're so expensive. So I'd be really careful. Shares pop on earnings beat as it announces sale of mobile gaming business. Interesting. So, you know, good for them. They're out there doing a deal, probably going to get pretty good value. On that, because everything else is so expensive. I also about Disney. Disney had a great report. We're about to get a new queue. We've liked Disney for a long time. We think there's a turnaround story here that we're getting a little bit impatient. We think the brand is really strong. We think the ability to create and monetize original content is really good. They're falling behind though on the theme parks. They're they're kind of getting their tail kicked on that front. I think the reason they had a big jump up here is because they announced that they are. Opening a new park in Abu Dhabi. So yeah, I think that this is a great business. You know, if you're a client and you get access to our focus list, you're going to see us using our system in a very intricate way. Now we all know that, look, the very attractive stocks crush it, right? If, if you want to look at very attractive stocks compared to the S&P 500, I mean, doing extremely well, up way more than the market today. Beating the market year to date, beating the market over the last year, beating the market over the last five years. Right? There's alpha in our ratings. This is a live traded index. I'll put a link into the chat here so you guys can see this if you want to take a look. Right? We've got other live traded indexes like you know here's one for just weighting the S&P 500 based on core earnings as opposed to market cap concept we can apply everywhere. Right? We're doing better than the market today. Year to date, about the same. One year, beating it. Five years, beating it. And then if you want to look at an index based on just the strongest core earnings leaders, best core earnings in the market, beating the market today, beating the market year to date, up while the market is down. Five years, beating it by a lot as well. Right? So there's alpha in this data for sure. Core earnings and our ratings. But, you know, that doesn't mean we don't get to have a different view on a company. It doesn't mean we can't see that this is going to get better and make this look better, right? So ratings are a starting point, especially for institutional clients. If you're an individual investor, I'd probably stick with the ratings because they do really, really well, and it's a great way to screen stuff out. And this is— this stock's not for the faint of heart. Look, I'll be honest, it's a focusless stock. Is it one that we are Super excited about? Probably not as much. It's been an underperformer. It's been in the focus list for a long time. We're, we're careful about what we take out of the focus list. There's been a lot going on with Disney. Disney, they made a lot of mistakes the last few years. They can correct that stuff. I think there's a lot of potential there, but good to see the stock doing well here recently. Uber, one of my favorite stocks to hate for a long time. The business has surprisingly gotten profitable. I don't know how sustainable that is, but I'm really surprised to see— was surprised to see they actually pulled this off. So what happened with Uber with earnings? I think we saw before the stock's doing pretty well. Misses revenue expectations with trips up. Good guidance, but they had a miss. Interesting. We predicted the miss, and that's because I think that their Accounting earnings doing a lot better than their real core earnings. So they got some overstated earnings here, but economic earnings are still doing well. So we give them a good grade for this, even though when you look a little deeper, makes this grade look a little bit off. This is a very difficult item to grade, economic earnings versus accounting earnings, because there's a million different potential scenarios there. And so this is why you want to maybe go behind and look a little deeper behind some of these, these ratings and these criteria. But look, you can see here, it's not, that's not so great. You know, like I'm looking at this, I'm like, yeah, you know, I don't think it deserves this. My rating system, it's very good. It works great. It's not perfect. There's, there's, there's no perfect rating system. I think ours is one of the best systematic systems there is. But, but Any system is gonna fall down on certain anomalies. So you can't have a system that can perfectly analyze everything. Otherwise, AI would have taken over by now. They've been pouring billions and billions and billions of AI at some very small tasks, just like driving a car. Can't do it. Same is true about analyzing everything that goes on with all the companies in the world. It can't be perfect, but we're close. Valuation still super expensive. Look, you know, we wrote a great piece on this. A while ago. Our thesis remains the same. You know, this is, this is the valuation, like the amount of revenue implied by the stock price is just outrageous here for Uber. Let's see here. The reverse DCF on Uber is really, in terms of the global rideshare market, I think it's some absurd amount of market share. That was kind of fun to do that kind of analysis. On Uber, we'd probably do this back in 2022 when it was even cheaper. What was the implied market share? Uber priced to capture 178% of its total addressable market. That was when the stock was at $32 a share and we're at $83. So really expensive. Yeah, yeah. I think it's the price implied expectations would result in over 100% of the total addressable market. Probably not going to happen. Popular stock, avoid it. Yeah, this is one that's been expensive from the outset. Economics not quite as good. Valuation, wow, 21.3 price to economic book value. That is crazy expensive. That is crazy expensive. What happened? Down a bunch today. Not so bad after the last few days. Weak guidance, not surprised, you know. And that's what we're showing. Like, you got a strong miss, you're either going to miss in this quarter, you're going to be missing soon. Because really what that— the takeaway is, is that this is not sustainable. It's not sustainable for reported GAAP earnings to stay above core earnings forever. Harvard Business School and MIT Sloan published a paper proving that to be a case. And I would submit that Core earnings is a better indicator of future stock price performance than just about anything, any other earnings number. When you see the outperformance of these indices, core earnings leaders, core earnings weighted S&P 500. So yeah, at some point there's going to be a miss. Hard for me to time exactly when, right? Because they're able to manufacture earnings higher than core earnings for a little while. They can do it for a long while. I mean, you know, I mean, remember Enron? They did it for a long, long time. So hard to tell you exactly when it's going to reconcile, but I think we might if the market gets choppy again. We're gonna see a lot of people going ahead and taking some, some losses. When the market sentiment is bad, it's kitchen sink time. People are going to take losses. They're going to go ahead and let the, the market get hammered. So yeah, ARM, super expensive. Got to be careful on this one. We're getting a new $6K anytime soon. Keep in mind, we're going to see like Over 800 upgrades, I believe, in the next few days. We've parsed probably—I don't know—I'm close to 500 to 1,000 Ks and Qs already in the last couple weeks. We're going to probably do another 1,000 in the next week. So it's a lot of new data, a lot of new, a lot of new ratings coming along. All right, DoorDash. Don't even—I mean, this is like the most. To me, this is the biggest joke company of all, one of the most of all time. Beyond Meat, the only thing worse is Beyond Meat. So DoorDash, like there's a, like there's, there's a, there's a lot of profit to be made in delivering food. Like I always like to joke, you ever met a million, you know, millionaire pizza delivery guy, driver? No. I mean, it's just not, it's not, I, I just don't, I don't, I don't buy it. Well, let's just talk about valuation. Let's see, DoorDash, is it still a zombie stock? We'll see here in a second. When we wrote this almost a month ago, a year ago, it's at $113. Everything's still the same, same thing. It's just burning cash. Certain competitors are much more profitable, including Uber. And look, the evaluation implies that they're going to own 71% of the TAM. That was at $113. And What is it at now? $180. Just don't see the margins ever being that high. People are gonna go to whoever's cheapest. Let's face it. And if, if the margins are that high, then I think the restaurants are gonna wanna get into the business. If they can make money delivering their own food, they will. Right? Why give that to someone else, especially if you wanna own the process? We've all had our experiences with delivery not being great. Pickup works really well. I don't think DoorDash is going to— I just don't think it's going to be around in 10 years, or it will be bought by someone else willing to take the losses. And so, like, if I think we do have a model for DoorDash open here. Yes, we do. Do we have a scenario that will work? Optimistic. All right, 13 years. So it's got to grow at 35% compounded annually, and it's got to see its return on capital spread improve from negative 14% to 125% on average for 13 years. So I just think that's crazy. Let's just go ahead and put these— we'll go both optimistic. What does this mean in terms of revenue? $522 billion in revenue for DoorDash in 2038. $522 billion in revenue. That I think is going to be— would put them number 2 in the S&P. I put number 3 behind Walmart and Amazon. I think DoorDash is going to be anywhere near that big. I know we're looking at numbers in the future and Walmart and Amazon will be larger at that point in time for sure. So will Apple. Maybe Apple will be at $500 billion. I mean, but DoorDash, come on, right? Let's look at the implied NOPAT. $22.5 billion. Where does that rank? $22.5 billion would rank them at 18. Bigger than Walmart, bigger than Walmart, AT&T, Visa, Verizon, close to all that. I get it, we're talking about the future. Yes, I'm— DoorDash expensive, crazy expensive. Please, people, don't walk, run from this stock. All right, let's take a couple of requests here. First. All right, we got a tie between 2 folks, so we'll go, we'll go DGX. DGX. Quest Diagnostics, neutral rating. Yeah, you know, look, I, we design, I designed my system, really the rating system, to, to, to help us find the fat tail. So very attractive is like, that's really good, you know, as we can see evidence by the index based on it. Very unattractive, that's really bad, right? So you want to kind of, you know, because shorting is tough. So you need to like really, you want those things in the extremes to be really, really, really big or really, really extreme and really tradable. This is a lot of neutral. And that's honestly because I believe that the market is generally efficient. There are for sure pockets of inefficiency. Sometimes those pockets are larger than others. But most of the time it's going to be generally right. So, you know, Crest Diagnostics, Neutral rating. Neutral rating means like, you know, it's a meh stock. Like, I, I wouldn't buy it. No. Hold it? Maybe if I have a good confidence that economics of the business are going to get better, cash flows are going to get better. Otherwise, ah, don't mess with it. Nothing too sexy or exciting there. There's better fish in the sea. Better fish in the sea. We see it's suspended. Uh, recently got upgraded from unattractive for better profitability. But it just did a big acquisition here, or has one pending. So we won't— we need to, we need to wait and see what the financials look like post-acquisition before we can be as confident in that rating as we, as we normally are. All right, Oracle. This was a long idea for us for a while, maybe in a focus list stock. Did really well. Strong economics, expensive stock, popular stock, you know, getting some AI hype. I think Larry Ellison's super smart. I wouldn't bet against him. Done really well for a long time. I remember seeing him speak back around the tech bubble. Knows what he's doing. Pretty very impressive guy. Very impressive guy. Yeah, but stock's expensive. Like there's too much here. Like too much already priced in. 400% improvement in NOPAT, right? So if we were to do a DCF model now, we'd probably see like a really really ridiculously high implied NOPAT on something like that. Okay, got time for one more, and then I gotta— I think we got one good question in here that I haven't gotten to yet. PGR, aggressive. How about that? Attractive. How about an attractive-rated stock? Nice and profitable. Look, we found the financials looking pretty good these days. We go to our sector ratings and do that for a second. Financials are near the top. I see a lot of change in those rankings. here as we get new data in. But yeah, this is— this is— this doesn't look bad. I mean, it's, you know, I'd like to see something a little more cheap, but it gets an attractive rating. Not very attractive, but attractive. Strong economics, decent valuation, not terrible. I mean, let me see. I bet Progressive has probably been a great performer this year because we've seen a lot of these. Yeah, up 19% versus the market down 4 or 5%. Yeah, we've, we've, we've been hinting at stocks like this as part of our special stock bundle, Tariff-Proof Stocks. If you haven't taken a look at that, you probably want to take a look at that. That's a special bundle we put together. All of our special bundles, I believe, have performed really well. So that's when, you know, you get the insights from us who we live and breathe the system every day, and we pull out what we think is best. So Progressive Best stock we looked at today. Best stock, only attractive rated stock we looked at today. All right, well, thanks very much everybody for joining me today. And the question, big question we got here is, is there value in the market right now, or should we still hold back some cash in reserve for better value, possibly having FOMO symptoms? Look, there's value in pockets, and we talk about that all the time in our trainings. And our special bundles, we sell those picks to people. We go in, we find where the value is. That's the benefit of a system as good as ours looking at thousands of stocks. We can always find value almost in every market. And so, yes, there is. Is it increasingly hard to find? Yes. Is it increasingly dangerous that you're going to maybe misperceive something as having value when it doesn't because it's super expensive? Yeah, that's where the P/E multiple and all that. That's a very, very dangerous metric to use because that E, that one point, that one point in time E is clearly nothing close to the future cash flows. As I showed you with these models, we, we showed you in terms of the implied cash flow expectations, that future E just only captures a drop in the bucket of the future performance required to justify the price. So there's a lot of dangerous stocks out there. That's why we created the Zombie Stock List. That's why we've updated it recently. You go to our website, you get that stock list for free. You can also get a free rating on any one stock of your choice, all on our website. Why do we do this? Why do I do these earnings watches? Because we have the best research in the world and I want more people to know about it, and I'm happy to show it to you. And I think you deserve to get some of the research for free before you step up and pay for it. And that's why we do these watches. That's why we give you a free, a free rating. Do one stock. Don't abuse the system. Please, and taking the free ratings and free reports. But yeah, we're the best. And if you want to find the best stocks consistently, find the best stocks, New Constructs can do that better than anyone else in the world. All right, I've got another one of these tomorrow. I believe tomorrow we are going at— I'm going to be going at 12 Eastern. Another earnings watch is going to be part of our regular monthly webinar. So we'll be talking about some other stuff as well. during that time, but we'll do an earnings watch also. Thanks for being with me. Please leave me some feedback on the survey, and I'll look forward to seeing you tomorrow.