Watch our Earnings Recap on Walmart, Carvana, Garmin, Wingstop, and Trimble

Hello everybody, thanks so much for joining me. I'm going to also share my screen here. We'll get going and we'll talk about the earnings watch stocks today. You guys can see I'm going to put together a portfolio For what we're talking about, so we can analyze everything quickly. These are the four stocks. Create new portfolio, and then I'm going to come in here and the screen refresh, and then we'll grab those stocks in the portfolio. These four, and then here you can see it's really easy to add stocks to a portfolio. New constructs. Those are the four we're talking about today. So all suspended ratings. Let's take these in order of market cap. Carvana, as you guys probably know, this is one of my favorites. Haha, favorite stocks to dislike. Look, this has been in our short model portfolio for a long time. We're expecting a new 10-K. Who knows? It'll probably be late. These guys have got some very shady accounting and related party transactions going on. We've been negative on the stock for a long time. Let's take a quick look at what's happened these days. I think someone sent me a note that. Yeah, stocks getting crushed here recently. Um, no surprise to us at all. Believe that they beat on the top and bottom line but drops on guidance. So when we're looking at Carvana, we're not surprised to see that. We see earnings distortion score mix or miss, so that means they've been overstating their earnings. You can see that here. Accounting earnings up, economic earnings— notice there's no noise here. Right? Much flatter for core earnings. Not surprised to see that at all. And we open a model on Carvana. What you see is sort of an extremely expensive stock. You guys have seen me do this a bunch where we reverse engineer the, the cash flows required to justify the price. But look, this is a weak business, expensive stock, bad news. Let me see here. Let's take a look. But they've got some— yeah, huge amount of debt they've been piling up. I think a lot of this is maybe convertible debt provided by hedge funds who play a game where they let the stock get crushed because this— because the company's about to go out of business and go bankrupt because they're hemorrhaging cash. And then they go and buy a bunch of convertible debt and they convert all that debt at a super cheap price because again, the stock was about to— the company's about to go bankrupt and they sell the stock at a super high price and they rinse and repeat. So I don't know for how long people are going to be tolerant or willing to do that for Carvana. But this is a business that categorically looks very unprofitable to us and always has. You can see margins are here better here recently, but free cash flow been really highly negative. We see a little free cash flow coming in here recently, but way less free cash flow generated than what has been burned. And as we wrote in our original report on, on Carvana, which you can get here Shoot, we got the whole list of them here. Uh, this is also a zombie stock. Like, we think this thing is going to go to zero. Fortune has highlighted our call. Zombie stock. Yeah, it was zombie stock number 1. And really the issue is the competitive position. This is what the stock has to do to justify the price. So another way to think about that— an optimistic scenario here. Gosh, my optimistic scenario that I created a while ago Doesn't even work anymore. So optimistic. So neutrals, even default. Okay, default, it's going to go up. Let's go. Let's say neutral says margins go way higher. CarMax margins aren't even this high. 5% is a high margin. Let's go optimistic. Let's say they got to do 30% for the next 5 years, then it drops down to 15%. Let's save that off, see what that does. But for those of you that are not, not aware, what this line plots is the implied values. This is for a different company, mind you, but the implied values over a 100-year DCF model. So when we're looking at Carvana, what we're seeing with this optimistic scenario is that even over 100 years with that 30% growth in the first few years, We can't get to a stock price that's even close to the cursor. We're only getting to $100. So, let's jack it up even more. Let's go 50/50/50, 30/30. Let's go 30% for 15 years, 20% for 20 years, 20% for 25 years. See if that does it. Your point is here, you're talking about a super amount of growth in a business that's just not growing that much, my friends, like the used car business. And it's not like Carvana is going to take a bunch of share. Buying a car online, everybody does it now. You got cars.com, you've got CarMax. Everybody can do the online thing. And let me tell you, the vending machine is not that big a deal. I bought a car from, from Carvana. It's, you know, it's nice. Okay, 50. It's got to go at 35% compounded annually for 12 years. That would put revenue At $386 billion, and I've got a model here that looks at the S&P. We can say where does $386 billion rank in revenue for the entire S&P 500? That puts it in like the top six companies. So Carvana is going to like generate revenue more than Google and Exxon, while also having a return on invested capital. of— look at the skyrocket here, by the way. Return on capital is going to skyrocket to 210%. I, I tell you that that's actually also higher than, than any— here's the return on capital for all the top revenue companies. Nothing gets close to 210% until Nvidia at 206%. But it's— but, but Nvidia's total revenue is only $113 billion. So Carvana is basically priced to be more profitable And bigger than even Nvidia. All right, case closed. What's our next stock? By the way, get your questions in here sooner rather than later. I do love questions and chat in the Q&A. Um, get that out there for me to see, folks. If you got any questions about Carvana, let me know, right? You think that's a good stock? Watch out. Like, I don't care how good you think that business is. The valuation, preposterous. There's no way to justify that. All right, let's take a look at Garmin. Neutral rating. Good company, bad stock. We see this a lot, folks. Look, we love the economic earnings here, and we actually just talked about in my most recent training, just like got off this about 30, 40 minutes ago, economic earnings is an extremely strong indicator. Extremely strong indicator. When economic earnings are greater than accounting earnings, Bing, bing, bing. We rarely see it. It's like a dozen companies in the entire database that have this. And when we see that and at an attractive or very attractive rating, we've seen those stocks perform extremely well. The problem with this one though is that— is it's a good company. Now economic earnings are not greater than accounting earnings, but then the valuation expensive. Not as expensive as what we saw with Carvana. Right, which had a negative economic book value ratio because the no-growth value of Carvana is zero, is, is negative, right? The economic book value of Carvana is negative, uh, but all you still got a greater than 100-year market implied competitive advantage period or growth appreciation period. That's a big number. That's a big number, folks. So that's, that's expensive. Let's see how Garmin's doing overall. I have a Garmin watch. I like Garmin. I like it, but does the sleep stats, body battery, recovery time. I'm kind of fascinated by how like one little sensor can tell that much. But you know, it's my second one and this one's got slightly different readings. I think it's a little bit better. I'm, I'm having a harder time with the sleep score. The sleep score is not as good. I used to kind of crank out the sleep score a little bit better, but it's been giving me some bad grades. I don't like it as much, but you know, truth is truth. Return on capital headed up. That's great. Right. And that's part of why we're seeing rising economic earnings. We like that positive and rising. That's great. Return on invested capital, that's good and high. That's a great return on capital, 35% for, for an electronic, electronic maker. That's great. Margins going up, capital turns going up, free cash flow good and strong. You know, a billion of free cash flow, about that, getting better and better. Economic book value kind of coming up at stock price. Right? Economic book value is $100 a share here, but the stock price is $241 a share. So that's a big number. That's a big— it's a big increase. I'm saying I think all the good news is priced in here, right? That, you know, you know, better than Carvana because at least you got $100 in economic book value. I think if we went back and looked at Carvana, economic book value negative. Look at this. It's always been negative. It's never been a good business, my friends. It's just come, you know, and the thing is, they've also penetrated all the larger markets where they have an opportunity to scale the operation that can make it profitable. So the more they get into the smaller markets, the less profitable, the less successful the business can be. It's a gimmick stock, my friends. It's a gimmick stock. Watch out. So yeah, negative economic book value. Again, I think it's because there's a ton of debt in this business. That's not a good thing. Market value of $58.5 billion, and you've got debt of close to $7 billion, another billion in option liabilities, right? Those are all the options they put out there that, that dilute shareholder value. So watch out, watch out. All right, next we got Trimble. Very unattractive rating, $18.6 billion, strong miss. What happened with Trimble today? Trimble's Transportation and Logistics Revenue Tops $206 Million, Beats Expectations. Stock is down. Beats expectations, but I'm guessing— but since the stock is down, see, so why would a stock like Trimble, who beat top and bottom line Be down. Well, maybe because it's already super expensive. Here we're seeing the worst kind of economic earnings. Misleading trend. Economic earnings negative. Accounting earnings positive and rising. Bad news, folks. That divergence, bad news. That's why it got added to the most dangerous stocks model portfolio. And on top of that, you got an expensive valuation. On top of that, you've got weak internal controls. On top of it, we can— you know what weak internal control means? That means the auditor came out and said, oh, we're not sure we can trust the financials. We're not sure we can trust the data that our client is giving us. You know the last big company that did that? Supermicro. What happened to that stock? Then the auditor actually fired them. I'm not saying that's what's going to happen with Trimble. This is a bad sign. Right? Don't, don't walk, run from this stock. Very unattractive rating, weak internal controls, super expensive valuation, misleading trend in earnings. None of those things are good. None of those things are good. Not good at all. All right, Wingstop. I know this is a really popular one for a lot of folks. Good company, bad stock. Strong economic earnings. Economic earnings are not greater than accounting earnings. I can't emphasize enough, when economic earnings are greater than accounting earnings, Ding, ding, ding, ding. When you see that and then you see the valuation or the overall rating is attractive or very attractive, super ding, ding, ding. That's like back up the truck. Let's get into that. We did a special training just on that just a minute ago. In fact, let me give you the link to that special offer we just did in the chat. If you're interested in getting stocks that have economic earnings greater than accounting earnings and attractive or better, Rating. Get in now. It's a special offer available only today. It will not last, but we just put those stocks out today or released that new batch of Super Stock 2.0 bundle. So yeah, Wingstop, really good profitability, expensive valuation, 15.1 times. This is, this is a typical like just crowded trade, my friends. Everyone, oh, Wingstop is great, let's get into this thing. Oh, you know, it's good. Yeah, it's— everybody's there. On the other hand, our Super Stock 2.0 bundle that I just put a link into the card here for you is about stocks that nobody's talking about yet. You want to be successful in this life, you got to do things that no one else is doing. That's not chasing crowded stocks, crowded trades like Wingstop or the Mag 7. This stock is just way too expensive. All right, we got time for one more look. Let's see what— actually, let's take a quick look at Wing. Down a lot. Misses sales target, stock drops. Earnings distortion score miss. I don't want to say I told you so, but we did tell you so. Here's our credit rating. Doesn't look so good. It's neutral. Also interesting, usually a lot of times when quality of earnings is good, this good credit rating is really good, but even the credit rating is not so good on this one. That's pretty bad. Must have a lot of debt here. I wonder what's going on. It's misleading here. Wingstop credit rating looks bad. Anything there? Back to stock rating. Looks really expensive. Yeah, good company, bad stock. We're expecting to get a new 10-K for them any day now. So nothing about the 10-K is probably going to really help us much with this or even this when it's this expensive. Even if they have a huge improvement in profits, which it doesn't look like they did, it's not going to move the needle when it's 15 times. They're not going to have a 15x improvement. And it looks like they missed their sales targets. And so, you know, that's the big risk you play, you take with a Wingstop. You know, you've got accounting earnings, GAAP earnings better than economic earnings to a significant amount, enough that it gets a miss. This looks close, but the scale is off here because you've got GAAP earnings $100.78, core earnings $99.64. Yeah, I guess not that different. Earnings distortion per share. Yeah, not good enough. It's bad enough that it scores as a miss. That's not always easy to do. But yeah, this is super expensive. Nothing in the K or the Q is probably going to change this enough to make this come down. I just don't see it happening. We do a reverse DCF on Wingstop. Gosh, I got it. Oh, 14 years. Okay, so we got a super optimistic scenario in here already. They got to grow revenue at 23% compounded annually for 14 years. Let's see where that ranks. Let's go here. 14 years, 2 point— sorry, $8.5 billion in revenue is what they're expected to have. Where would that rank in the S&P 500? $8.5 billion in revenue would put them on par with Workday, Packaging Solutions, Solventum, Rockwell. People, Palo Alto Networks, Intuitive Surgical, Dover Corporation, Xylem Energy, Celadpoint, Monster Beverage. They'd be a lot bigger than Monster. Electronic Arts, bigger than all of Yum Brands. That's pretty big for one little brand, bigger than all those. That's probably our best comp in terms of like how ridiculous that number is. Interesting. All right, time for one more. Saw this one in the headlines today, so I'm kind of excited to look at this too. Walmart, they beat, uh, soft outlook. So what happened to that stock? Down a lot. What does our model say about Walmart? Good company, not such a good stock. Walmart was on our focus list at one point, but it got too expensive. It's priced, you know, we did similar work on, on Amazon where we looked at how much revenue Amazon is required to generate to justify its current stock price. We should actually look that up. Mr. Market thinks Amazon will rule the world. Here we did the diligence on what's required to justify Amazon stock price. So $239 a share, that meant 11% compound annual growth for 39 years. That would be— that would mean Amazon's revenue would be $32 trillion, which would be bigger than even what Japan's GDP is expected to be 39 years from now. So Amazon would be like the 3rd largest country in the world. $32.2 trillion is more than the US GDP in 2024. So it'd be— it's big enough to be the largest country in the world, correct, right now, while also improving return on capital from 14% to 64%. So I'm betting with Walmart, we would probably see something similar, if not even higher. Expectations for Walmart. But one of the things I do love about Walmart is economic earnings tend to be really, really solid. You see, yeah, this is what you're seeing here. Yeah, a miss. Yeah, I don't want to say I told you so, but I told you so. Typically, you know, we are predicting that, hey, things aren't as good as the company's showing. Things aren't as good as the company's showing. Things aren't as good as the company's showing, right? All of a sudden, GAAP earnings go above core earnings for the first time in a long time. Not sustainable, likely. So things weren't as good as the company was showing. Return on capital for Walmart's always been really nice and steady. Really like that's one of the things that makes this a great stock. Not a super high return on capital, but super profitable business. Margins kind of coming back up here. Capital turns always efficient. Free cash flow. I bet this baby generates free cash flow like we wouldn't believe. $20 billion, $4 billion, $13.6 billion, $30 billion— major free cash flow. But the problem is it's all priced in. Yeah, optimistic scenario doesn't even get it. I have a lot of time left here, but let's say we got— let's see, maybe it's pessimistic. I want to look at— take a look at pessimistic. So let's see if that does it. Last chance to get your questions in while we are running the model on Walmart. That's a big model. We got data going back to 1998. Here's the report on Amazon I just shared with you. You want to take a look at that? I do a deep dive. And then again, the link to our most recent special offer on stocks that have the golden metric in place. There we go. Let's see, optimistic, does it? 16 years. All right. At 7.6% compounded annually. So let's see what that means in terms of future revenue. $2 trillion in revenue. So on trillion in revenue would put Walmart, you know, around number 4 or 5 in GDP in the world. That's interesting. Kind of surprised. I think we've got pretty huge improvement in profits too. That's probably part of the deal here. Return on capital going way up. That's not going to happen. Like, this is not going to happen. We'd have to change those Estimates, because that's just not happening for Walmart. I mean, I love Walmart, but they're not going to see a 27.5% return on capital. So we need to fix that. Our margin assumption is too high. What happens with NOPAT? I mean, it kind of skyrockets. So you're seeing huge amount of growth with huge improvement in margins, probably not going to happen. So Stephen Galick, no, we're probably not going to do that, but thanks for asking. I don't know if there would be enough stocks that we could find if we added a yield as well. So what you should do is upgrade to an institutional service so you can go do that work on your own. That would be the way to roll on that one. Um, Rob, I played linebacker in college. I'm a meathead. I don't know how you know I did that in college, but yes. So yeah, that's it for our earnings watch today. Great call. We covered a bunch of good stocks. We, we crushed 4 companies and Walmart. And I appreciate you guys being with me today. The replay will be out soon, and we'll be doing some more of these next week, I'm sure. Thank you and have a great one. Thank you.