$INFU FY 2015 Results Review

Infusystems ($INFU) released Fourth Quarter 2015 and Full Year 2015 earnings today which were very good.  The company has executed very well over the past 3 years and momentum is really building in terms of revenue growth and earnings growth.  I wanted to cover some of my thoughts about the 2015 10-K, conference call, and news release.  I’ve been invested in $INFU for a few years now, and I believe the business is still on the right track to keep growing and producing cash flow for the foreseeable future.   Highlights for the full year 2015: Revenue of $72.1m for the full year which was 9% growth over FY2014 Rental Revenue grew 10% YoY and billings actually increased 12% but since the mix of in-network and out-of-network payor’s caused the collected revenue to be lower than billing increases Gross Profit held steady at 71% but the Gross Profits / Total Assets dropped to 53% from 59% in FY2014 Reduced Interest Expense by $1.4m because of the new credit facility Cash Flow from Operations was $7.1m even with the purchase of Ciscura and penalty for the early extinguishment of debt ($1.6m) EBITDA was $15.5m and if the fee for the debt…

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Turnaround Stock Stories – Turn Back Time – Marvel Enterprises $MVL

Turnaround Stock Stories – Turn Back Time – Marvel Enterprises $MVL

I thought that I would look back at some of my past investments, before I started my blog and before I began to journal the investment thesis for purchases I make, and document some of my reasons for the purchase, and the outcome.  Of course I’m working on an outcome bias here, but I think it’s worth writing out some history lessons that I should keep in mind as I look for future businesses to invest in the future.  The first look back will be one of the best investment returns I have made by investing in Marvel Enterprises in the early 2000’s. I believe that everyone is familiar with Marvel Studios and the many movies that have been released over the past decade involving many of the Marvel superheroes.  The company is now a division of Disney, but at one point in time they were a public company and even declared bankruptcy.  That may be shocking since the current situation is going very well for Marvel Studios, especially with the recent release of Deadpool.  I’ll admit, I love finding turnaround companies and think the outcome can be very profitable if the right situation lends itself in the market.  Many…

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Is a Brand a successful Moat or Barrier to Entry?

Is a Brand a successful Moat or Barrier to Entry?

I’ve decided in the past, that a company’s brand was a strong enough moat to keep competitors at bay, and allow the company to keep earning profits  This has been a grave error, and warrants further study.  I’ve since learned that a brand, by itself, is not a strong competitive advantage resulting in a defensible economic moat.  For a strong moat a stronger situation needs to be in place such as some kind of customer preference, distribution or network effect that is the source of a strong competitive advantage.  Companies spend a lot of money on marketing and advertising to build a brand.  This usually entails messaging that relates the name of the company or product to some benefit.  The goal is to build that association into a customer’s (or potential customer) mind so that it becomes easy to recall in one’s mind at a later time. What I have discovered over time, and what others have written about, is that a brand, by itself, is easy to replicate by spending money.  Any company, with enough cash, can “buy up” to the brands advantage and receive the same value.  The only barrier is the needed investment to “buy up” to a similar…

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The Sleuth Investor Book Review

The Sleuth Investor Book Review

The Sleuth Investor by Avner Mandelman is a different kind of investment book than most other financial books which cover more traditional aspects of investing.  This book focuses squarely on what a small investor (or firm) should be doing in order to gain an advantage against the rest of the market.  As the title depicts, the advantage investors with a smaller capital base can gain is by physically “sleuthing” the target investment company.  Because many analysts and larger investment firms do not do much physical investigation, one can theoretically gain an advantage by doing the more difficult work. The author runs an investment firm called Giraffe Capital , and claims to have used the techniques he presents in the book to build great wealth over time.  The Sleuthing technique focuses on three major areas – People, Product and Place/Periphery.  Each area has at least one chapter dedicated to it, and examples that use fictitious names as to not call out any firms.  In essence, people are individuals inside and outside of the company that may be important to talk to or even watch what they do.  The book rides a slippery slope between what is legal and not legal, and…

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Critical Look at using DCF for Valuations

Professor Damodaran has written a ton of articles about Discounted Cash Flow (DCF) analysis over the years.  I don’t think another website has as much information about valuation and DCF as on his blog – so it is a wonderful resource to visit and use for investors.  His latest blog post on DCF which defends the use of DCF as a valuation technique is a good topic.  Many investors have discredited the use of the DCF technique and Damodaran tries to initially cover some of these myths and focus on the critical use of DCF in valuing companies.  It appears that he will cover, in detail, the myths of DCF over the upcoming year! It is my opinion that a DCF analysis, in theory, is the right way to value a business or asset.  An asset is only valuable if it will give a return to an investor.  An asset has a defined life, and the total amount of cash returned to an investor over the life of an asset, discounted for risk and time value of money is the final value of that asset.  The theory is solid, as is the basic DCF calculation process.  This simple chart is…

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Size Matters, if You Control Your Junk

This is a new research paper published on January 22nd 2015 that studies the return of stocks based upon the size (defined in multiple ways).  What was done differently than other studies, was that the authors used a Quality and Junk variable to apply to the data.  The result was that smaller firms outperformed larger firms in the stock market if the portfolio was controlled with the QMJ (Quality Minus Junk) factor.  Meaning that a lot of the smaller companies were “junk” but the ones that were of quality outperformed the market. The Authors: Clifford S. Asness – AQR Capital Management, LLC Andrea Frazzini – AQR Capital Management, LLC Ronen Israel – AQR Capital Management, LLC Tobias J. Moskowitz – University of Chicago – Booth School of Business Lasse Heje Pedersen -New York University (NYU) – Department of Finance; Copenhagen Business School; AQR Capital Management, LLC; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER) You can Download the Paper from the website here, or I have it posted on this site here.   One interesting finding was that a lot of the return of small companies resulted in the month of January: One of the biggest challenges researchers pose to…

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The Average Investor is Terrible at Stock Picking

The Average Investor is Terrible at Stock Picking

Thanks to The Big Picture and Value Walk for bringing this chart to my attention that was included in a recent Seth Klarman note. Asset Class Returns vs the Average Investor   I’m not sure what most investors are doing with their investments, but it isn’t pretty.  In the above chart, it displays the annualized return over the past twenty years by asset class.  Farthest left is Energy which average just over 12% return per year for 20 years, and all the way to the right is Japan with a dismal 20 year return.  But look at where the Average Investor sits with a paltry 2.x% annual return over 20 years. I would like to see more on the specifics about how the data was collected and aggregated, but this is atrocious. The Average Investor has returned less annually than almost every other asset class shown, and the rate was just above inflation (depends on the inflation rate used).  The past twenty years have had a lot of ups and downs with the Internet bubble and then the Real Estate bubble causing the financial crisis deemed the Great Recession and so on.  I think many investors are emotional scarred, and…

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Questions about Bitcoin that I Would Like to See Discussed

Questions about Bitcoin that I Would Like to See Discussed

I’ve been interested in Bitcoin and the underlying technology for the past couple of years, and have tried to learn as much as possible about the technology and its potential use cases.  There is a lot of hype surrounding Bitcoin and the Blockchain, but I do not think many people posses enough knowledge about the technology.  I don’t claim to be an expert, but I’ve been trying to keep up with the technology, the current arguments as to why Bitcoin/Blockchain are important and finally what impact it will have on the future of money, currency, finance, trade, insurance, contracts, legal, or many other industries. As I read and think about the new technology, I stumble upon several questions that I would like to see discussed in more detail about the future of Bitcoin.  Most of the media articles today discuss the value or price of a Bitcoin and the high volatility of the price.  I’m not so much interested in that angle, as I believe the technology may enable mass disruption in several industries in the future.  I still have some questions that I do not know how to answer or would like to hear more opinions as opposed to the…

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