Stockchase Insights

CRUS is a fabless semiconductor company. The stock is up 20% this year; market cap is $5.3B, no dividend. It has $550M net cash and decent earnings growth. Free cash flow is high. The last quarter was good,  but estimates have been ticking downwards in the past month. There has been some recent insider buying. At 15X earnings it is priced well. We would consider it 'good' but not 'exciting'. Still, for the sector slow and steady can be attractive. 
Unlock Premium - Try 5i Free 

Momentum has been improving recently and VMD is up 10% year-to-date. Recent earnings were positive with the stock beating EPS and revenue estimates and continuing to grow positively. The stock continues to look good fundamentally with positive, growing free cash flows and a net cah balance. Its valuation at 25x forward earnings is also not bad given the strong earnings and revenue growth expected over the next few years. We think it is be worth holding as it is a fundamentally sound business in our opinion. 
Unlock Premium - Try 5i Free 

BNS continues to pay a solid dividend yield of 5.4%, and it is up 22% on a year-to-date basis, and 29% on a one-year basis. Its earnings outlook is improving, and most analyst estimates are trending higher recently. Analysts have been upping their price targets mostly on improving fundamentals under the CEO, Scott Thomson, who has revamped leadership and focused on profitability. It may see some consolidation after its recent run up, but we continue to like the name and feel that it trades at a reasonable valuation of 11.4X forward earnings.
Unlock Premium - Try 5i Free 

Corners of the Market:

2024 has been a very solid year for the equity markets due to a favourable macro backdrop of declining interest rates, a slowdown in inflation, and especially after the election results, where the markets expect Trump’s policies of putting America first can help corporate earnings over the next few years. As a result, not only broad market indices but risky asset classes, such as small-cap, high-growth stocks, cryptocurrencies, etc., have performed strongly and hit new record highs.

That being said, despite a record year where both the S&P 500 and TSX achieved double-digit returns, not all sectors performed well, and there are some corners of the market that have been under pressure. These are where investors can take advantage of their temporary “losers” by claiming capital losses for tax-loss selling, which could offset capital gains.

This strategy can be accomplished by simply selling a temporary losing name in a non-registered account, which could then be used to offset the net capital gains tax investors have on their investments. The unused amount of capital losses can be used from up to three years in the past or carried forward indefinitely. After 30 days of the sale, these holdings can be bought back if investors believe in the long-term fundamentals of these companies.

Although writing off good companies based on one year of bad performance could become a regret for many investors, some of these names that have been under pressure may continue to see underperformance over the long-term. During a bull market cycle, we think investors should respect the wisdom of the crowd. Therefore, investors need to evaluate these names for future reinvestment on a case-by-case basis.
Unlock Premium - Try 5i Free 

DHR is expensive at 28x forward earnings and it has not been able to fully recover to its all-time highs in 2021 when it traded above $330. DHR has been trading quite choppily since. It is flat year-to-date but up 11% over the last year. We do think that DHR could be a good long-term healthcare play and some of the current risks/fears due to the new US administration may be slightly overstated for healthcare stocks. 
Unlock Premium - Try 5i Free 

Average target is now $5.04. Post-earnings, Scotiabank lowered its rating from $5 to $4. At less than 9X earnings it certainly can still be called cheap. Q3 results showed EPS of 12c, beating estimates of 9.5c. Revenue of $630.7M slightly missed estimates of $639.7M. EBITDA missed estimates by 14%. Guidance was mostly inline with estimates. Q3 sales fell 8.9% and we certainly would prefer to see this trend reverse. The CC did not add a whole lot. The CEO/Board transition is ahead of plan. CTS continues to return capital to shareholders (buybacks and dividends). CTS is not seeing attractive acquisitions and prefers to buyback its stock over making a mis-priced deal. With rising cash flow conversion the balance sheet is in much better shape, with net debt less than six months of cash flow now. This 'should' help the valuation multiple over time. 
Unlock Premium - Try 5i Free 

CAE EPS of 24c beat estimates of 19c; revenue of $1.13B beat estimates of $1.08B. Backlog is now a record $18B. We have liked the stock historically, but it has had lots of execution issues. It has high market share, but we always thought it should be more profitable overall, considering its moat and duopolistic industry with really just one other serious global competitor. We would consider 25X earnings fairly priced and would prefer an exit into something more reliable. 
Unlock Premium - Try 5i Free 

Company Highlight - Revolve Group (RVLV):

Revolve Group (RVLV) is a next-generation online fashion retailer with a focus on Millennial and Gen Z consumers, primarily catering to female audiences. It mostly operates through two brands: REVOLVE and FWRD. The company has built a large, engaged audience through collaborations with influencers, and its proprietary algorithms analyze consumer behaviour to help manage its inventory. In the past few years, it has seen sluggish growth as e-commerce growth normalized and consumers returned to physical stores, and its margins also came under pressure due to inflation. However, its brand presence among the younger generations remains strong, and with inflationary pressures easing, its margins are expected to improve, helping its stock price. 

RVLV is up significantly on the year, up 107% year-to-date and 161% on a one-year basis. It is a small-cap stock ($2.4 billion market cap) and while it is not cheap (47X forward earnings multiple), its forward earnings growth is expected to average around 27%. It is profitable, but its profit margins have compressed in recent years as higher logistics and fulfillment costs and inflationary pressures have taken hold. Although, these pressures are beginning to ease, and its core Revolve segment is beginning to see a strong rebound in demand, helping future margin expectations. 

RVLV has a strong history of beating earnings estimates, and we can see its profits have begun to rebound in recent quarters. We feel that with inflationary pressures easing and the potential for lower interest rates, that RVLV can continue to benefit from a strong US economy. 
Unlock Premium - Try 5i Free 

EPS of 28c beat estimates of 17c; revenue of $282M beat estimates of $277M. EBITDA of $55M beat by 3%. Backlog is $4.6B. Revenue and EBITDA guidance was raised, and the company says it will be cash flow positive in Q4. Sales growth should be 30% with the new guidance. Higher work volumes and stronger contributions from satellite systems and robotics helped the quarter/outlook. Things continue to look good here. 
Unlock Premium - Try 5i Free 

At some point, CELH is going to become a very very attractive buy. But right now it is a falling knife, having dropped from near $100 to today's $25, in a relentless rollover. It has cash and earnings growth, but we would not yet consider it 'value' since it is still at a 37X earnings valuation. The product is good, we think, but Pepsi's de-stocking has been brutal to the company, and revenue fell 31% in the Q3. We need this to at least level out to get some confidence back. 
Unlock Premium - Try 5i Free 

EPS of $0.365 beat estimates of $0.311 and revenues of $75.0M beat estimates of $73.218M. Sales grew 19% driven by higher subscription revenue and customer retention. Adjusted EBITDA margins expanded from 9.7% for the same period in the prior year to 15.7%. Management noted advancements in its platform and scaling of its international operations as key drivers for sustainable growth. Its valuation is not cheap, trading at 39X forward earnings, but growth rates are good, and it is expecting to continue expanding its margins. We feel these were good results.
Unlock Premium - Try 5i Free 

Company Highlight - VersaBank (VBNK):

VersaBank (VBNK) is a Canadian-based, digital-only bank focused on specialized lending and deposit services. Established as one of the first fully digital banks in Canada, it operates without physical branches, leveraging technology to keep overhead costs low and streamline services for niche markets, including point-of-sale (POS) financing and commercial real estate lending. It mostly operates in Canada, but has recently expanded some services into the US. 

Its stock price has recently seen strong momentum, up 58% year-to-date, and 125% on a one-year basis. It pays a small yield (0.4%), but both sales and earnings growth are expected to be strong in FY2025 and FY2026. Its historical growth rates have been robust, with a five-year sales and earnings CAGR of 16% and 19%, respectively. Net profit margins are expanding and with a market cap of $595.7 million and a reasonable valuation of 11.4X forward earnings, we think VBNK looks interesting here. 

We can see that its net profits have really taken off over the past couple of years, and its outlook is increasingly positive. It has ongoing plans to expand its POS financing offerings in North America, and its cybersecurity segment, DRT cyber, is also expected to see growth in the coming years. 
Unlock Premium - Try 5i Free 

LNTH has historically had some big price swings so we think selling it for a tax loss does has some risk. Momentum has of course been negative since the earnings but any positive news at all sets up the potential for a positive bounce going into Christmas. Usually we would be fine with a tax loss harvest strategy but we think this one is too 'bouncy' and the timeframe before year end too short. We would consider it a hold at current levels. 
Unlock Premium - Try 5i Free  

HIMS has been picking up plenty of steam recently. It's results have continued to come in strong, it is up 225% year-to-date and it is not overly expensive at 34.5x forward earnings. HIMS is a telethealth platform that connects consumers and healthcare professionals. It has a wide product/service offering and growing subscription based model. Revenue growth has been very high (50%+), and it has been becoming increasingly profitable over recent quarters. The balance sheet also has no debt and it has been increasing cash flows nicely. It has a strong business model and fundamentals while growth is expected to continue to be high. We think it looks good and if profitability continue to ramp up the valuation could look more attractive. 
Unlock Premium - Try 5i Free  

In late October SVI did miss estimates, and then saw some broker downgrades. It then made two acquisitions ($10.5M) in early November but there has been no other news of any note. We think it is an OK company but it has a very significant debt load, so we think buyers have some time here to wait. 
Unlock Premium - Try 5i Free