Watch our Earnings Recap on Zoom, Diamondback Energy, Dominos, Owens Corning, Hims & Hers, & Groupon

Hello everybody, thanks for joining me. Let's get started. Today we are covering Zoom Communications, Domino's Pizza, the original golden metric stock in our Super Stock Bundle strategy, Hims and Hers Health, Owens Corning, Diamondback Energy, and Groupon. Let's start with one of the most exciting stocks of the last couple of days. Let's go with, uh, let's talk about Hims. I say exciting because it's down 40% in the last 5 days. And, and why is that? Well, earnings came in and looming curbs on drug compounding cloud forecasts. So it looks like their business model is threatened. But I can tell you, we saw issues with Hims long before this. It gets a neutral rating, but the valuation is really, really extended. So we're getting a pretty good set of quality of earnings. We like to see positive economic earnings. Those of you who were on our last training, the golden metric for the golden era of investing, know that we really like it even more when economic earnings are greater than accounting earnings. That's a super, super great signal. And if you're interested in that, let me know because we've got a special group of stocks based on that signal that we've just talked about. That signal has worked in prior stock bundles and we think it's going to work again because it's just so rare. But the real issue here is, and you've heard me say this a lot if you've been on these other earnings watch parties, good company, bad stock, super, super expensive valuation. Quick take a look at the credit rating here too. Interesting to see here the free cash flow. To debt is not so good. So maybe we take a hold on going to the valuation. Let's look a little more at the rating breakdown. Accounting earnings going up faster than economic earnings—that's not great. Return on capital on the way up kind of makes sense. It's an emerging business model; it's getting better and better. We like to see things moving in that way, in that direction. But it looks like free cash flow has been consistently negative, and we're seeing a pretty big disconnect. I'm imagining between the economic book value, which is. You know, close to zero. It's not terrible, but the stock price has really taken off. And so what you're seeing here is that the valuation is just getting way ahead of itself. As one of our pro customers pointed out, he did a trade on the strong miss here, and I think that worked out extremely well. I think you actually posted that in the community. This was a really good short for, for I think one of our clients here. Screaming overvaluation. So when the miss happened, it was going to get crushed, and and that's exactly what happened. And let us let us explain here what this means. Like when you're getting in the orange and red, especially red here for market implied gap, how crazy is the valuation? So we've got a couple scenarios here. Let's go in and see what we had in here for optimistic. So consensus estimates are for some really high growth rates going out in the future. And we put in some really high margins for these guys. This is like Facebook, Google, super high return on capital companies for the optimistic scenario. And that scenario doesn't yield a price above $20 or so, but we got to get up to $50. So that's interesting. So we're going to make this optimistic scenario even more optimistic. We're going to put in 50%, 50%, about 20%, 20%, 20%, and 10% for 15 years. Let's go 25. 25, 25. That's too high a margin for a business that's potentially going to be shut down by regulation anyway. So let's, let's run the scenario and see what that means or implies for valuation. Got a lot of votes in here for stocks. Keep those coming. All right. Optimistic. Okay. So now in 36 years, we do get to the current stock price. That implies an 11.5% compounded annual growth rate in revenue. While return on capital versus cost of capital spread rises from -20% to positive 317%. That's the average over the whole timeframe. So as you all know, we can benchmark this to the S&P and also get a sense of what this number means. So we'll go down here, we'll take a look at what is the revenue number here actually? What do they have to get to? That's $44. $44.5 billion. That would rank them in the S&P— are we sorting by revenue here? We are. So $44.5 billion in revenue would rank 87th in the S&P 500. That would be up there with Coca-Cola, Bristol-Myers. Big number, big number, really big number for what is a very small company at this point in time. So that's a really high expectation. And then at the same time going to see return on invested capital improving to 467%. I can tell you right now that that's the— probably that's 1 or 2 in the entire S&P 500. We will sort this by return on invested capital. We can see the largest is 415%. So they'd have the highest return on invested capital, the 86th highest revenue. That's pretty impressive. Level of performance. And that's why when a stock like this has an issue, you're going to see it get crushed by, you know, 40% plus or worse, come way down. I don't know how much of a moat this business has. They're doing a good job selling certain drugs, but like, they're not creating the drugs, they're just reselling other stuff that people sell. So I'm not really sure how, you know, it's popular, they did a good job. I'm not sure how big a deal or how good that is, how special it is. So A lot of downside here remains. So it's had an earnings distortion, a strong miss. Let's take a look at, at how different you can see. Yeah, earnings just diverging from accounting earnings. And let's see if we can get some details on that. Let's look at the GAAP reconciliation. Hidden items of $2.4 million, reported items $8.7 million. But ultimately, let's see, these are the gains we're pulling out. These are non-operating expenses we're pulling out. The big adjustment for taxes to reduce, but you're seeing a big difference between GAAP net income and NOPAT, which means probably even bigger difference between GAAP net income and core earnings. Let's see, core earnings and GAAP earnings. Well, it's reported GAAP earnings of 101, and core earnings is just 45. So yeah, these guys, they went on a run here, and it looks like they messed with their. Taxes a bit, so that difference is going to drive it. If we wanted to actually go into more details into where these adjustments come from, as an acquisition and related costs, we're pulling out other hidden items, impairments of long-lived assets, we're pulling out, and then this is the other income that I was mentioning before. That's in the most recent 2024 Q3 filing. We go back over time, we can see. More differences, etc. Here's the income statement. So you can see here in the income statement where we're finding the big other net income. This item we don't believe to be representative of the real profits of the business. So that's Hims. All right, we spent a lot of time on Hims. Let's go into Zoom. What happened with Zoom? Well, so Zoom down 8% today. 12% the last couple days. They beat the estimates, top estimates on enterprise growth. Dow forecasts as demand slows. That's the issue. So look, when stocks are priced like what we're going to see here with Zoom— again, good company, bad stock, here we are expensive— when companies miss, it's going to be a problem. You're going to see a lot of downside. And, and when I say miss, as we show here, I miss— I mean either in the current number or in the forecasted number. Because when we've got core earnings diverging from GAAP earnings, as we see here, that just means there's a higher probability of a miss, either one that they're going to admit is going to happen in the future or has already happened. Both count. So this was one, if you were using earnings distortion, doing an earnings distortion trade, you could do it on this one as well. But for Zoom, the big takeaway here is high-quality business. Positive economic earnings, not, not economic earnings greater than accounting earnings, but still pretty good. And a very expensive valuation. So that's the, that's the kind of stuff you need to avoid. I am going to drop a link here into the chat for everybody who might be interested in our Super Stock Bundle 2.0. When I was talking about economic earnings versus accounting earnings, one of the original stocks that we found with this special set of characteristics was Domino's. It was one of the original super stocks. It was before we created the bundle, but it was just something that we noticed in working with certain clients and partners. It first came up, I think, from a conversation I had with John Rotanti. He used to be at The Motley Fool. He's like, David, you know, how many companies have economic earnings greater than accounting earnings? Not many. John, it's something I see really rarely. Only seen it a couple times, Accenture and Domino's, and those are some big picks for us. He's like, yeah, you should look for more of those. And I was like, you know, that's a good idea. And Domino's was one that we've written on a lot in the past. You can see we had it open for about— this position open for a little over 2 years. And I'll admit, it was a focusless stock. It did great, and we closed it. Why? Well, great company, but it became a bad stock. Now it's at 60 years. Right? Not 100. And this is orange, not red, but it is still red here. So it's, it's, they got, it got really expensive. It got too expensive. Even though it's got a really high return on capital. And again, economic earnings greater than accounting earnings. This is one of the few charts that we ever see where the blue line is above the red line. That's really good. That's a really good thing. In fact, what we have found is that when the blue line gets above the red line, Almost all stocks that also have a very attractive or attractive rating perform extremely well over the next year from the point where the economic earnings exceed the accounting earnings. And that link I dropped into the chat, that's a link to a training that explains all this. The last time we did this deal, it went really well. The Super Stock Bundle 1.0, those stocks meaningfully outperformed. Some of the stocks were up 60%, 50%, 70%. So good stuff. But Domino's, good company, bad stock. What happened to Domino's this week when their earnings came out? So up today, last 5 days down, still down. So yesterday was a bad day, bad day for the stock. It's bounced back. So what makes Domino's different from the other stocks we talked about? Hims and Zoom, both good stocks, both good companies. Bad stocks. Well, they were a little more expensive, but the thing they didn't have is economic earnings greater than accounting earnings. That's a super business model. Like I said, it took someone else asking me about it. Like, I even dismissed the idea of like creating a special bundle over this idea in the beginning because I just knew it was so rare. But we went back and looked. We covered 6,000 stocks, actively traded companies, not actively traded companies. It's a lot of data in our system. We actually found there's a fair number of them. Not a ton, right? Never more than like a dozen or so at a time. But they are golden. They are golden. So Domino's is a stock that we've liked. It got too expensive and performance sort of, you know, what I would say to be expected from a great stock, up 12% for the year. I think that's what, around where the S&P 500? How does that compare to the S&P? It's outperforming the S&P 500 this year, so it's still done pretty darn well. Well, actually, see, Domino's over the last year has not done as great while the S&P 500 has done well, so it's been done more lately. Yeah, one of our, one of our attendees has said that Berkshire's been buying, so, well, that'll help. That'll help a lot. It's something that Berkshire got into. See, Warren Buffett is on the same page as me. He just doesn't see it as fast because Because he's still reading the filings manually. Hey, he can read them better than anybody else. He still can't read them as fast as a machine. I do remember hearing about that, and I think actually Rotanti was telling me about it because we talked about it, and I told him we were going to close it because we just thought it was too expensive. I think Rotanti's still bullish. Don't let me speak for him, but he's still bullish on it. High return on capital. But yeah, I'm telling you, the growth expectations in this stock are pretty high. These were the numbers we were looking at before for Hims Hers for core earnings versus cap net income. But back to the reverse DCF, let's see here. Oh, default and optimistic, they're almost exactly the same. So what you're seeing here is a lot of growth over a long period of time. It's interesting. Why would I create an optimistic scenario? So I just want a slightly higher margin because we were actually trying to figure out how to stay bullish on DPZ. This is exactly what we were doing, like for the focus list. Kyle and I were going through this and we put in higher growth rates. than expected. We put in a higher margin, a little bit lower tax rate. So like our NOPAT margin was about 200 basis points above sort of what it's been in the past. Kind of give them a best-case scenario here for Domino's. And we put it in and we're like, that's 60 years of best-case scenario. It's time to back off. There are too many other good stocks in our system, like the Golden Stocks or the Super Stock Bundle. Too many other fish in the sea. And that's the beauty of our database. We don't have to be so beholden. And I hear you, I hear you, Mr. Buffett, you're the greatest investor of all time. I've learned a lot from you. I've studied your work for a long time, but it's an expensive stock. And even here you see, if we ramp up the growth rate to the 10%, almost double what's expected over the next 10 years, and we're still seeing significant margin expansion and return on capital expansion, It still takes a lot, a lot of growth over a significant amount of time. And I really think that is very aggressive. This is very aggressive. Look, 10%, like they haven't done this well since COVID when nobody went out. So it's like, it's, it's a great business model. Don't get me wrong. It's crowded trade. It's crowded business. I don't know how much more upside they have, how many, how much more efficiency they can pull out of this. Don't get me wrong, love the product. Been eating it since I was a kid. Some of my greatest memories with my neighborhood friend, he lived up the street. We go to his house all the time because his mom bought him like the Nintendo when it first came out. We were playing Mario Brothers before anybody. He had all the cable channels and his mom orders pizzas all the time. It was heaven. So good times. Love Domino's Pizza. Very fond memories. All right. Owens Corning. This is a stock that has remained on our focus list. It's also one where we had to go into the model because it has performed so well. We had to go in the model and say, okay, what can we reasonably put in here to still give us some upside? And we found it. Not surprisingly, you see the gap is low here, so there's still some upside. Free cash flow, not great. That's all right. Free cash flow could be lumpy. But we're seeing a decent business, good economic earnings, accounting earnings. Decent return on invested capital, a cheap valuation. So this remains in our focus list. What happened with earnings for Owens Corning? I believe I looked at these guys down a fair amount, down a good amount over the— wow, year to date, tough performer, down. So not a lot of news on these guys, and that's the case with most of our focus list stocks. These are not things that people are talking about. In a big way oftentimes. And so, you know, we're out there, we're looking in places other people aren't looking. We're— no, I don't believe in the crowded trade. I don't think that adds a lot of value. I'm not going to try to give you just junk that everyone else has. But looks like a lot of other people find it a buy. Let's see, news on its growth beats top line and bottom line estimates, initiates positive outlook. So I guess the outlook wasn't great, but Or maybe it's just down in sympathy. Maybe the materials and the tariffs and all that. We'll see. Look, what's for sure going to happen is as the market corrects here, in the same ways that Owens Corning was overlooked as a great stock for a long time, it's going to be overly punished. And also, as a good friend of mine who's in the hedge fund business for a long time, very smart hedge fund client we had, I'll never forget, he goes, David, when the market's going down, the beta is 1. Everything goes down. Everything gets crushed. The question is what comes back the quickest? All right, let's look at Diamondback Energy. Who knows what our number one ranked sector is at new constructs? Any guesses? I'll show you sectors. Energy. Oh, whoa! It changed. Ah, that's what I was going to say, DL. If you were on a call just last week, you'd have seen that energy was number one. Not anymore. This is changing a lot. It's like changing every day. We're parsing like, guys, we're parsing like hundreds of new 10-Ks every week. I think we just did even just 100 today. That's a light day for us. And so financials are changing in the biggest way. The annual report is the biggest amount of financial information we're going to get. So energy dropped to 2. Consumer cyclicals is now number 1. Surprising. Interesting. And, but if we look at energy as a sector, you can see what the overall sector rating is. FANG is in that sector, but it gets a, it's not one of our favorite stocks. It's a pretty decent business, but not great otherwise. Now, I would say of all the valuation metrics, this one in our backtesting and another stock bundle we called Alpha Stock Bundle, we found that this market implied growth appreciation period metric is like probably the most important valuation metric. So that's interesting. But you know, Fang not looking good these days. What was the news on these guys? Strong results and increases dividend. So Fang would be a stock that I think we could potentially dig into a little bit more. I think that just being bullish on the sector in general, and you can see why. Look at this stock up and down, up and down. It's a lot. Oftentimes the case with a lot of these. Economic earnings are steady. Return on invested capital down here recently. I know we've seen oil prices slump a little bit, but I think we're in a world where the demand and reliability of oil, especially US oil, is going to only get stronger. I think that our energy independence is a strength, and I think that's something that we're going to press on as a society. And that— think that's very bullish. So free cash flow really dropped. Oh, I think they did a big acquisition here recently. That's what's going on. That's what that would tell us is a big acquisition. Yeah, yeah, that's why it's suspended. Doi. Sorry about that, folks. I should have seen that coming sooner. But yeah, suspended rating cards cause large acquisition. What that really means is like the financials are going to change a lot. We're going to see a big probably dip in return on capital and dip in margins. Dip in everything is just they've got a lot of expenses. that are going to be added in. We'll see. Sometimes they can be immediately accretive to return on capital, but usually not. Let's see, what is, what is that $33 billion free cash flow? How does that relate to overall? That's going to be a big number. They've also had a lot of write-downs. You had $6 billion in write-downs over the years. That's 15% of invested capital. Not a good number. Let's see, invested capital already up a bunch. So we can see there, average invested capital not up as much. Because all that capital hit at the end of the year. So you can see this is a time-weighted average invested capital. So we make sure that we don't penalize the business's measure, our measure of return on capital, for all of the capital if it was, if it was put on the books at the very end of the year, because they only get the revenue and income from the business for the amount of time the business was closed. So if they close on December 1st, they get 1 month of income and revenue. That means we only put 1 month of capital in the capital base, where we divide the capital added by a 12th and put that on there. That's the— that's how part of— it's one of the many ways we make our return on invested capital correct and why we do it better than anyone else, better than anyone else in the world. I see another hand is raised. Please put your questions into the chat or the Q&A. All right, we are running out of time here, so let's— we'll What's left on the list? Groupon. So this has been a long fan favorite. Hey, I've been a long hater. This is back in 2015. We pointed out Groupon was a disaster waiting to happen. And let's see, I believe we were right. Let's take a look at Groupon here. I know we were right while we had the position open. Yeah, 2015. Since then, it's down like, yeah, 90%. So yeah, not a great business model. Never has been. What's happening here recently? Down another 10%. One day, down 1%. One month, it's up. Year to date, down a little. Kind of all over the place. So reporting a loss. Yeah, I don't know if this business is ever going to be any good. This is something we potentially even consider as a zombie stock. Let's see how much free cash, how bad the free cash flow is. Free cash flow. So they're losing around, let's just call it an average of $220, like $100 million a year. How does that compare to cash on the books? Let's see here. Go to the more depth filings. Balance sheet. Yeah, they got less than 2 years of cash on the books. Interesting. Interesting. Group bond would fit. Yeah, but negative free cash flow, negative return on capital, strong miss. And guess what? Weak internal controls. Weak internal controls. That's a huge red flag, my friends. Huge red flag. You know what that means? That means the accountant said, oh, by the way, we did your financials this year. And yeah, client. Who pays us, and we don't want to lose because how we make our money, we feel compelled to publicly state that we don't trust the numbers you gave us. So bad sign. All this red, strong miss. I would not walk, I would run from this stock. Credit rating doesn't look any better either. All right, we are out of time, but I'm going to take a couple requests. Whoever put their request in first gets the win. Early bird gets the worm. Let's go with LPG. This is a stock that we've looked at pretty closely as a long idea. It looks really cheap. I believe this is an energy sector. That's pretty obvious. I think this is a liquefied natural gas business, isn't it? Liquefied petroleum gas. Yep. Owner of operating very large gas carriers. So this is something, you know, it's hard not to be bullish on these folks. I mean, because liquefied gas is the cleanest form of fossil energy. It's used a lot in Europe. They don't make their own. You know, a lot of issues, a lot of potential reasons why this would be, you know, in demand. But yes, and I think that's a good business to be in. And it's trading as if its profits will permanently decline by 60%. That's some really good risk-reward. Strong economic earnings, Coming down, but this is a good example. Return on capital can come down, earnings can come down a lot, and still this stock is cheap. Free cash flow crushing it. Look at this yield, 20, 16%. Impressive. In the 20s and the high teens. Anything over 10% free cash flow yield is great. That was something when we were running our hedge fund, that was one of our favorite metrics, 10% free cash flow yield. Price to economic book value, this range is getting more narrow. So that's not good because you— when the economic book value is above the stock, that's a good thing because that means the stock is implying economic book value will come down. And when your economic book value is almost 3 times the stock price, you've got a lot of upside. Got a lot of upside. And again, this comes back to my general comments about the energy sector and being bullish on those. Okay, folks. Well, thanks so much. We got another one of these tomorrow. Thursday and Friday. All of them are going to be at 4 PM Eastern. Bring your requests and we will crank out some more earnings. Hope you guys enjoy learning the truth about profitability, valuation, and all these stocks. We're having a good time doing them. Thank you.