6 Years Ago CNBC
mentioned Equities Research Warning on Chipotle @ $440 and stock slid to
$230 by years end in 2012.
April 20,2012 Chipotle $CMG filed 10Q @ 6am. I examined # and after being bullish since IPO, I went Bearish. Herb Greenberg on CNBC raised my Red Flag on CNBC TV ( 2:40 mark on clip) How to Play McDonald's, Analyst https://t.co/PwxwWXbDZD
Vickrey: I like to say that I’m an accountant in recovery. I went to get a Ph.D. in accounting, and by chance I ran across the Thornton O’glove book, Quality of Earnings,in my dissertation research. Where O’glove was reading through [10-]Qs and [10-]Ks, I applied a statistical model to the data from the Qs and Ks—basically using the computers to crunch through a lot of financials—to figure out which companies were more conservative, which were less conservative, and which ones might be cooking the books.
Bob Olstein: Earnings vs.Cash Flow
The first step to becoming an investor is to identify the right Master.Robert Olstein of the Olstein Funds is one of the most sophisticated investors on all of Wall Street. Today I am sharing historical articles written about Olstein that investors should examine and learn from.
"EARNINGS VS. CASH FLOW -- Mr. Olstein first examines what a company generates in cash flow from its operations. A company with excess cash flow can raise dividends and survive tough times without being forced to borrow or sell assets. To calculate a company's cash flow, start with net income. Add back what it has taken in depreciation expenses and accounts payable. Then subtract capital expenditures, inventories and accounts receivable. Watch out, Mr. Olstein said, if net income is much higher than cash flow. The company may be speeding or slowing its booking of income or costs, perhaps to meet analysts' earnings forecasts."
"Positive free cash flow. Olstein looks at a company's financials, specifically the 10-Qs and 10-K, and makes a beeline for the statement of cash flows. We're not talking about the stated cash flow from operations, investing activities or financings. We're talking about cash flow from operations minus capital expenditures--the amount of usable cash the company actually generates, which can be used to buy back stock, pay dividends, make acquisitions, and grow the business."
"To Olstein, being right means finding companies with excess cash flow that are selling at inexpensive levels because investors are tuning them out. "Cash flow is the oil that lubricates the corporate engine," he observes."
"By concentrating on cash, investors can learn enough about a company to eliminate it as a possible investment. FOr example, if you want to get a quick-and-dirty reading, look not at a firm's "income statement" but at a more obscure tables of numbers called its "statement of cash flows".
""Everyone looks at conventional price-earnings ratios but that doesn't tell you anything about the deviation between cash flow and reported earnings," Mr. Olstein said."
"Olstein believes that cash--particularly free cash flow--is king because he thinks it's a truer measure of a company's underlying performance. He and his staff analysts look for companies trading at a discount to free cash flow. Lack of free cash flow is one reason why he doesn't like (a sector) ..."
"....buy quality companies that have "wide moats" (in other words, "hard to compete with out of the box"), have been generating free cash flow throughout the financial crisis, and have a great balance sheet to withstand any issues."
As the market goes higher, it becomes more important to measure the quality of corporate earnings, he said. You have to look behind the numbers.
Adjustments that investors need to make now, in Mr. Olstein's view, are a result of disparities between a company's reported earnings and its excess cash flow. Earnings are what investors focus on, but because these figures include noncash items, based on management estimates, the bottom line may not tell the whole story. Cash flow, on the other hand, is actual money that a company generates and that its managers can use to invest in the business or pay out to shareholders.
SOME of the widest gulfs between earnings and cash flows, Mr. Olstein said, are showing up the ways companies account for capital expenditures."
Cash is king, he says. He spends a lot of time crunching numbers in a search for strong cash flow, and his winnowing process goes something like this: First, he scrutinizes a company's financial reports in an effort to determine whether they paint an accurate picture. In this work, he has considerable expertise: he was an auditor with the old Arthur Andersen & Company, and then, in the 1970s, was co-author of The Quality of Earnings, a financial newsletter that, in its day, was perhaps the foremost authority on spotting the gray areas of corporate accounting. If you're analyzing a company, he says, you first have to understand what they're really earning, as opposed to what they say they're earning.
American Association of Individual Investors October 2010
"the forensic analysis we undertake to analyze a company's results and the quality of its earnings for valuation purposes. 1. Using the company's cash fl ow statements, we begin by reconciling the difference between free cash fl ow and reported earnings under accrual accounting. (Accrual accounting records revenues, expenses and income when the transaction occurs, as opposed to when the cash is actually received or spent.) The smaller the difference between free cash fl ow and reported earnings, the higher the quality of earnings."
"Describe where you look first in researching a company's financials. RO: We begin by reconciling the difference between free cash flow and reported earnings under accrual accounting. The smaller the difference, the higher the quality of earnings. The bigger the difference, the more work we have to do to understand the makeup and sustainability of free cash flow."
"Stocklemon believes that StockDiagnostics.com is one of the best stock advisory sites on the web. It judges companies based on a proprietary OPS rating and covers both long and short positions."---------September 22,2003 Andrew Left founder of Citron Research
"From time to time I'm asked about analysts, diggers whose work I really respect, who do things well. Tom Renna, @GFNNstock, is a must follow— Roddy Boyd (@BoydRoddy) September 7, 2013
Feb. 5,2015 -- Under Armour CEO Kevin Plank talks about why he's buying the MyFitnessPal and Endomondo apps for a total of about $560 million. Equities Research Looks at Under Armour *Negative Cash Flow (~goodwill $472 million)
On Thursday morning Under Armour (NYSE: UA) reported FY2015 earnings sending the stock $20 higher from $65.58 to close the week @ $85.43. Up 30% in two days.
Record Sales and earnings were super impressive, but a close look at the cash flow statement raises a RED FLAG. note: As of Sunday (1/31/16) Under Armour has not yet filed their 10K annual report with the Securities and Exchange Commission as of this morning so we are not able to dig deep into footnotes and other exhibits at this time.
A look at the 8K filed on Thursday can be found here.
Before I jump to the FY2015 Negative $44 Million Operational Cash Flow, lets look at 2 recent SEC filings that should make investors wonder how many total shares are really outstanding when including Class A, Class B and Class C shares.
Shares Fall 8.5% in 1 day
On November 12,2015 Under Armour traded at $94.16 with volume of 3 million shares.
On November 13,2015 Under Armour traded at $86.08 with volume of 7 million shares.
What happened?
At 10am November 12th CEO Kevin Plank filed this SC 13D/A with the Securities and Exchange Commission.
"(Kevin Plank)entered into a pre-arranged stock trading plan to sell shares of the Issuer’s Class B Common Stock and, if and when issued, the Issuer’s Class C Common Stock."
"If the Reporting Person completes all the planned sales under this trading plan, he would beneficially own 35,700,000 shares of Class B Common Stock and Class A Common Stock, representing approximately 16.6% of the total shares of Class A and Class B Common Stock outstanding as of September 30, 2015 and representing approximately 66.5% of the combined voting power of the Issuer outstanding as of September 30, 2015".
Consolidated Class Action Lawsuit
August 14,2015 this DEFA 14A filing with the Securities and Exchange Commission was filed.
"Under Armour ..is currently involved in a consolidated class action lawsuit brought against the Company and the members of the Company’s Board of Directors on behalf of purported stockholders of the Company in connection with the creation by the Company of a new class of common stock, referred to as the Class C common stock, par value $0.0003 1/3 per share"
Are You Still Long? Operational Cash Flow for FY2015 was NEGATIVE $44 Million! vs Operational Cash Flow FY2014 of Positive $219 Million.
Year over Year Operational Cash Flow declined by $263 Million
Operational Cash Flow FY2010: $50 million FY2011: $15 million Fy2012: $200million FY2013: $120 million FY2014: $219 million FY2015: NEGATIVE ($44 Million) Cash Flow used in 2 Acquisitions during 2015. $475 million for MyPalFitness.com $85 million for Endomondo $560 Million total cost, $472 million GOODWILL Under Armour Stock Price has had a History of Following Cash Flow. November 18,2005 IPO
Under Writer: Goldman Sachs. 9.5 million shares @ $13 (adj for 2 (2 for 1)splits $3.25).
Shares went from $13 to $68 on August 21,2007.
Enter Equities Research
Equities Research went bearish (A-E) on UA at $68 to $15 before going Bullish.(F)
Since my coverage began on Titan Machinery I have reported so many bizarre events that it is difficult for new followers to bring it all together so I have created this post to shed some light on the concept of my bear case. (there's plenty more to read, note these are just highlights)
President's brother is UnderWriter My April 2013 report laying out the most detailed landscape of all the characters and how the house of cards was built. (my most viewed report ever)
Robert Olstein, the founder of the Olstein Funds, is a top money manager on Wall Street for over four decades. The Olstein Funds have always been a favorite of mine here at Equities Research.
This weekend Barron's featured Eric Heyman, the co-manager of the Olstein Strategic Opportunities fund (ticker:
OFSAX
), with his Top 5 Stock Picks: Unloved, but Cash Rich (beaten-down stocks producing lots of cash flow.)
Three small-cap stocks he likes right now are Integra LifeSciences (
IART
), Wesco International (
WCC
) and ABM Industries (
ABM
).
My handle on twitter is @stockpicker908 , my original handle was @GFNNstock
I don't have that many followers, but i really appreciate these bright folks that interact with me. Not only are they smart , but they are good guys/ladies on the up and up.
The Tweet and kind words in my post from Roddy Boyd is the greatest compliment that I ever received in my life! Thank You Roddy Boyd
From time to time I'm asked about analysts, diggers whose work I really respect, who do things well. Tom Renna, @GFNNstock, is a must follow
— Roddy Boyd (@BoydRoddy) September 7, 2013
I've got to hand it to $GFFNStock (Tom Renna): He's been warning on $TITN for quite awhile http://t.co/Fso3e4laAg Also not a fan of $SSYS
— Herb Greenberg (@herbgreenberg) May 24, 2013
@WillauerProsky@StockPicker908 Bashing shorts, and to a lesser extent journos, almost always a soft signal that company is troubled.
— Roddy Boyd (@BoydRoddy) June 11, 2014
@GFNNstock great coverage
— john rock (@johnrock4) December 4, 2013
In a market that hasn't made shorting easy @GFNNstock showed the poor fundamentals of $TITN long ago with much alpha - I'm very appreciative
— Voltaire (@PhilipEtienne) December 5, 2013
@GFNNstock yes it's been at tough market for shorts but suspect that party might just be fast approaching
— GradientAnalytics (@EarningsQuality) December 6, 2013
@GFNNstock thanks for 2013. Looking forward to more great analysis in 2014.
— Auditor Carousel (@AuditorCarousel) January 1, 2014
CONGRATS - $TITN: Whether it's up or down, @StockPicker908 consistently updated / shared his SS: thesis & sees the stock today @ new lows.
— Legacy Trades (@Legacy_Trades) August 27, 2014
@GFNNstock @BoydRoddy too funny - still staying short on your prudent analysis Tom - tx for the heads up
— Voltaire (@PhilipEtienne) August 23, 2013
Wow lot of green on my screen today. Only $TITN down on my watch list. Nice call @GFNNstock.
— Nicholas Yee (@nicholas_yee) September 9, 2013
@StockPicker908 you've been on top of this from the "git go"...superb job! I'm impressed
— Intrepid (@RuDauntless) September 9, 2014
@GFNNstock Titan out-muscled Eide Bailly. It's hard to get auditors to sign off on bill and hold accounting.
— Auditor Carousel (@AuditorCarousel) August 13, 2013
@GFNNstock well they do have a proven operating model that bleeds cash!
— Mike Colicchio (@iTravelandDine) September 6, 2013
@GFNNstock so good!
— Mad Money On CNBC (@MadMoneyOnCNBC) August 30, 2013
@GFNNstock True, true...
— Tiernan Ray (@barronstechblog) June 26, 2013
Hat tip to @GFNNstock who has been spot on with the $TITN call. I disagreed and didn't sell when it ran up.
— SconnieTrader (@SconnieTrader) May 23, 2013
@GFNNstock eggscellent!
— Douglas Kass (@DougKass) February 20, 2013
@GFNNstock Seems you are alone no longer.
— Tiernan Ray (@barronstechblog) May 17, 2013
I've got to hand it to $GFFNStock (Tom Renna): He's been warning on $TITN for quite awhile http://t.co/Fso3e4laAg Also not a fan of $SSYS
— Herb Greenberg (@herbgreenberg) May 24, 2013
Stratasys (NASDAQ: SSYS $58.38) was top short pick here at Equities Research based on their poor fundamentals and low margins.
The Shares had a nice run higher after a September 2013 underwriting led by JP Morgan when the company received over $400 million.
After announcing poor quarterly results this week shares tumbled over $25 this week as investors lost nearly 30% since Monday.
