KeyStone’s Stock Talk Show, Episode 187
Great to be with you – we have an interesting mailbag to get into at the start of this week. I will comment on Kevin O’Leary’s recent curious take that he would back crypto trader Sam Bankman Fried in another venture after SBF’s FTX crypto exchange announced its bankruptcy last week. Aaron looks into BMO announcing they are partnering with former tech darling Cathy Woods to launch a couple of new technology ETFs on the back of her headline funds terrible performance over the past several years. In our YSOT segment, Brennan answers a question on Qorvo Inc. (QRVO:NASDAQ) develops and commercializes technologies and products for wireless, wired, and power markets worldwide. The stock has been cut in half from its 2021 highs, Brennan will let you know how the current valuations look from a fundamental perspective. Brett answers a listener question on RevoluGROUP Canada Inc. (REVO:TSX-V), a micro-cap, a self-licensed Neobank having secured licenses in Canada, the EU, and the US. The company’s flagship technology is RevoluPay, an Android and Apple multinational payment app and Visa Card. Brett enlightens us on the current fundamentals of the company.
I welcome my cohosts – Aaron, and the Killer B’s – Brennan and Brett.
Mr. Wonderful – AKA – Kevin O’Leary who was a paid spokesperson
Shark Tank’s Kevin O’Leary Shocks By Saying He Would ‘Still Back’ Sam Bankman-Fried: He’s a ‘Great Trader’
He was one of the most brilliant traders in the crypto universe – O’Leary apparently used FTX actively and says it was a very robust program….it gave his team great information from which to trade on – of course, not trade well on as he loss all of his assets in FTX International – O’leary himself has said his assets went to zero.
Let’s break that down – he called SBF one of the most brilliant traders in the crypto universe – SBF’s trading company just went bankrupt and took down that “robust” exchange FTX which O’Leary was paid to promote and publicly stating FTX was basically the one Crypto Exchange he would trust – compliance wise. That take did not age well.
O’Leary was also asked if he thought Sam Bankman-Fried will end up in jail –– Mr. Wonderful answer – I don’t know. So, he still thinks there is a reasonable chance that he may end up in jail for his actions running FTX and Alameda (his trading company) and yet, he still would back him.
O’Leary states SBF would not have operational control, he would just have trading control – now we feel sooooo much better about this idea. His trading company just went bankrupt. What the F is O’Leary talking about – you are not structuring this in a clever way. It is a dumb take.
Perhaps the answers sticks to O’Leary’s brand…he is all about the all mighty dollar and perhaps he means he would be a paid schill for a crypto scheme by SBF once again if the money was right. He just does not give a rat’s ass about anyone who lost any money on what allegedly could be fraudulent or at the very least completely irresponsible and reckless behaviour.
I used to really like O’Leary’s takes on Dragon’s Den and Shark Tank – where he would not invest in anything if it did not produce strong cash flow, growth and he paid a reasonable price for it.
He seems to really have gone off brand of late with his whole hog backing of crypto – given the fact that crypto currencies do not produce cash flow and are almost impossible to value he just seems to be flailing here and quite frankly seems out of his element.
I am sure he was paid well to promote the exchange and its worthless coins, but his doubling down on SBF is not a good look. To quote O’Leary, it appears SBF and O’Leary’s doubling down on SBF should be taken out behind the barn and shot.
Cathy Woods Launches New ETFs with BMO After Reporting the Worst Performance of Almost Any ETF in 2022
Your Stock Our Take
Manuel – “Could you provide a synopsis on QRVO’s growth prospects and valuation for investment?”
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Qorvo Inc. (QRVO:NASDAQ)
Price: $95.36
Market Cap: $9.68 Billion.
Company Description:
Qorvo develops and commercializes technologies and products for wireless, wired, and power markets worldwide. The company operates through three segments, High Performance Analog, Connectivity & Sensors, and Advanced Cellular. It offers mobile devices, such as smartphones, wearables, laptops, tablets and other devices. The company also provides SiC (silicon carbide) products, such as Schottky diodes and transistors for automotive, industrial, IT infrastructure and renewable energy markets.
Key Points:
The stock is down about 52% from its 2021 highs of approximately $200 per share.
On November 2nd the company announced a $2B share repurchase program, which is good to see while the stock has been hit pretty hard in the market.
Financial Results Q2 2023:
The company just reported its Fiscal Q2 2023 results on November 2:
- Revenue was down -7.7% to $1.16B
- High Performance Analog – was up 47% Y-o-Y driven by defense and non-consumer related power products including silicon carbide.
- Connectivity & Sensors – was down -19% Y-o-Y due to weaker consumer spend primarily for Wifi-enabled products.
- Advanced Cellular – was down -15% Y-o-Y reflecting lower smartphone unit volumes within the Android ecosystem.
- Gross margins were down 3% to 46.5%.
- GAAP Diluted EPS was $1.82 per share, down -36% from $2.84 per share.
- Non-GAAP or adjusted EPS was down -22% to $2.66 per share. The biggest adjustment to Non-GAAP EPS was stock based comp which equates to about $0.30 per share which is added back to GAAP EPS.
- Balance sheet has net debt of approximately $1.14B, and a trailing net debt to EBITDA multiple of under 1x.
Financial Commentary and Outlook for Q3 2023:
Q3 revenue is expected to be $700-$750 million
- At the midpoint this would indicate a sequential decline of -37%…. and would be the lowest revenue seen since the quarter ended of March 2020.
Non-GAAP diluted earnings per share in the range of $0.50-$0.75
- At the midpoint, Adj. EPS would be down -79% from Q3 2021.
- Utilizing adjusted EPS guidance, the company trades with a FWD P/Adj. EPS multiple of 11x, which looks reasonable… but looking at its growth prospects, may be pricing it around fair value.
In the MD&A management noted – “Our current view of the second half of the fiscal year reflects ongoing weakness across end markets, primarily in consumer-related areas as well as a more acute inventory correction at our Android smartphone customers than was previously predicted. At the volume levels assumed in our guidance, we expect our inventory position to remain elevated, but improved by the end of the fiscal year as we undership normalized demand and reduced factory utilization. Simultaneously, we are cutting costs in our factories to offset the impact from lower volumes. Unabsorbed fixed costs will impact gross margin in the second half.”
“The most dominant headwind is the factory underutilization, which is generating over 700 basis points of gross margin headwind.”
CONCLUSION
It appears that headwinds are anticipated to persist through the second half of the company’s Fiscal 2023… therefore I would remain patient with the business as we will likely see the next two quarters post lower revenue and profitability than what we have seen with quarters over the last two years.
Overall, I will say that the company has a good track record of growing revenue and profitability, and right now it trades with reasonable valuation multiples… but given the weakness anticipated in its operations, these multiples may continue to increase (as profitability declines from elevated levels). So again, I think this is just one that we would monitor until it shows some signs of recovering towards growth.
From Naveed K
RevoluGROUP symbol R-E-V-O on the TSXV is a self-licensed neobank having secured licenses in Canada, the EU, and the US. The company’s flagship technology is RevoluPay, an Android and Apple multinational payment app and Visa Card. The App is aimed at the worldwide leisure sector and family remittance market. The shares are currently trading at 0.30 and the company has a market cap of $57 million.
The company produced revenue of only 91 thousand in the last quarter, and had a net loss of 440 thousand. The company is not pre-revenue but is in the very early stages, and it is unlikely to see any profitability in the near future.
Revolu had a cash position of $957 thousand at the end of the last quarter and has since had warrants exercised bringing in an additional $229 thousand. The company has actively been burning cash, $359 thousand for operations in the last quarter.
Because the company is cashflow negative, they need to raise cash through debt or equity, and Revolu chooses equity. The company has diluted the stock by roughly 9% over the past year, which has helped the company hold onto its net cash position.
The company does have a potentially significant growth runway due to the overall size of the payment services market. The company does have an early foothold in the regulated cryptocurrency market in the EU, being MiCA compliant in 27 countries. Following the collapse of FTX, more calls for regulation have occurred, which will likely put Revolu in an advantageous position.
Despite being unprofitable Revolu does have a chance of short term returns as, it is looking to be acquired by a European Financially regulated entity. The acquisition has passed the due diligence phase, which does mean the likelihood of the transaction being completed has went up, but by no means is it a guarantee.
The company’s price is currently trading on the expectations of a deal being made, before the initial announcement of a potential acquisition the stock was generally trading in the $0.20 to $0.25 and, since the announcement, has traded as high as $0.40 up to a 100% premium of the pre-announcement price. So, if the deal falls through you would likely see an immediate fall down to the $0.20 level, whereas if it does go through you would receive the currently undisclosed premium between the current price and what the acquirer would need to pay.
This is by no means a long-term investment at its current price, it is an event-driven trade based on the potential acquisition. We stay away from these scenarios as it is purely a trade at this point and not an investment. That being said, the underlying technology clearly does have value and interest, so it will be an interesting company to watch.
