Stock Talk Podcast Episode 290 Show Notes

You are listening to KeyStone’s Stock Talk Show – Episode 290

Great to chat with you again this week. This week, in light of the volatile political and economic environment centered in the US, Aaron will provide a state of the union type current economic outlook. In our YSOT segment, I will begin with a viewer question on Pet Valu Holdings Ltd. (PET:TSX), Canada’s leading retailer of pet products with a growing network of corporate and franchised stores across the country. In a tough environment, the company reported Q4 numbers that beat estimates, but has a muted outlook for growth in 2025 – we take a look at the valuations of this solid Canadian dividend growth stocks. Brennan answers a viewer question on Tesla Inc. (TSLA:NASDAQ), the Elon’s EV leader which, after its initial Trump bump, is down 13% as we record the segment today and over 40% YTD. Brennan revists the financial performance outside the noise and outlook moving forward in a new environment. To close our the show, Brett, revisits a company we will be interviewing in person in California next week, Perion Networks (PERI:NASDAQ). Perion is a provider of advanced technology for digital advertising, which trades close to cash value after a volatile down year. Brett let’s you know the current fundamental and outlook ahead of our in person meeting with the company.

Let’s get to the show – we welcome my cohost, Mr. Aaron Dunn and the killer B’s, Brett and Brennan.

Poll question:

YSOT Pet Valu Holdings Ltd. (PET:TSX) – Viewer Request

Headquartered in Markham, Ontario, Pet Value is Canada’s leading retailer of pet products with a growing network of corporate and franchised stores across the country selling a combo of proprietary and third-party brands with an increasingly omni-channel approach. The company also has a substantial wholesale platform servicing the majority of inventory needs at franchised locations.

In a weak market, the stock is actually up 4.79% year-to-date after reporting Q4 numbers that beat the street estimates.

 – but shares are down 16.85% over the past year in a tough macro/consumer and competitive environment.

Let’s take a quick look at the company’s Q4 and 2024 annual numbers released last week.

For the year:

• Revenue was $1.097 Billion, up 3.9% versus the prior year.
• Net income was $87.4 million or $1.22 per share, down from $89.5 millionor $1.26 per share in the prior year.
• Adjusted Net Income was $113.3 million or $1.57 per diluted share, compared to $116.5 million or $1.61 per diluted share, respectively, in the prior year.

For the fourth quarter:

• Revenue was $295.1 million, up 2.9% versus Q4 2023.
• Adjusted EBITDA was $68.2 million, down 4.3% versus Q4 2023, representing 23.1% of revenue.
• Net income was $28.9 million, up from $28.8 million in Q4 2023. The increase in net income is primarily explained by lower net interest expense and lower income taxes, partially offset by lower operating income and higher loss on foreign exchange.
• Adjusted Net Income was $32.2 million or $0.45 per diluted share, compared to $39.1 million or $0.54 per diluted share, respectively, in Q4 2023.
• Opened 19 new stores and ended the quarter with 824 stores across the network.

Pet Value also introduced its 2025 Outlook

Fiscal 2025 will be a 53-week fiscal year for Pet Valu, compared to a 52-week fiscal year in Fiscal 2024 (so these numbers incorporate and extra week. The company expects:

• Revenue between $1.17 and $1.20 billion, supported by approximately 40 new store openings, same-store sales growth between 1% and 4% and higher wholesale merchandise sales penetration: 7-9% growth.
• Adjusted EBITDA between $254 and $260 million, which incorporates continued price investments and normalization of operating expenses: 3-5% growth.
• Adjusted Net Income per Diluted Share between $1.60 and $1.66, which incorporates approximately $12 million pre-tax, or $0.12 per diluted share, of incremental depreciation and lease liability interest expense associated with the new distribution centres: 2-6% growth

Really without the extra week a relatively flat year.

We point out that these estimates assume governmental foreign trade policies similar to Fiscal 2024 – tariffs, while manageable from management’s perspective ad a new layer of risk.

Valuations:

2024a PE: 17

2025e PE: 16.5

Conclusion:

Good company – valuations are fair near-term.

The tough macro/consumer and competitive environment translated into muted momentum (limited revenue growth, modest profit decline), but management does seem to be navigating through the headwinds slightly better than the market expected – beating Q4 estimates).

Macro/consumer and competitive headwinds likely persist – core KPI (Key performance indicator) to follow is same store sales likely stuck at modest growth throughout most of 2025 (with downside risk in a trade war). Competition has increased with entry of Chewy (US-based online pet retailer) into the market.

Stock is not cheap enough to attract meaningful inflows from value investors – Monitor – could be a name to add on significant discount.

YSOT Tesla Inc. (TSLA:NASDAQ) – Viewer Request

Company Description:

Tesla designs, develops, manufactures, leases, and sells electric vehicles, and energy generation and storage systems in the United States, China, and internationally. The company operates in two segments, Automotive; and Energy Generation and Storage.

And as you can see here, Automotive makes up about 90% of revenue in the last fiscal year, while Energy generation and storage is at about 10%.

Now if you remember my 2024 prediction made in Jan 2024, I predicted that Tesla would decline during the 2024 Calendar year from its then current price of $256….. and this was based on:

1. Declining Profit Margins – as the company slashed prices to try to maintain market share.
2. Potential lower demand with elevated interest rates and more competition from large manufacturers releasing EVs.

But despite what I predicted essentially coming to fruition, because of Elon’s support of the Trump campaign, and Trump getting elected as president, the stock absolutely took off in late 2024 with the stock finishing the year up 2024 up over 60%.

But it didn’t take long for the hype to fade….

Looking at deliveries, the company came short of estimates in Q4, and for the full year reported a 1% drop to 1.78M vehicles, which is the company’s first ever year over year decline… with analysts indicating the decline is likely due to rising competition, shifting demand, and overall economic conditions…

Now looking at the financial results for the past 3 Fiscal years:

• Total revenue was up slightly by 1%, which was driven by an increase in energy generation revenue by 67%, but was offset by a decline in revenue for Automotive & Services of 3.4%. Management noted that the decrease was primarily due to lower average selling prices on its vehicles as well as a decrease in deliveries.
• We also saw gross margin and profit margin decline in the year, with total gross margin declining to 17.9% from 18.2% for the same period last year, and net income margin declining to 7.3% from 15.5%. And the primary reason for the decline was a decrease in total automotive & services gross margin, as well as an increase in operating expenses due in part to the launch of the Cybertruck.
• So overall, Basic EPS was down 53% to $2.23 per share from $4.73 per share last year.

Balance Sheet (Q4 2024)

And looking at the balance sheet, it remains top notch with cash & Short-term investments of $36.5B, with debt and leases of $8.3B and a net cash position of $28.2B or $8.82 per share.

Valuations

Looking at the valuation… the stock remains very pricey trading at around 100x trailing earnings, even if we exclude the large net Cash balance. And really since the company got into profit in 2020 the stock has traded with an average P/E of ~100x.

Conclusion

• Tesla’s share price had a strong 2024, up over 60% led by euphoria around Musks relationship with Trump and his victory at the ballots.
• 2025 YTD the stock has been getting beaten down, dragged lower by its weak FY 2024 results with decreased deliveries, margins and earnings. And potentially negative sentiment with Musk in news headlines as he is becoming a more polarizing figure to the American public.
• The balance sheet remains healthy, but the stock continues to be quite expensive. Now this graph that I have on the right is from Visual capitalist in December 2024… but at that time Tesla continued to be worth more than all major brands combined.
• I certainly think Tesla is a decent business long term, but there could be more pain ahead in the near term if growth concerns lead to further compression in its valuation multiple.
• And with Musk continuing to be at the center of politics, this could potentially lead to boycotts of the automaker as we have seen over the last few months… and potentially impact demand if further backlash occurs.

Perion Networks (PERI:NASDAQ) – Interviewing at ROTH 2025

We will be talking to Perion at the ROTH conference next week and it should be interesting given the company’s turbulent year.

Company Description:

Perion Networks Symbol PERI on the NASDAQ is a provider of advanced technology for digital advertising. The company offers solutions for Connected TV or CTV, digital out of home or DOOH, social, display, video and digital audio.

The stock is at $8.49 a share, a $411 million market cap. This is after the collapse in share price over the past year, falling 62%.

Major 2024 Declines

The first of the two large drops in 2024 in April was due to changes in Microsoft Bing’s changes and pricing mechanism. Leading to an over 30% drop in guided revenue for 2024 at the time. Resulting in a 41% drop in stock price.
The second large drop in June, another change from Microsoft impacting its Search distribution marketplace. Revenue guidance for 2024 decreased another 20% and a 30% drop in the stock price.

The company has since shifted to now rolling out a single platform model unifying its brands and technologies under Perion One. Where CTV, digital out of home, retail media, social, and open web capabilities are under a single AI-driven platform. The strategy has a focus on AI development for both the customer side and operational efficiency. As well as the goal of reducing the silo’d nature of each solution to simplify campaigns across major channels.

After the Microsoft changes, the company was more-or-less forced to pivot and Perion One is the result.

Shifting to the financials, which I will preface with are preliminary as the company has not filed it’s 20-F for the year.
Performance year-over-year was pathetic, for the quarter, the big drop being search revenue fell 78% down to $25.5 million, total revenue fell 45% to $130 million, EPS down 86% at $0.11, operating cashflow down 91% to just $4.3 million. This is the culmination of the Microsoft changes earlier in the year and why the stock got hammered so hard. The company did not renew its contract with Microsoft at the end of the year, but does expect a tail period of revenue into 2025. As well, I will note that the company does have interest income which supported the quarterly profitability, and without the interest income would have been at a net loss for all of 2024.

On the bright side, the company’s new focus segments did see growth for the entire fiscal year, DOOH  revenue grew 50% to $69.7 million, CTV grew 30% to $43.6 million, and the retail media vertical grew 62% to $80.6 million.

Balance Sheet

What I will highlight is an extremely strong balance sheet, with a net cash position of $373 million, mind you, the market cap is $411 million, so a $38 million enterprise value. Past operations, the company is looking to buyback shares, just today increasing its buyback authorization to $125 million of which it has spent $46.9 million. Buying back large amounts of shares is not uncommon when a company is trading near cash value.

The other potential use is an acquisition to build out Perion one. But the company has stated they are primarily focusing on organic growth for the time being.

2025 Financial Outlook

The company has guided for fiscal 2025,
Revenue of $400 to $420 million, implying an 18% year-over-year.
Adjusted EBITDA of $40 to $42 million, implying a decline of 19% year-over-year.
And an ex-TAC or traffic acquisition adjusted EBITDA margin of 22%, a 2% drop year-over-year.

So overall forecasting another year of decline, but that’s not unexpected given the company was still benefiting from the Bing advertising through part of 2024.

The company did note that they do not expect the reorganization to be reflected until the second half of 2025, but not having the full changes reflected until 2026.

Valuations

Using the company’s guidance, the valuations are an EV/EBITDA of 0.9 times and a Price to sales of 1.0 times, ex cash, you are looking at about 0.1 times. Very cheap on a purely valuation basis, but the company is contracting, and has significant risk with the reorganization of the solutions.

Conclusion

So right now Perion does not fit our investment criteria, the company is not growing, it had a major contraction across the board. Perion has highlighted two concepts, one being customer concentration with Microsoft, the other being the value of a strong balance sheet. On removing the value of the cash and equivalents, the enterprise value is only $38 million, meaning the value of the cash is roughly 10x what the market is currently valuing the future operations of the company at.

Now looking forward, we need to see if the company can continue to grow the CTV and DOOH channels as well as the retail vertical. And if it can even hit its guidance for 2025, and that looks to be an even more uphill battle as recession fears rise, which impacts advertising demand. But Perion’s growth is much more in their own hands compared to prior years as they aren’t more-or-less subservient to Microsoft, meaning a major risk is management’s execution, but if they can execute, there can be a major reward. And that is what we want to explore with them when we talk to them next week, and we will continue to monitor the stock going forward.