Newsletter IV
Recapping a Week in the Markets: Aug. 07 - 11
Week Recap
News
A Few More Earnings
Several companies in the Hourglass portfolio reported earnings this week, including Palantir, Duolingo, WSP, The Trade Desk, and Brookfield Corp. Results were mostly positive, though several companies (TTD, PLTR) slumped despite strong results.
Duolingo continues to crush the game, reporting very strong YoY growth in all of their key metrics, and WSP continues to deliver strong results quarter after quarter without much recognition from investors. Business as usual for Brookfield Corp as well, which got a nice share boost after reporting earnings. Finally, Palantir posted great profitability metrics, but took a significant dive due to continued slowdown in revenue growth (despite being extremely richly valued on an EV/Sales ratio). I still largely see this as an uninvestable name at current prices, so I wasn’t totally surprised to see it fall - that is frequently the problem with businesses that are priced to perfection, and then fail to live up to ridiculous expectations. My long-term thesis remains unchanged.
A Strange Week
Stocks were all over the place this week over concerns that Fed policy will remain tightly bound over the coming months to ensure a soft landing and that inflation doesn’t begin to climb again. U.S. CPI data from July was released, reporting its lowest back-to-back rise in two years, and giving some investors encouragement about the general state of the economy.
Nonetheless, stocks were all over the place as investors took a slow jog from risk to safety, resulting in declines from both the S&P and Nasdaq Composite. But you know what they say about blood in the streets…
Continued Climate Gloom
Heat waves, strange weather, and natural disasters continue to hit around the world, most notably in Hawaii this time. Never one to waste an opportunity, I will once again reiterate my bullishness on stocks that can alleviate the risks of natural disasters and heat effects over the coming decade, as well as those that can help to rebuild from climate disasters. These kind of companies will continue to play a huge role in repairing the damage done to places torn by natural disasters and mitigating the damage done through climate change.
Weekly Read
The Charisma Myth
“One of the main reasons we’re so affected by our negative thoughts is that we think our mind has an accurate grasp on reality, and that its conclusions are generally valid. This, however, is a fallacy. Our mind’s view of reality can be, and often is, completely distorted.”
The Charisma Myth is all about human psychology, and dispelling the myth that charismatic people are born, rather than made or taught. Author Olivia Fox Cabane focuses on providing tips, tricks, and visualization methods for resounding social success. Since reading The Charisma Myth, I doubt if there’s been a single day that I haven’t used one of the methods that Cabane teaches.
Beyond teaching readers to find external success for professional and personal relationships, she also provides even more invaluable strategies for conquering the inner self, for removing self-doubt and unlocking the charisma that lies somewhere in all of us. Many of the tricks that lie at the foundation of unlocking inner charisma are great tools for investors as well. Psychology books can be great reads for investors seeking to understand themselves, their decisions, and wider market trends, and The Charisma Myth is no exception.
I can’t recommend this read enough, it should be placed up there among the all-time great books for learning to be an all-around better person. I actually found this book in one of the Little Libraries that are likely sitting around your neighbourhood. I pilfer these frequently - it’s mind-blowing to me the books that people get rid of, especially ones like this. The Charisma Myth sits at the top of my bookshelf with my favourite reads of all time and the books that are likely to be re-read time and time again.
Investor Spotlight
Yegor - “From $100K to $1M”
I’m not sure that this week’s featured investor needs an introduction, but I’ll give him one anyways.
From $100K to $1M is one of the few investing series that I think every investor should be following. Yegor provides monthly updates on his own portfolio and his mission to achieve $1m in assets, as well as short- and long-form content diving into some of the very unique companies that he follows and/or is invested in. He is a very transparent investor, explaining the reasoning behind his portfolio adds, drops, and changes - readers are treated not only to his incredible eye for strong fundamentals and competitive advantages in the businesses he invests in, but also to his research process and the way he thinks about his portfolio.
Everyone, from beginners to experienced investing vets, can learn something from Yegor, his researching methods, and his investing framework. If all that wasn’t enough, his ‘$100K to $1M’ series also provides Bi-Weekly Munchies (BWM) issues, where he compiles a ton of great resources from other series, podcasts, and authors on a range of investing and related topics. The BWM issues are how Yegor and I initially connected, and I have been super busy since on reading through the gold mine of information he provided.
Yegor, thank you for all your work! If for some strange reason you aren’t following ‘From $100K to $1M’ already, then you can find his updates and insights on Twitter, Instagram, Commonstock, and LinkedIn, as well as his main series here on Substack!
This Week’s Watchlist
XPEL 0.00%↑ - XPEL
Beautiful. Absolutely beautiful. XPEL has a beautiful balance sheet, especially for a company sitting right around the $2bn market cap range. This is because they have grown very organically from a small and niche business, and only started to really catch investor’s eyes in 2021. This has led to it being very richly valued on earnings and sales front, but the quality of the business and the bran that they have built at XPEL may warrant the valuation.
XPEL’s business primarily centers around protective films for cars, which help to protect from rock chips and other wear & tear. While they have some installation centers of their own, the majority of their revenues come from selling their products to independent installers or to new car dealerships, which then house XPEL’s labour (reducing rent costs to have only their own facilities) and re-sell to end consumers. That makes up the majority of their revenues, making the business model fairly light on expenses - the last chunk of revenues is made up by their own installation and dealership centers, international distributors, and selling directly to original equipment manufacturing (OEM) facilities.
Beyond their paint protection film, they also offer hydrophobic finishes and window films for vehicles, allowing for additional revenues to be recognized at already-established dealer partnerships. More recently, they have expanded to non-automotive markets, including anti-microbial films, surface protection films (phones, stainless steel, countertops, etc.), and home & office windows to regulate sunlight or provide additional security. The latter is a huge market, and if they’re successful in expanding their brand recognition into this space, it could be a huge tailwind for them - particularly as many regions are increasingly warming up and seeking cooling effects for their residences/working spaces that don’t require additional electrical costs.
Despite being a manufacturer of a product, a space that I’m normally very wary of, XPEL’s brand recognition, which sees significant brand presence across the globe (though mostly concentrated in North America/Europe) has allowed them to continuously improve gross & EBITDA margins, a trend that hasn’t slowed down with their most recently quarterly announcement:
There’s a lot to like about XPEL’s business model and fortress-like balance sheet (for a smaller company), as well as its future growth potential. It also fits within a new trend for my portfolio, where I’m making a more concerted effort to focus on boring businesses operating outside the glaring spotlight of most investors. The only factor that scares me a bit here is the valuation, and I will be running a DCF on the business before I make any final decisions to invest. However, looking at the growth in the earnings per share relative to the current price (PEG ratio) tells a slightly more encouraging story - the PEG ratio sits at 1.5x, suggesting that for the growth in XPEL’s earnings doesn’t make it very overvalued (though not exactly a value play either). Given the potential of their window tinting business and their low penetration into the global TAM for their automotive products, I’m leaning more towards this being a fair price to pay for XPEL 0.00%↑.
What’s New at Hourglass
Podcast - Episode IV
This week’s episode is throwing it back to Planet Labs, which I covered in a deep dive article almost a month ago. Now in audio form, I try my best to stay brief while covering the business model, industry and TAM, and management team at Planet to give listeners a general overview of the investment opportunity in PL 0.00%↑. Give it a listen here on our Substack, or find us wherever you get your podcasts!
Unity Software Article
U 0.00%↑ is a company providing an end-to-end platform for 3D creators, from games to films, and now for workspaces as well. They are targeting some massive markets with significant tailwinds, and operate with limited competition in an exciting space. They have continued to improve their balance sheet, especially with an increased focus on efficiency over the last year, but management remains a gigantic question mark for the business. As for investing, there are several red flags that have to be addressed in the business to boost shares back to previous highs of nearly $200/share and give investors confidence - despite this, it is still very richly valued, another potential hamper on future growth. Read more about Unity Software here.
Thank you for the “Spotlight”