Archive for January, 2014

Boston Beer Company (SAM)

Download PDF

Boston Beer Company (SAM)
Stock Price: $212
Diluted Shares: 13.5MM
Diluted Market Cap: $2.9BN
Working Capital Surplus: $50MM
Debt: $0
EV: $2.85BN
2013E EBITDA: $150MM
EV / EBITDA Multiple: 19x

I suspect The Boston Beer Company is about to take a dramatic fall. Others – like Off Wall Street – have said similar things. Unfortunately their timing was horrendous as the stock ripped 100 points in the wrong direction. Who says short selling is easy?

But today I believe a fairly significant multiple contraction is underway. For hedgies looking for alpha shorts, SAM presents a very attractive risk-reward.

Calico Resources (CVE: CKB)

Download PDF

Sometimes, free money can be found. Usually it comes with a caveat.

Calico Resources (CVE: CKB) is one of those opportunities. It trades on the Canadian Venture Exchange for less than $0.23 (approximately $11MM). In 1 month, they will be selling their primary asset for $27.5MM. This information is publicly available (see here and the update here).

Once you factor in the issuance of dilutive shares (64.15MM shares), you get a value of $0.43 per share (that is $27.5MM / 64.15MM; note that I am assuming their historical operating losses shield them from paying taxes on this transaction). So if this deal closes, CKB will have cash worth nearly 2x its current market cap, plus retain a 1% royalty on the project if it gets developed.

From a risk-reward perspective, this is incredibly attractive: the market is offering you 2x upside versus perhaps ~50% downside. Further, once you factor in the probability of the deal closing (a scenario I view as “high probability” for the reasons cited below), you get an even better probability-adjusted risk-reward.

Zynga (ZNGA)

Download PDF

Zynga (ZNGA)
Stock Price: $3.50
Diluted Shares: 804.1MM (diluted sharecount up 7% Y/Y – these guys have no problem handing themselves stock)
Diluted Market Cap: $2.8BN
Cash & Marketable Current Assets: $1.2BN
Long-Term Marketable Securities: $426MM
Debt: $0
Other Liabilities: $208MM
EV: $1.4BN

The image at the top of this post is a tad misleading. You see, Zynga is a battleground stock.

Bulls will say: this is just like Groupon before it gained 150%; the company has been left for dead, there are too many bears; new CEO Don Mattrick has 6 months under his belt now and he’s going to (a) do a big cost cut and (b) start to unveil a new line-up of games starting mid-year; don’t bet against Mark Pincus or this Board.

Bears will say: casual gaming is not a viable strategy in the long term; there’s no moat in this business; their best employees simply leave to start a competitor; they are too dependent on FB; the turnaround will fail; how can you trust an admitted scammer who wastes money on lavish parties and has a history of destroying shareholder value?

Intellectually, I side with the bears. But the truth is probably somewhere in-between.

3D Printing (DDD, SSYS, XONE, VJET)

Download PDF

Hype Cycle Curve

I find the Gartner Hype Cycle to be a useful analytical framework because it marries technological trends with behavioral finance. It’s not a perfect timing tool, but it does help crystallize the role that hype plays in the adoption of new technology and it helps explain the valuation (or over-valuation) of certain sub-sectors of the market.

Case in point: 3D printing.

3D printing is all the rage. It’s a factory in a box – it’s changing the world. With 3D printing, everything you wear will be customized to fit your unique body. It’s this remarkable story, re-cast and re-told by the media that has led us to where we are today – the peak of the hype cycle.

 3D Printing - Gartner Hype Cycle

I believe last week’s announcement between Hershey’s and 3D Systems marks the top of the hype cycle. Yes, I am going on record saying that the top is in. It’s time to short all of ’em: DDD, SSYS, XONE and VJET.


Download PDF

The Holy Grail is a renewable fuel that no one can tell is renewable. Its price would be similar to that of a barrel of oil. It would be dropped into existing pipelines, refineries and vehicle engines that already process millions of barrels of petroleum a day. 

– ClimateWire

There are a couple of companies working on this “Holy Grail” – one of them is KiOR (KIOR) which was featured on 60 Minutes on 5-Jan-14 – it’s worth the 14 minutes:

Despite the recent negative publicity (see 60 Minutes and this article), 2013 marked an historic turning point where for the first time ever alternative fuels began production at commercial scale. And KiOR was one of the companies to make it happen.

KiOR is a Vinod Kholsa backed biofuel company that takes wood chips from yellow pines (or other biomass) and turns it into fuel. The company line is something like, “We do what Mother Nature does, but instead of millions of years, it takes us just seconds.” Most people look at the chart and think, “these guys must be complete failures”. But it’s fairly remarkable what KiOR has been able to accomplish – KiOR has gone from an idea on paper in 2007 to demo facility in 2010 to IPO in June 2011 (raising $150MM) to commercial start-up in March 2013.