KeyStone’s Stock Talk Podcast Episode 139
We have a busy show for you this week – in Our Case For / Case Against debate we take a look at e-retail and cloud computing services giant, Amazon Inc. (AMZN:NASDAQ). Aaron argues the bear case, I crush him with the bull case, and Uncle Brennan sits in as judge, jury, and executioner. In our Your Stock, Our Take Segment, we answer a listener question on the very topical Enthusiast Gaming Holdings Inc. (EGLX:TSX), who’s principal business activities are comprised of media and content, entertainment and eSports. The stock has had a tremendous run and is growing at a high clip via-acquisition – we look into whether it is sustainable.
FYI: Tracking Ryan Irvine’s October 31st Money Talks Appearance Recommendations (last appearance):
Stock Show Price Current Price Gain
Protech (PTQ:TSX-V) $1.63 $2.21 35.58%
Polaris (PIF:TSX) $12.70 $20.10 58.27%
Acme (ACU:NYSE) $27.90 $40.74 31.52%
Avg. Gain: 42%
Simple Advice to Position your Portfolio for the Next Decade
KeyStones’ Simple Portfolio Building Plan – designed to enrich you, not your advisor. We show investors how to save on fees, and focus on buying great businesses (stocks) designed to grow and pay dividends over the long-term.
Spring 2021 Special Topics:
- KeyStone’s Market Outlook: Are the markets cheap or expensive today? Get our take on both the bull and bear case of the market and how you should position your portfolio.
- Why 2-3 Great Investment Ideas can Change your Life: Real examples from our research in how $20,000 invested in Boyd Group (BYD:TSX) became over $2 million in 12 years & $20,000 invested in XPEL (XPEL:NASDAQ) became $697,000 in just 3 years. Find out how we uncover these great growth stocks and what to look for in a capital compounding investment such as Boyd and XPEL.
- Hot Topics:
- Bitcoin – What it is and is it right for your portfolio?
- Cannabis – Strength in the U.S. continues, are there now opportunities in Canada? Get our top Cannabis picks.
- WallStreetBets – The good, bad and the ugly.
- Renewables & Cleantech – Geothermal, Solar, Hydro, Wind & Nuclear Power – which are right for your portfolio?
- Telehealth & Healthtech – The shift to online and in-home healthcare and where the opportunities may occur.
- Are Gold Stocks right for your portfolio?
- DIY Starter Portfolio: full details & analysis on 4-6 great stocks you can buy today. Our crisis investing portfolio from KeyStone’s April 2020 DIY Webinar has already gained 70.39%. Do not miss out on these unique, profitable growth and dividend growth stocks.
- Live 45-minute Q&A Session: Following the Webinar with Ryan Irvine & Aaron Dunn – answering your questions on the Webinar, stock investment strategies and giving ratings on any stock in Canada or the U.S.
Amazon.com Inc. (AMZN:NASDAQ)
Market Cap: $1.53 Trillion.
Amazon operates through three segments: North America, International, and Amazon Web Services (AWS). It sells merchandise and content purchased for resale from third-party sellers through physical and online stores. The company also manufactures and sells electronic devices, including Kindle, Fire tablets, Fire TVs, Rings, and Echo and other devices; provides Kindle Direct Publishing, an online service that allows independent authors and publishers to make their books available in the Kindle Store; and develops and produces media content.
- First off – you want to own great growth businesses that lead – Amazon is that: 1) dominant e-retailer, 2) Amazon Web Services (AWS) is dominant in cloud computing and enjoys margins that most other e-commerce competitors can only dream about. The growth will continue.
- The current growth tremendous – revenue has jumped 118% over the last 3-year, accelerating in 2020 to 38% from 2019 (even at its size). Operating profit jumped 458% in the last 3-years and 58% in 2020 alone.
- Q4 didn’t just beat analyst expectations, it demolished them – revenue up 44% – net income more than doubled (from $3.3 billion to $7.2 billion.)
- Amazon is actually not that expensive:
- Forward PE is 64.40 this year, 46.38 next year, and around 30 times 3 years out…its growth rate is beyond that – that is growth at a reasonable price in a high, high quality name. It is off 11% from recent highs – it seems like a no-brainer – time to add a premium name long-term.
Your Stock Our Take
Jasmeet via Youtube
Enthusiast Gaming Holdings Inc. (EGLX:TSX)
Current Price: $8.83
Market Cap: $1.02 Billion
What does the company do?
Enthusiast’s principal business activities are comprised of media and content, entertainment and eSports.
- The company’s digital media platform includes 100+ gaming related websites and 1,000 YouTube channels.
- The company’s eSports division, Luminosity Gaming, is a global eSports franchise that consists of 7 professional eSports teams under ownership and management, including the Vancouver Titans Overwatch team and the Seattle Surge Call of Duty team.
- The company’s event business owns and operates Canada’s largest gaming expo, Enthusiast Gaming Live Expo, EGLX, and the largest mobile gaming event in Europe, Pocket Gamer Connects.
- Integrated partnership deal with TikTok, which will leverage Enthusiast Gaming’s vast platform of video game and esports fan communities.
- Multi-platform sponsorship deal with Samsung.
- Acquisitions & Fan Communities:
- March 2021 – acquired Vedatis – owners of Icy Veins (icy-veins.com), one of the largest independent Activision Blizzard fan communities for US$8.3 million in cash and stock, plus an earnout subject to certain milestones being achieved.
- August 2020 – announced acquisition of Omnia Media, Inc. Enthusiast Gaming acquired 100% of the issued and outstanding shares of Omnia for consideration consisting of 18.25 million common shares, $11.0 million in cash, subject to adjustments, and a vendor-take-back note (“VTB”) with a face value of $5.75 million.
- February 16, 2021 – Enthusiast added the fan communities, Enthusiast Gaming welcomes Twinfinite, SBMM Warzone, Pokémon GO Hub, LEVVVEL, Game Atlas, and The VG Resource Group of communities, including Spriters Resource, Co-optimus, Ygoprodeck, and Invenglobal, to its media platform dedicated to video game fan communities.
- Planning to list on the NASDAQ
Recent Financial Results (Q4, 2020)
- Revenue was $42.5 up 361% from the same quarter last year.
- Net Loss for the quarter was -$6.9 million, compared to a loss of -$60 million for the same quarter last year.
- Adjusted EBITDA (TTM) was a loss of -$11.0.
- On December 31, 2020, the Balance sheet is quite levered – with Net Debt of $31 million. But I should include that in 2021 the company converted $9 million of its debt into shares and raised an additional net proceeds from a bought deal offering of $50 million.
- Including the Omnia acquisition, Pro Forma revenue run rate of $127.6 million. So that provides the company with a forward P/S multiple for the 2021 fiscal year at approximately 8x.
To conclude on Enthusiast – for a company that isn’t currently profitable, it is exerting some favourable characteristics – such as net losses decreasing as the company’s revenues grow. Plus, management has shown the desire to scale aggressively – and being a gamer myself – I see the direction of the company as being generally positive. Once critique though is that I wish the company would break out the financial data on the target companies it acquires so that I could really assess if the company’s acquisition growth strategy is accretive.
Now although the company is not profitable it is slowly working toward profit which is good. And after its most recent equity raise and debt conversion, the company has a reasonably healthy balance sheet with a net cash balance. But EGLX does trade at 8x forward revenue, which I would argue is quite pricey. So all-in-all, exciting space, working toward profit, and pricey valuation – I would argue that at its current level it does not offer growth at a reasonable price and we would stay on the sidelines.
Now again, just to reiterate from our discussion on the podcast a few weeks ago. This does not mean that I am betting against EGLX. I am simply saying that for our “Growth at a Reasonable Price” strategy, the price that I am paying right now doesn’t provide me enough margin of safety to the downside and confidence that the stock should continue to run higher in the near and long term.
We have talked a number of other companies from “hot sectors” on this podcast over the past year – Sona Nanotech Inc. (SONA) to name one – COVID Test provider – flew up from under a $1.00 to $14.00 at one point:
Xebec Adsorption Inc. (XBC:TSX)
In the hot clean-tech segment – and this company actually had great revenue growth and continues to have potential, but when it missed estimates and will post huge losses, the stock has been crushed.
As apposed to XPEL, Boyd, Sangoma, Enghouse, Protech, Trulieve
All recommendation – posted huge share price gains, but the gains have been sustained and built on themselves as they are backed by cash flow.
You can hold long-term. For me, this is investing versus speculating.