KeyStone’s Stock Talk Show, Episode 177

We are back, having just recovered from the first week back to school and our collective laughing fits at Brennan’s favourite movie the 40-Year-Old Virgin. This week will begin with a brief discussion of the week that was and what is to come heading into this Fall – myself and Aaron are headed to Toronto to speak at the Money Show later this week. We have a big stock debate for you between Ryan and young padawan Brennan (that’s a Star Wars reference Brennan, not Star Trek) will face off to present the Bull & Bear Cases for Leatt Corporation (LEAT:OTC), an award winning personal protective equipment for participants of motor sports and leisure activities worldwide. The coinflip dictated Brennan take the Bear Case, while Ryan will ride the Bull Case to almost certain victory. Aaron, who if he checks his bank account while I (Ryan) am reading this should be very happy to serve as judge jury and executioner. Following his execution of Brennan, Aaron will tackle our next Legendary Investor Charlie Munger. While known to be competitive – hopefully not literally as he is 5 foot 9 and 98 years old. Charlie is widely known as vice chairman of Berkshire Hathaway, and Warren Buffett’s right-hand man. But there is more to him than that and Aaron will delve into the details. Finally, Brett answers a listener question on Magnet Forensics Inc. (MAGT:TSX) and it is for real this time, not just a head fake from the intro. Magnet shares jumped sharply in 2021, but have seen a steep decline from last summers highs. Brett takes a look at the current fundamentals and outlook for the developer of digital investigation solutions for more than 4,000 enterprises and public safety organizations.

Welcome, my cohosts, Aaron and the killer B’s, Brennan and Brett! 


Leatt Corporation is renowned for the award-winning Leatt-Brace®, and we have since

extended our range to include Leatt® helmets, body armor, knee braces, elbow guards,

hydration systems and other cutting-edge products that are redefining protection and inspiring

confidence in the world of extreme sports.


Bear Case:

Ryan will likely talk about the company’s solid CURRENT fundamentals, but the

FORWARD fundamentals may be in for a bit of a bumpy ride.

  1. The Off-Road motorcycle market received a huge COVID bump, with the

U.S. market growing by 40% in 2020, but anticipated to grow with just a

CAGR of 5.5% over the next 6 years (Grand View Research).

  1. Plus, momentum in revenue growth is slowing, with Q2 2022 revenue down

26% sequentially, for the first sequential decline since June 2020.

  1. Leatt operates in a very mature market with a lot of competition. As

competitors have flooded the market with similar neckbrace products – with

Leatts’s Neck Brace Sales declining 18% Y-o-Y. And over 15 companies

compete for market share in the helmet and body armour market.

  1. The company’s products are predominantly manufactured in China which is

a risk and the stock is thinly traded with just 5K shares trading hands per


Bottom line, I wouldn’t want to be hold this stock after the covid bump and into a

macro environment with less consumer spending.

Bull Case:

Leatt is Growth at a Reasonable Price.

Despite facing very tough pandemic comparables, Leatt’s revenues and net income for the first six months of 2022 jumped 55%, and actually EPS jumped 46% to $1.20. Q2 was the 17th consecutive quarter of year-over-year revenue growth

Great balance sheet: Significant cash position of $5 million or $0.86 per share and $33.48 million in working cap and basically no debt.

With all of this, it must have sky high valuations: WRONG. Leatt trades at 8.9 times trailing 12-month earnings. Growth expected moving forward.

It’s not just the financials, Leatt boasts award winning, products that meet the highest standards for safety in sport and safety is top of mind for athletes and parents. Leatt innovates – newly launched helmets show huge growth – sales up 132% in Q2.  It is unknown on the OTC, making it a textbook GARP opportunity.

Charlie Munger


  • Born in Omaha, Nebraska in 1924 (age 98 years).
  • Estimated net worth of $2.1 billion (Forbes, Sept 2022).
  • WW2 veteran – serviced in U.S. Army Air Corp from 1943 to 1946.
  • Graduated Harvard Law School in 1948.
  • Begins investing with Warren Buffet (1965 to 1967).
  • Appointed Vice Chairman of Berkshire Hathaway (1978).



Costco167,050$90 million
Berkshire Hathaway Class A4,370$1.88 billion
Berkshire Hathaway Class B643$184 thousand
Daily Journal Corp50,00013 million




Bank of America2,300,000$81 million
Wells Fargo & Co1,591,800$72 million
Alibaba Group Holding Ltd300,000$28 million
US Bancorp140,000$6.6 million
Posco ADR9,745$428 thousand




Apple Inc$148 billion41.9%
Bank of America Corp$36 billion10.3%
Coca-Cola Co$25 billion7.9%
Chevron Corporation$27 billion7.5%
American Express Company$24 billion6.9%
Top 5 Percentage of Total Portfolio74.5%



“There are huge advantages for an individual to get into a position where you make a few great investments and just sit on your ass: You are paying less to brokers. You are listening to less nonsense. And if it works, the governmental tax system gives you an extra 1, 2 or 3 percentage points per annum compounded.” —Worldly Wisdom by Charlie Munger 1995 – 1998

Charlie Munger on Learning:

“In my whole life, I have known no wise people (over a broad subject matter area) who didn’t read all the time — none, zero. You’d be amazed at how much Warren reads — and at how much I read. My children laugh at me. They think I’m a book with a couple of legs sticking out.” — Poor Charlie’s Almanack


Mental Model:

A mental model is an explanation of someone’s thought process about how something works in the real world. –


Charlie Munger on Developing a Latticework of Mental Models

“…developing the habit of mastering the multiple models which underlie reality is the best thing you can do.”

“The models that come from hard science and engineering are the most reliable models on this Earth.”

“the engineering idea of a backup system is a very powerful idea. The engineering idea of breakpoints – that’s a very powerful model, too. The notion of a critical mass – that comes out of physics – is a very powerful model.”

“You get lollapalooza effects when two, three or four forces are all operating in the same direction.”



“One of the greatest ways to avoid trouble is to keep it simple…the system often goes out of control.“

“Simplicity has a way of improving performance by enabling us to better understand what we are doing.“

“We have three baskets for investing: yes, no, and too tough to understand.”


Charlie Munger on Bitcoin

“I think I should say modestly that the whole damn development is disgusting and contrary to the interests of civilization.”

“in my life, I try to avoid things that are stupid and evil and make me look bad … and bitcoin does all three.”


Munger’s positive opinion on the Chinese economic system and the disappearance (temporary) of Jack Ma.

Magnet Forensics MAGT:TSX

Magnet Forensics symbol M-A-G-T on the TSX is a developer of digital investigation solutions serving over 4,000 enterprises and organizations in over 100 countries. They develop tools to investigate cyberattacks and digital crimes.

For the most recent quarter, Q2 2022, Magnet Forensics had revenue of $23.1 million, an increase of 41% year-over-year. The annual recurring revenue increased 49% to $73.7 million. Revenue had great year-over-year, but the same can not be said for Net Income or Adjusted EBITDA. Net income came in at a loss of $1.0 million versus a profit of $1.6 million in the prior year. Adjusted EBITDA fell  20% to 3.5 million. The reason for the fall in Income and EBITDA was primarily the increased research and development costs as well as sales and marketing expenses, both of which were in the prior year lower due to the pandemic.

However, one of the key expenses not included in adjusted EBITDA was share-based compensation, which rose nearly 300% to $1.9 million. As a percentage of sales, share compensation was 8.2% which is not absurdly high for a SAAS company but would still be compared to many other sectors.  As well, companies tend to have heightened share-based compensation following an IPO, which Magnet Forensics had in 2021.

For more information on the dynamics of share-based compensation, watch Aaron’s previous segment on it, which I will put a link to in the description.

Clearly, the company is growing its top line and was profitable in 2021 when it reduced development costs, but that does not mean it can consistently produce profit and grow at the same time. One thing that I will be watching for in the coming quarters is a return to profitability while still having suitable research and marketing costs.

Something magnet does have is a strong balance sheet. The company holds $116 million in cash while only having $7.9 million in debt and leases.

The company does provide guidance through the end of 2022, they estimate revenues of $92.5 million to $94.5 million revenue and adjusted EBITDA of $13.75 million to $15.75 million. Both of these imply the remaining half of the year will have growth in revenue and EBITDA compared to Q2.

Let’s take a look at what you are currently paying for the high revenue growth and potential adjusted EBITDA growth. The company has a trailing twelve months price to sale ratio of 2.7 times and a forward price to sales using management guidance for 2022 of 2.4 times. As well as a trailing Enterprise Value to adjusted EBITDA of  8.8 times and a forward of 9 times.

These are by no means criminally overpriced or underpriced metrics, but moving forward, I would like to see GAAP profitability through the expansion of profit margin, not just sales growth.





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