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The material on this site represents an assessment of the market and economic environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what I believe are reliable sources. It is not guaranteed.
Thursday, March 18, 2021
Monday, February 8, 2021
7net11: Volatility is the Streets Friend
Started this post in the second quarter 2020....
I have said this from day one of COVID, "Wall Street loves this roller coaster ride!" Volatility is the name of the game in retail trading and you have seen massive profits and rocketing valuations from retail investment platforms.
For example:
E-brokers TD Ameritrade, Interactive Brokers have sustained record retail trading volumes in the second quarter. Similarly, new e-broker Robinhood valuation soared to $11.2 billion in the second quarter.What does this all mean for the little guy? A mix of good and bad. the novice day trader probably lost and lost BIGLY!
2/8/21 update: That said, I don't believe there is a "bubble" in the current overall market. The Fed will release stimulus, banks are solid and recovering, and the economy is slowly starting to re-awaken as evidenced by the slow and steady rebound of bank and oil sector stocks.
The everyday investor should be aware of these two words. VALUE vs. GROWTH. I attach the word "value" to companies that have a predictable path to consistent profitability and those sectors that show no path but future promise of "growth." This is key to makings good bets moving forward and require more in depth research.
Be on the lookout for the Coinbase and Robinhood IPOS. The pricing of these IPOS and the feeding frenzy to follow will lend a clue as to how a supercharged tech/financial/fintech economy has evolved and the affect the overall economy.
Please leave your comments in the COMMENT section and provide topics that you would like me to discuss and expand on. TY!
Saturday, July 11, 2020
7net11: FCF per share Snapshot Analysis: Plug Power
This analysis relates to free cash flow strength and the ability for $PLUG to be solvent related to its overall shares outstanding in lieu of no positive earnings to date or profitability. The basic premise is that a healthy business should have 3x free cash flow to pay its bills in case of liquidation.
At first glance, Plug Power had reduced negative earnings over the last few years. They have gone from $-.60 to $ -.36 basic earnings per share in the last year or so. The question from an investment perspective: Is that reduction enough to create momentum in the near term towards profitability? Calculating Free Cash Flow per share may lend a clue:
FCF per Share = FCF average 3 - 5 yrs
----------------------------
Total Shares Outstanding
PLUG FCF per share = - $64M
----------
332.17M shares outstanding
Plug Power has negative cash flow and its FCF per share is $-0.19 cents per total shares outstanding. Meaning, this company has issued 332M shares of stock and in case of insolvency, shareholders would not have anything left but debt. An optimal overall Free Cash Flow for this company would be 332M shares x 3 = $996M. 332M x 1 = $332M would be respectable!
As a result, buyers of this stock are most likely high risk speculative retail players or long term institutional investors taking a bet (shares are 42.13% institutionally owned.) Additionally, M and A's (expansion/growth) are often reasons for low/negative FCF, and this might be the case for Plug Power, but most big institutional investors eventually like to see a path towards consistent and sustained profitability.
This analysis is a potential red flag for PLUG POWER. Coupled with its poor FCF per share value, high dilution percentage, and substantial increase in long term debt, $PLUG, founded in 1997, must get to consistent, stable profitability and show substantial positive earnings growth in order to become a more attractive investment.
Thursday, July 2, 2020
7net11: FCF - Free Cash Flow
I was listening to Alan Greenspan yesterday and he was discussing E/P ratios, the inverse relationship to the P/E ratio. This came up as he was giving color to the professionalism of the FED and discussing 10 - Year Treasury bond yields as a standard valuation tool when analyzing/comparing the strength of individual companies/sectors.
This led me down a research rabbit hole to FCF or Free Cash Flow. Whenever I analyze a company, I always look at the cash flow statement, especially if a company shows no income or P/E ratio. This allows me to see if the company at some level, is building strength over time. Not having a P/E ratio, or having an absurdly high P/E ratio, say north of 25, should not be the end of the road when deciding when/if to buy.
As a result, I discovered this ratio: FCF (Free Cash Flow) per share = FCF/total shares outstanding.
This ratio allows for a quick snap shot to see if I should investigate more. FCF is found at the bottom of the Cash Flow Statement and should be normalized by averaging 6 - 7 years if possible.
As a result, I am able to guesstimate how much liquid cash a company has in relation to its total shares outstanding. The logic follows that a business should have 3:1 cash flow to operating expenses as a sign of balanced financial health.
If a company has too much cash, more the 3:1, I then look to how they are investing and if they are expanding their business to stay competitive. Too much cash can be as bad as not enough cash. Too much cash may point to poor executive management and an ineffective use of cash reserves.
If the FCF is below 3:1, I do the same thing, I look at how the company is spending free cash, but also looking closer at their debt obligations and annual revenue. Also, with emerging companies, cash may be used to vastly expand operations and invest new capital. This could point towards future growth and a positive indicator towards a BUY projection.
This led me down a research rabbit hole to FCF or Free Cash Flow. Whenever I analyze a company, I always look at the cash flow statement, especially if a company shows no income or P/E ratio. This allows me to see if the company at some level, is building strength over time. Not having a P/E ratio, or having an absurdly high P/E ratio, say north of 25, should not be the end of the road when deciding when/if to buy.
As a result, I discovered this ratio: FCF (Free Cash Flow) per share = FCF/total shares outstanding.
This ratio allows for a quick snap shot to see if I should investigate more. FCF is found at the bottom of the Cash Flow Statement and should be normalized by averaging 6 - 7 years if possible.
As a result, I am able to guesstimate how much liquid cash a company has in relation to its total shares outstanding. The logic follows that a business should have 3:1 cash flow to operating expenses as a sign of balanced financial health.
If a company has too much cash, more the 3:1, I then look to how they are investing and if they are expanding their business to stay competitive. Too much cash can be as bad as not enough cash. Too much cash may point to poor executive management and an ineffective use of cash reserves.
If the FCF is below 3:1, I do the same thing, I look at how the company is spending free cash, but also looking closer at their debt obligations and annual revenue. Also, with emerging companies, cash may be used to vastly expand operations and invest new capital. This could point towards future growth and a positive indicator towards a BUY projection.
Tuesday, June 16, 2020
7net11: The Arrogance of Wall Street in Full View - The Robinhood Dilemma
Perhaps I see the world through rose colored glasses. However, as I have grown older, I assumed that many in this world, especially the individuals that I hold in high regard for their financial successes, have concerns for the greater good in their heart.
"WRONG." After listening to some Wall Street talking heads and billionaires that have themselves been recipients either directly or indirectly from tax cuts and PPP loans and THEN attacking the common working person for using such investing apps as Robinhood, I have become WOKE to the unabashed arrogance of Wall Street (AGAIN).
To say, "many do not deserve a stimulus check" and "many are making more on unemployment now than they do when working" as a mean dig to validate market volatility created by new/small investors, is a completely tone deaf response to the situation we as a country face right now. How dare these individuals blame the everyday working person for creating more volatility in "their" markets, making the ride to their future gains rockier than necessary.
"TRUE." Many new investors do not have the skills or the understanding to sustain long term gains in the stock market. This has been the case since the stock market began!
That said, do these same Wall Street individuals really think that new investors have that much POWER to move the markets? Compared to their own turret systems and supercomputers that both hedge the market and manipulate it with high volume trades?
This out of touch and entitled response by some on Wall Street EXPOSES the truly arrogant and unacceptable situation this country faces now as we move forward. It is this type of behavior that makes our economy toxic. It is this type of behavior which will expedite the failure of capitalism to future generations.
We are better than this. I challenge all on Wall Street to put on their empathy hats, roll up their sleeves, and try to see beyond their own situations for the benefit and care of the greater good.
"WRONG." After listening to some Wall Street talking heads and billionaires that have themselves been recipients either directly or indirectly from tax cuts and PPP loans and THEN attacking the common working person for using such investing apps as Robinhood, I have become WOKE to the unabashed arrogance of Wall Street (AGAIN).
To say, "many do not deserve a stimulus check" and "many are making more on unemployment now than they do when working" as a mean dig to validate market volatility created by new/small investors, is a completely tone deaf response to the situation we as a country face right now. How dare these individuals blame the everyday working person for creating more volatility in "their" markets, making the ride to their future gains rockier than necessary.
"TRUE." Many new investors do not have the skills or the understanding to sustain long term gains in the stock market. This has been the case since the stock market began!
That said, do these same Wall Street individuals really think that new investors have that much POWER to move the markets? Compared to their own turret systems and supercomputers that both hedge the market and manipulate it with high volume trades?
This out of touch and entitled response by some on Wall Street EXPOSES the truly arrogant and unacceptable situation this country faces now as we move forward. It is this type of behavior that makes our economy toxic. It is this type of behavior which will expedite the failure of capitalism to future generations.
We are better than this. I challenge all on Wall Street to put on their empathy hats, roll up their sleeves, and try to see beyond their own situations for the benefit and care of the greater good.
Thursday, June 11, 2020
7net11: Anton Kreil - The Real Deal. Great Seminar about Investing.
Appropriate viewing for today. Enjoy!
Tuesday, June 9, 2020
7net11: Are you a Prudent Investor, or just a Gambling Stooge?
Discipline makes a great investor over the long term. Anyone can have a great day in this kind of market.
You may have heard the Kenny Rogers line, "Know when to hold em, know when to fold em." Value investing is NOT about all that. True, investing is about making more income which demands taking risk, but investing is also about an attitude and a philosophy. I believe in general, that the value investor is more of an idealist, the gambler more cynical. Only you can decide what side you fall on.
Great poker players aren't really gamblers first and foremost, they are experts at accessing risk. The gambling part comes in when deciding if the gain/loss is worth the implied risk.
The desperate gambler has fewer choices, because he/she is often backed up against a wall with nowhere to go. This is where the problems come in.
CONCLUSION: Devise a game plan and stick with it. Learn what works for you and stay true. Chances are, you will have long term success.
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