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YETI Stock Study (4-25-24)

Posted by on April 24, 2024 at 09:36 | Last modified: April 25, 2024 10:26

I recently did a stock study on YETI Holdings (YETI, $35.67). Previous studies are here, here, and here.

M* writes:

     > YETI Holdings Inc is a designer, marketer, and distributor of
     > premium products for the outdoor and recreation market sold under
     > the YETI brand. The company offers products including coolers and
     > equipment, drinkware, and other accessories. Its trademark products
     > include YETI Tundra, Hopper, YETI TANK, Rambler, Colster, Rambler
     > among others. The company distributes products through wholesale
     > channels and through direct-to-consumer, or DTC, channels.

Since 2018 when this medium-size company began to be publicly traded, sales and earnings have grown at annualized rates of 17.7% and 22.8%, respectively. Lines are up and somewhat parallel due to EPS dips in ’19 and ’22 (latter due to operational snafus including recall of defective items and inflation-induced demand destruction per Value Line). PTPM leads peer and industry averages despite trending sideways (range 7.3% in ’22 to 19.0% in ’21) with a last-5-year mean of 13.2%.

Over the last five years, ROE generally leads peer and industry averages despite falling from 57.3% in ’19 to 26.4% in ’23 with a mean of 43.4%. Debt-to-Capital is less than peer and industry averages in falling from 91.9% in ’18 to 19.6% in ’23 with a last-5-year mean of 36.4%.

Quick Ratio is 1.34, and M* lists no Interest Coverage ratio. I usually assume this to a good thing (very large to infinity), but it can’t hurt to verify. Simply Wall Street writes:

     > YETI Holdings has a total shareholder equity of $723.6M and total
     > debt of $79.4M, which brings its debt-to-equity ratio to 11%. Its
     > total assets and total liabilities are $1.3B and $573.6M
     > respectively… EBIT is $225.5M making its interest coverage
     > ratio 239.3. It has cash and short-term investments of $439.0M.

Assumption confirmed.

Value Line gives a “B” rating (down from “B+” six months ago) for Financial Strength despite writing in its analyst note: “the company is on solid footing financially for those on the conservative side.” The latter sounds encouraging while a “B” rating is as low as I’ll go. I don’t love the apparent contradiction.

With regard to sales growth:

I am forecasting below the range at 7.0% per year.

With regard to EPS growth:

I am forecasting below the long-term-estimate range (mean of four: 10.8%) at 8.0% per year. My initial value will be ’23 EPS of $1.94/share that represents an 88% YOY increase. Although I don’t like to project forward from an excessive high, being 19% lower than ’21 EPS makes it normalized.

My Forecast High P/E is 28.0. High P/E falls from 31.1 in ’18 to 27.9 in ’23 (interim high 80.6 in ’22) with a last-5-year mean of 52.4 and a last-5-year-mean average P/E of 36.6. I am forecasting near the bottom of the range (only ’23 is lower).

My Forecast Low P/E is 16.0. Low P/E falls from 18.0 in ’18 to 17.9 in ’23 (interim low 8.6 in ’20) with a last-5-year mean of 20.8. I am forecasting below the latter (’23 being the second-lowest yearly value at 17.9).

My Low Stock Price Forecast (LSPF) of $28.30 is default based on initial value of $1.94/share. This is 20.7% less than the previous close and 18.4% less than the 52-week low.

These inputs land YETI in the BUY zone with a U/D ratio of 5.6. Total Annualized Return (TAR) is 16.6%.

PAR (using Forecast Average—not High—P/E) of 11.4% is less than I seek for a medium-size company. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I start by comparing my inputs with those of Member Sentiment (MS). Based on only 32 studies (my study and 9 outliers excluded) over the past 90 days, averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 8.9%, 10.8%, 30.0, and 18.9, respectively. I am lower across the board. Value Line’s projected average annual P/E of 18.0 is lower than MS (24.5) and lower than mine (22.0).

MS high / low EPS are $3.27 / $1.95 versus my $2.85 / $1.77 (per share). My high EPS range is lower due to a lower growth rate. Value Line’s high EPS is $4.00: much higher than both.

MS LSPF of $27.90 implies a Forecast Low P/E of 14.3: lower than the above-stated 18.9. MS LSPF is 24.3% less than the default $1.95/share * 18.9 = $36.86 [INVALID on today’s date] resulting in more conservative zoning. MS LSPF is also 1.4% less than mine.

TAR (over 15.0% preferred) is lower than MS 20.3%. Despite the small MS sample size, bringing in Value Line and other analyst estimates compels me to evaluate MOS as robust in the current study.

With regard to valuation, PEG is 1.3 and 2.1 per Zacks and my projected P/E, respectively: the latter overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] is quite cheap at 0.5.

The ’23 EPS rebound from an excursive ’22 makes for a much easier SSG. No fancy manipulation necessary to get numbers that seem reasonable and no wild confusion from MS masses.

YETI is a BUY under $40 that meets my 15% TAR criterion right now (forecast high price $77).

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NFLX Stock Study (4-24-24)

Posted by on April 22, 2024 at 10:08 | Last modified: April 24, 2024 10:40

I recently did a stock study on Netflix Inc. (NFLX, $577.75). Previous studies are here, here, here, and here.

M* writes:

     > Netflix’s relatively simple business model involves only one business,
     > its streaming service. It has the biggest television entertainment
     > subscriber base in both the US and the collective international
     > market, with almost 250 million subscribers globally. Netflix has
     > exposure to nearly the entire global population outside of China. The
     > firm has traditionally avoided live programming or sports content,
     > instead focusing on on-demand access to episodic television, movies,
     > and documentaries. The firm recently began introducing ad-supported
     > subscription plans, giving the firm exposure to the advertising
     > market in addition to the subscription fees that have historically
     > accounted for nearly all its revenue.

Over the past decade, this large-size company has grown sales and earnings at annualized rates of 24.1% and 59.9%, respectively. Lines are mostly up, narrowing, and parallel except for EPS declines in ’15 and ’22. PTPM lags peer and industry averages despite trending higher from 6.3% (’14) to 18.4% (’22) with a last-5-year mean of 15.5%.

Also over the past decade, ROE lags peer and industry averages despite trending up from 15.1% (’14) to 23.5% (’23) with a last-5-year mean of 26.0%. Debt-to-Capital is roughly even with peer and industry averages while increasing from 32.6% (’14) to 66.4% (’18) then reversing lower to 41.4% (’23) for a last-5-year mean of 51.5%.

Interest Coverage and Quick Ratio are 11.8 and 0.9, respectively. M* rates the company an “Exemplary” rating for Capital Allocation and “Narrow” for economic moat while Value Line gives an “A” rating for Financial Strength.

With regard to sales growth:

I am forecasting below the range at 7.0% per year.

With regard to EPS growth:

I am forecasting just under the long-term-estimate range (mean of five: 22.8%) at 13.0% per year. I will use ’24 EPS of $12.03/share as the initial value rather than 2024 Q1 $14.41/share (annualized).

My Forecast High P/E is 35.0. Over the past decade, high P/E decreases from 113 (’14) to 41.6 (’23) with a last-5-year mean of 70.6 and a last-5-year-mean average P/E of 54.5. At some point, I expect P/E to fall back to earth. For now, I am forecasting at the upper end of my comfort zone.

My Forecast Low P/E is 30.0. Over the past decade, low P/E decreases from 69.3 (’14) to 23.7 (’23) with a last-5-year mean of 38.3. Again, at some point I expect P/E to fall back to earth and we may already be starting to see this with a current P/E of 40.1. I am forecasting toward the bottom of the range [only ’23 and ’22 (16.4) are lower].

My Low Stock Price Forecast (LSPF) is $360.90: default based on $9.39/share initial value. This is 37.5% less than the previous close and 12.6% less than the 52-week low.

These inputs land NFLX in the HOLD zone with a U/D ratio of 0.9. Total Annualized Return (TAR) is 6.1%.

PAR (using Forecast Average—not High—P/E) of 4.5% is less than the current yield on T-bills. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead (still lower than I seek for a large company).

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 146 studies (my study and 28 outliers excluded) over the past 90 days, averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 11.6%, 14.7%, 50.0, and 32.6. I am lower across the board. Value Line’s projected average annual P/E of 39.0 is lower than MS (41.3) and higher than mine (32.5).

MS high / low EPS are $24.20 / $11.82 versus my $22.16 / $12.03 (per share). My high EPS is lower due to a lower growth rate. Value Line’s high EPS is $22.75. I am lowest of the three.

MS LSPF of $330.30 implies a Forecast Low P/E of 35.6: more than the above-stated 32.6. MS LSPF is 14.3% less than the default $11.82/share * 32.6 = $385.33, which results in more conservative zoning. MS LSPF is also 8.5% less than mine.

TAR (over 15.0% preferred) is much less than the 14.8% from MS. MOS seems robust in the current study.

With regard to valuation, PEG is 1.4 and 2.7 per Zacks and my projected P/E, respectively: the latter being significantly overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] per M* is low at 0.74.

NFLX is a BUY under $464. With a forecast high price of $775.80, TAR should meet my 15% criterion around $388/share. I am not surprised to see a stock up 75% in the past 12 months far extended from a buy point.

Full disclosure: I currently own NFLX shares.

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MBUU Stock Study (4-23-24)

Posted by on April 18, 2024 at 11:52 | Last modified: April 23, 2024 12:47

I recently did a stock study on Malibu Boats Inc. (MBUU, $34.07). Previous studies are here, here, and here.

M* writes:

     > Malibu Boats is a leading designer and manufacturer of power
     > boats in the United States. It is the market leader in
     > performance sport boats, sold under its Malibu and Axis brands.
     > It acquired Cobalt Boats, a leading producer of sterndrive
     > boats in the U.S. in the 24-foot to 29-foot segment, and
     > Pursuit Boats, which makes high-end offshore and outboard
     > motorboats in 2018. In 2021, it purchased Maverick Boat Group,
     > a leading seller of flat fishing boats, with exposure to bay,
     > dual-console, and center-console boats. Malibu has also
     > expanded into boat trailers and accessories, and in 2020
     > began producing its own engines (Monsoon) for its performance
     > sport boats. Malibu’s target market includes a wide range of
     > water enthusiasts who embrace the active outdoor lifestyle.

Over the past decade, this medium-size company has grown sales and earnings at annualized rates of 26.6% and 30.5% [86.0% including 2014 EPS of -$0.42], respectively. Lines are mostly up, straight, and parallel except for a sales decline in ’20 (FY ends Jun 30) and EPS declines in ’18, ’20, and ’23. PTPM is higher than peer and industry averages, ranging from 10.2% in ’23 (excluding the loss from ’14) to 18.0% in ’18 with a last-5-year mean of 13.9%.

Over the past five years, ROE is slightly better than peer and industry averages despite falling from 35.6% in ’19 to 16.7% in ’23 with a mean of 28.6%. Debt-to-Capital is lower than peer and industry averages by falling from 35.7% in ’19 to 0.4% in ’23 with a last-5-year mean of 21.7%.

Interest Coverage is 29.1 and Quick Ratio is 0.60. M* gives a “Standard” for Capital Allocation while Value Line assigns a B+ rating for Financial Strength. M* categorizes the company with a “Narrow” economic moat.

With regard to sales growth:

I am forecasting zero growth: less than the mean of both long-term estimates.

With regard to earnings growth:

I have asked for clarification about the M* long-term EPS growth projection. While SSGPlus states this to be 8.9%, the “forecast” box defaults to 4%. Interestingly, long-term EPS calculated from 2023 EPS with a 4.0% growth rate is about equal to that calculated from Q2 2024 ($3.12/share annualized) with a 14.2% growth rate. I wonder if YF gets 15.0% this way.

The three long-term estimates have a range of 21.7% (suggesting high uncertainty) and mean of 5.7%. I am forecasting zero growth and using ’23 EPS of $5.06/share as the initial value.

My Forecast High P/E is 11.0. Since 2015, high P/E falls from 26.0 (34.2 in ’18 excluded) to 14.0 (’23) with a last-5-year mean of 16.3. The last-5-year-mean average P/E is 12.2. I am forecasting below the range [lowest is 11.5 in ’22].

My Forecast Low P/E is 5.0. Since 2015, low P/E generally trends down from 17.4 to 9.2 (’23) with a last-5-year mean of 8.1. I am forecasting below the range [lowest is 6.1 in ’20].

My Low Stock Price Forecast (LSPF) of $25.30 is default based on $5.06/share initial value. This is 25.7% less than the previous close and 25.1% less than the 52-week low.

These inputs land MBUU in the HOLD zone with an U/D ratio of 2.4. Total Annualized Return (TAR) is 10.3%.

PAR (using Forecast Average—not High—P/E) is less than the current yield on T-bills at 3.5%. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 47 studies (18 outliers including mine excluded) over the past 90 days, averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 3.0%, 8.9%, 13.9, and 8.0, respectively. I am lower across the board. Value Line’s projected average annual P/E of 10.0 is lower than MS (11.0) and higher than mine (8.0).

MS high / low EPS are $6.37 / $3.12 versus my $5.06 / $5.06 (per share). Value Line’s high EPS is $6.50, which makes mine lowest of the three. My forecast EPS [average] is higher than the MS range (mean $4.75/share), however.

MS LSPF of $26.50 implies a Forecast Low P/E of 8.5: higher than the above-stated 8.0. MS LSPF is 6.2% more than the default $3.12/share * 8.0 = $24.96 resulting in more aggressive zoning. MS LSPF is also 4.7% greater than mine.

My TAR (over 15.0% preferred) is less than the 13.5% from MS. MOS seems robust in the current study.

Relative Value [(current P/E) / 5-year-mean average P/E] per M* is a bit low at 0.9.

Analyst commentary on MBUU remains positive despite an unfavorable macroeconomic backdrop. Decreased demand for luxury goods is a current reality, and both Value Line and M* imply corporate execution is not to blame. Despite some confusion over M* long-term EPS forecast (one of only three such estimates available), I am discounting the growth forecast to zero and still landing close to the BUY zone. I’d still like a bit more in terms of upside surprises to justify a higher TAR.

MBUU is a BUY under $32. With a forecast high price of $55.70, TAR should meet my 15% criterion just under $28/share.

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ELF Stock Study (4-22-24)

Posted by on April 16, 2024 at 14:10 | Last modified: April 22, 2024 22:34

I recently did a stock study on e.l.f. Beauty, Inc. (ELF) with a previous closing price of $156.73.

M* writes:

     > e.l.f. Beauty Inc is a cosmetic company based in the US. The company
     > offers cosmetic accessories for women which include eyeliner, mascara,
     > false eyelashes, lipstick, the foundation for the face, moisturizer,
     > cleanser, and other tools through its stores and e-commerce channels.
     > The products that the company sells are marketed under the e.l.f.
     > Cosmetics, W3LL PEOPLE and Keys Soulcare brands. It carries out the
     > sales within the US and internationally, out of which maximum
     > revenue is generated from the US.

This past weekend, I attended a ClimbUSA.org (Communities Learning to Invest and Mobilize in Business) CBIE (Community Based Investment Enterprises) Spring Cohort webinar. I’m still new to the organization, but they’re involved with teaching kids and adults about investing, investment clubs, and stock analysis using the BetterInvesting approach. The instruction and desire to learn is quite inspirational.

One of the group leaders presented ELF, and I found it interesting because her SSG produced a U/D of 7.5 despite Value Line’s advice that “conservative investors may want to take profits here.”

What will the numbers have to say to me?

I first need to address a data-labeling issue. The ELF FY ends 3/31 with its next earnings date May 22, 2024. Complete 2024 annual results should be available at that time. Since the BI website currently shows data through 2022, I need to increment the year label by one when referencing the website. This applies to Value Line as well.

I also need to exclude some EPS data because raw visual analysis may not clear the barbed wire fence. The website indicates public trading beginning with 2017 (2016 + 1). I will exclude ’15 and ’16. I will also exclude the outlier ’17 EPS (-$39.47/share) and the sudden drop (to $0.12/share) in ’21 due to COVID.

With the data now smoothed, since ’18 this small company has grown sales and EPS at annualized rates of 16.2% and 10.9%, respectively. Lines are somewhat up, straight, and parallel with a sales and EPS dip in ’19. It’s concerning that 2018’s $0.68/share EPS is not eclipsed until ’23, but the history is somewhat brief.

Since ’18, PTPM trails the industry and leads peers while ranging from 6.5% (’22) to 11.1% (’23) with a last-5-year mean of 8.2%. ROE is 18.9% in ’18 and 15.5% in ’23 with a last-5-year mean of 9.3%. Debt-to-Capital is less than the industry and recently below peer averages in decreasing from 44.6% (’18) to 16.7% (’23) with a last-5-year mean of 31.6%.

Current Ratio is 1.5 and Quick Ratio is 0.6. Interest Coverage is a solid 30. Value Line gives a B+ rating for Financial Strength.

With regard to sales growth:

I am forecasting below the entire range at 20.0% per year.

With regard to earnings growth:

I have data duplication concerns. YF and Zacks have the same YOY sales forecasts to the thousandths place (0.1%) given 15 and 9 analysts, respectively. Three of four long-term EPS projections are 35.8%. Analysts’ independent arrival at those projections would be more robust than one analysis being duplicated by many sources, but the former is unlikely to match with such precision. I will therefore count 35.8% just once for a mean long-term growth estimate of 28.3%.

My 20.0% EPS forecast is very high but below the analysts’ [even higher] range due largely to these duplication concerns. My initial value is the 2024 Q3 (annualized) $2.26/share (rather than ’23 EPS of $1.11).

My Forecast High P/E is 35.0. Since ’18, high P/E increases from 45.7 to 75.6 (’23) with a last-5-year mean of 71.7 (106 including ’21) and a last-5-year-mean average P/E of 54.4. I am forecasting at the upper end of my comfort zone.

My Forecast Low P/E is 25.0. Since ’18, low P/E ranges from 18.5 in ’23 to 54.2 in ’22 with a last-5-year mean of 29.6 (37.0 including ’21). I am forecasting just above the 24.1 median (25.7 including ’21).

My Low Stock Price Forecast (LSPF) is $100/share. The default based on $2.26/share is $56.50: 64.0% less than the previous close and 32.6% less than the 52-week low. This may be unreasonably low. I would not consider the 52-week low to be unreasonably low unless ELF is now a qualitative different company after acquiring Naturium. Value Line says Naturium “experienced exceptional growth, with net sales increasing at an approximately 80% compound annual growth rate over the last two years, and $90 million of net sales were expected this year.” With ELF posting $579M in ’23 revenue, the acquired revenue amounts to ~16% bump: not a qualitative change in this analyst’s view. Just to further preclude the possibility of being extreme, I have raised my LSPF from 52-week low to triple digits.

These inputs land ELF in the HOLD zone with a U/D ratio of 0.7. The Total Annualized Return (TAR) is 4.7%.

PAR (using Forecast Average—not High—P/E) of 1.5% is less than the current yield on T-bills. Even if a healthy margin of safety (MOS) anchors this study to justify TAR, T-bills offer a higher risk-free return.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 76 studies over the past 90 days (my study and 23 outliers excluded), averages (lower of mean/median) for projected sales growth, EPS growth, Forecast High P/E, and Forecast Low P/E are 20.0%, 19.3%, 68.6, and 30.0. My P/E range is lower but my growth forecasts are not. Value Line projects an average annual P/E of 40.0, which is lower than MS (48.8) and higher than mine (30.0).

MS high/low EPS is $5.14/$2.23 versus my $5.62/$2.26 (per share). My high EPS is due to a higher growth rate. Value Line projects a high P/E of $5.15/share.

MS LSPF of $67.80 implies a Forecast Low P/E of 30.4: in-line with the above-stated 30.0. MS default LSPF is 32.2% less than mine: $2.23/share * 30.0 = $66.90. This makes for more conservative zoning.

My TAR (over 15.0% preferred) is much less than MS 13.8%. Despite using a much higher LSPF, MOS seems robust in the current study due to my lower forecast P/E range.

With regard to valuation, PEG is 1.2 and 2.9 per Zacks and my projected P/E: fairly valued and overvalued, respectively. Relative Value [(current P/E) / 5-year-mean average P/E] per M* is expensive at 1.4.

My overall takeaway is two-fold with the first point being no surprise to see a stock up 177% in the past year as far extended from the BUY range as ELF is today.

Second, I am personally very reluctant to entertain a sky-high P/E several years into the future even though it may cause me to miss the occasional NVDA. Such P/E levels are “priced to perfection” with one misstep being all it takes for a subsequent fall back to earth. The 7.5 U/D referenced at the top coincides with a Forecast Low P/E of 60.

I would look to re-evaluate ELF under $125/share. With a forecast high price over $196, TAR should meet my 15% criterion around $98/share.

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AL Stock Study (4-19-24)

Posted by on April 12, 2024 at 10:56 | Last modified: April 19, 2024 12:28

I recently did a stock study on Air Lease Corp. (AL, $48.73). Previous studies are here, here, and here.

M* writes:

     > Air Lease Corp is an aircraft leasing company based in the U.S.
     > However, it derives its revenue from the Asia region. Its business
     > involves purchasing aircraft from renowned manufacturers such as
     > the Boeing Company (Boeing) and Airbus S.A.S and leasing them
     > to airline companies across the world. Its suite of aircraft entails
     > single-aisle narrow-bodied jets and twin-aisle wide-bodied
     > aircraft. The company earns from revenue originates from the
     > renting of flight equipment.

This medium-size company has grown sales and EPS at 10.1% and 7.2% per year from ’14-’23. 2022 GAAP loss of $1.24/share is excluded due to write-down of aircraft in Russia (operations terminated due to war sanctions).

Excluding ’22, sales are up and mostly straight while earnings peak in ’19 (excluding ’17 when EPS spikes ~100% due to TCJA) before finally being eclipsed in ’23.

Over the last 10 years, PTPM is higher than peer and industry averages despite generally trending down from 37.6% in ’14 to 28.1% in ’23 (excluding ’22) with a last-5-year mean of 30.7% (23.3% including ’22). ROE is slightly better than peer averages and mostly lower than the industry while ranging from 6.2% in ’21 (’22 excluded) to 11.4% in ’18 (’17 excluded due to TCJA) for a last-5-year mean of 8.3% (6.2% including ’22). Debt-to-Capital is less than peer and industry averages despite ranging from 70.1% in ’17 to 73.7% in ’22 with a last-5-year mean of 72.2%.

In a comment to this article, “Phx Suns” writes:

     > AL is a leasing company… using its investment grade balance
     > sheet to buy expensive equipment and lease it to non-investment
     > grade customers earning an interest spread. The historic…
     > 300bp [spread is]… now… closer to 500bp [due to] fixed…
     > cost of capital in 2020 and 2021 before… interest rate hikes.
     > With rates increasing… spread rises until… plane is delivered
     > and… 10-year lease locked in. Also, [on] weaker credit, [a
     > company] would have a tougher time borrowing at 9%-10% to
     > buy… vs. leasing… at 8% from AL.
     >
     > There is a shortage of planes – AL’s order book is receiving
     > planes now that were due to arrive in 2019-20. Its 2023 orders
     > may arrive by 2028… shortage of high-demand equipment makes
     > the value go up. AL has sold used planes for sizable gains
     > reflecting… depreciated value on the balance sheet [that] is
     > below fair market value for the assets. So the total aircraft
     > market is a growing pie and leasing is [becoming] a larger
     > slice… And there’s a 10-year backlog for planes on order…
     >
     > AL recycles capital by purchasing new planes and selling planes
     > that reach ages of 8-10 years… new planes… are cheaper
     > to operate, burn less fuel, [and] need less maintenance…
     > during COVID its planes were flying when other planes were
     > grounded… [Aircraft] sales [were] $1.9B from 2018-22… Take
     > note that aircraft sales were $524M from ’20-’22… in
     > first half of’23 – this was $1.26B.

Value Line gives a C++ rating for Financial Strength. A consistently negative FCF and high debt-to-capital are, as implied above, normal facets of the business model that may contribute to the low rating.

Interest Coverage is 14.9 per M*, and Quick Ratio is 0.35.

With regard to sales growth:

I am forecasting below the range at 9.0% per year.

With regard to earnings growth:

My 10.0% forecast is well below the 4-long-term-estimate range (mean 16.3%). The initial value will be ’23 EPS $5.14/share.

My Forecast High P/E is 9.0. Over the last 10 years, high P/E ranges from 7.2 in ’17 to 18.0 in ’14 with a last-5-year mean of 11.2 and a last-5-year-mean average P/E of 9.3. I am forecasting near the bottom (’17 is lower and ’23 is also 9.0).

My Forecast Low P/E is 6.0. Over the last 10 years, low P/E ranges from 5.0 in ’17 to 12.6 in ’14 with a last-5-year mean of 7.5. I am forecasting near the bottom of the range [only ’17 and ’19 (5.8) are lower].

My Low Stock Price Forecast (LSPF) is $33.30. The default LSPF is $30.80. As this may be extreme (36.8% less than the previous close and 7.5% less than the 52-week low), I am using the 52-week low: 31.7% less than the previous close.

Over the past decade, Payout Ratio ranges from 4.8% in ’17 to 18.6% in ’21 with a last-5-year mean of 14.7% (2022 NMF excluded). I am forecasting conservatively at 5.0%.

These inputs land AL in the HOLD zone with a U/D ratio of 1.7. Total Annualized Return (TAR) is 9.4%.

PAR (using Forecast Average—not High—P/E) of 5.6% is less than I seek for a medium-size company. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 118 studies over the past 90 days (my study and 33 outliers excluded), averages (lower of mean/median) for projected sales growth, EPS growth, Forecast High P/E, Forecast Low P/E, and Payout Ratio are 10.4%, 10.5%, 10.8, 6.0, and 11.5%, respectively. I am equal to or lower than all.

MS high/low EPS is $8.28/$4.68 versus my $8.28/$5.14 (per share). Given the negative earnings in ’23, I can imagine going lower on the low EPS. 25 studies (21.1% of the sample) use a number under ’20 EPS of $4.39/share, though.

MS LSPF of $30.90 implies a Forecast Low P/E of 6.6 vs. the above-stated 6.0. MS LSPF is 10.0% greater than the default value of $4.68/share * 6.0 = $28.08, which results in more aggressive zoning. MS LSPF is 7.2% less than mine, however.

My TAR (over 15.0% preferred) is much less than MS 15.6%. MOS seems robust in the current study despite my impressions to the contrary (my EPS range is higher, my LSPF is higher, and my P/E range and EPS forecasts are only slightly lower).

With regard to valuation, PEG is 0.6 and 0.9 per Zacks and my projected P/E, respectively: both slightly cheap. Relative Value [(current P/E) / 5-year-mean average P/E] per M* is reasonable at 1.02.

AL is a BUY under $43. With a forecast high price at $74.50, TAR should meet my 15% criterion around $37/share.

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LULU Stock Study (4-18-24)

Posted by on April 10, 2024 at 07:45 | Last modified: April 18, 2024 08:31

I recently did a stock study on Lululemon Athletica Inc. (LULU, $344.86). Previous studies are here and here.

M* writes:

     > Lululemon Athletica Inc. designs, distributes, and markets
     > athletic apparel, footwear, and accessories for women, men,
     > and girls. Lululemon offers pants, shorts, tops, and jackets
     > for both leisure and athletic activities such as yoga and
     > running. The company also sells fitness accessories, such
     > as bags, yoga mats, and equipment. Lululemon sells its
     > products through more than 680 company-owned stores in
     > 19 countries, e-commerce, outlets, and wholesale accounts.

This medium-size [not for much longer] company has grown sales and EPS at rates of 20.9% and 24.2% per year since 2015 (FY ends 1/31). Lines are mostly up (EPS dips in ’18, ’21, and ’23), straight, and parallel. PTPM over the last 10 years leads peer and industry averages while ranging from 16.4% in ’23 to 22.6% in ’24 with a last-5-year mean of 20.3%.

ROE over the last 10 years is roughly equal to industry averages while outpacing peers, ranging from 16.8% in ’18 to 43.7% in ’24 with a last-5-year mean of 34.8%. Debt-to-Capital is zero through 2018. This remains much lower than peer and industry averages as the company maintains no long-term debt. The last-5-year mean is 25.2% (leases).

Current Ratio is 2.49 and Quick Ratio is 1.68. Value Line rates the company “A+” for Financial Strength and M* gives an “Exemplary” rating for Capital Allocation. M* also assigns Lululemon a “Narrow” economic moat.

With regard to sales growth:

I am forecasting below the range at 9.0%/year.

With regard to earnings growth:

I am forecasting below the long-term-estimate range (mean of five: 16.4%) at 12.0% per year. My initial value will be the trendline $10.11/share because ’24 EPS ($12.20) is an 82.6% YOY spike and above historical trend.

My Forecast High P/E is 30. High P/E ranges from 37 (’16 and ’17) to 88.9 (upside outlier in ’21) over the last 10 years. The last 5-year mean (excluding ’21) is 54.7 and the last 5-year-mean average P/E is 42.8. I am forecasting well below the range.

My Forecast Low P/E is 25. Low P/E ranges from 20.7 (’19) to 37.7 (’23) over the last 10 years with a last-5-year mean of 30.9. I am forecasting just above the 10-year median low P/E of 24.7.

My Low Stock Price Forecast (LSPF) is the default of $252.80 based on $10.11/share initial value. This is 26.7% less than the previous close, 22.7% less than the 52-week low, and about equal to the 2022 low.

These inputs land LULU in the HOLD zone with an U/D ratio of 2.4. The Total Annualized Return (TAR) is 9.8%.

PAR (using Forecast Average—not High—P/E) is less than I seek for a medium-size company at 7.9%. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 173 studies done in the past 90 days (51 outliers and my study excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 13.9%, 15.8%, 42.0, and 27.5. I am lower across the board. Value Line projects a future average annual P/E of 25.0, which is much lower than MS (34.8) and lower than mine (27.5).

MS high / low EPS are $21.24 / $10.27 versus my $17.82 / $10.11 (per share). My high EPS is lower due to a lower growth rate. Value Line’s high EPS is $21.00/share. I am lowest of the three.

MS LSPF of $268.00 implies a Forecast Low P/E of 26.1: less than the above-stated 27.5. MS LSPF is 5.1% less than the default $10.27/share * 27.5 = $282.43 resulting in more conservative zoning. MS LSPF is still 6.0% greater than mine.

My TAR (over 15.0% preferred) is less than MS 18.6%. I believe MOS to be robust in the current study.

Regarding valuation metrics, Relative Value [(current P/E) / 5-year-mean average P/E] per M* is low at 0.64. PEG is fairly valued per Zacks (an infrequent occurrence at 1.2) and 2.0 per my projected P/E.

I consider LULU to be “hitting it out of the park” relative to its industry and overall fundamentals. Analysts disagree about its valuation (e.g. overvalued per M* despite plenty of remaining growth potential versus Strong Buy per CFRA), but per relative P/E the stock has rarely been on sale like it is right now.

With some handicapping (i.e. low growth forecasts, trendline initial value, and very low Forecast High P/E), I have LULU a BUY under $323. With a forecast high price around $535, TAR should meet my 15% criterion around $267/share.

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DEO Stock Study (4-17-24)

Posted by on April 8, 2024 at 15:01 | Last modified: April 17, 2024 17:23

I recently did a stock study on Diageo PLC ADR. (DEO) with a closing price of $136.03. My previous study is here.

M* writes:

     > The product of a merger between Grand Metropolitan and Guinness
     > in 1997, Diageo is one of the world’s leading producers of branded
     > premium spirits, approximately level with Kweichow Moutai in
     > revenue terms. It also produces and markets beer and wine. Brands
     > include Johnnie Walker blended scotch, Smirnoff vodka, Crown Royal
     > Canadian whiskey, Captain Morgan rum, Casamigos tequila, Tanqueray
     > gin, Baileys Irish Cream, and Guinness stout. Diageo also owns 34%
     > of premium champagne and cognac maker Moet Hennessy, a
     > subsidiary of French luxury-goods maker LVMH Moet Hennessy-Louis
     > Vuitton, and a near-56% stake in India’s United Spirits.

Over the past decade excluding 2020 (COVID-19), this large-size company has grown sales and EPS at annualized rates of 2.5% and 3.3%, respectively (2.2% and 1.8% including ’20). Lines are somewhat up, straight, and parallel with sales declining in ’15 and ’16 along with EPS declines in ’15, ’16, and ’21. A debate may ensue about whether this is high-quality growth. I listed several YOY declines. 2014 sales (EPS) is not eclipsed until ’21 (’18). In addition, some would say a large company with a sub-5.0% historical/projected growth rate is suspect.

Over the past decade, PTPM trails industry averages (peer data not available) while ranging from 26.4% in ’14 (excluding 17.4% in ’20) to 32.9% in ’19 with a last-5-year mean of 29.5%. ROE trails industry averages despite trending higher from 34.2% (’14) to 47.2% (’23) with a last-5-year mean of 39.3% (34.9% including ’20). Debt-to-Capital is lower than industry averages despite increasing from 58.2% (’14) to 68.4% (’23) with a last-5-year mean of 67.4%.

Interest Coverage is 5.8 and Quick Ratio is 0.6. Value Line rates the company “A” for Financial Strength and M* gives a “Standard” rating for Capital Allocation. M* also assigns Diageo a “Wide” economic moat.

With regard to sales growth:

I am forecasting below the range at 3.0% per year.

With regard to EPS growth:

My 3.0% forecast is below the range of five long-term estimates (mean 5.5%). The initial value is ’23 EPS of $8.29/share [much of the data from the website (automatically populated from M*) differs slightly from my previous First Cut (FC) on 10/13/23; for example, this read $7.91/share. I will point out other differences below].

My Forecast High P/E is 21.0. Over the past decade, high P/E ranges from 21.3 in ’14 [previous FC had 22.0 in ’15] to 32.9 in ’22 [previous FC had 32.4 in ’21] (2020’s 59.8—58.4 in previous FC—excluded) with a last-5-year mean of 28.5 and last-5-year-mean average P/E of 24.7. I am forecasting below the range.

My Forecast Low P/E is 13.0. Over the past decade, low P/E ranges from 17.7 in ’17 [previous FC had 18.0 in ’15] to 24.5 in ’22 [previous FC had 22.4 in ’22] (2020’s 34.1—33.3 in previous FC—excluded) for a last-5-year mean of 21.0. I am forecasting well below the range.

My Low Stock Price Forecast (LSPF) of $107.80 is default based on $8.29/share EPS. This is 20.8% less than the previous closing price and 20.5% less than the 52-week low.

Over the past decade, Payout Ratio ranges from 43.9% in ’23 [previous FC had 46.8%] to 71.6% [64.6%] in ’16 (2020’s 115.9% [117.0%] excluded) with a last-5-year mean of 53.6% [52.5%]. My 43.0% [46.0%} forecast is below the range.

These inputs land DEO in the HOLD zone with a U/D ratio of 2.2. Total Annualized Return (TAR) is 10.1%.

PAR (using Forecast Average—not High—P/E) of 6.1% is less than I seek for a large-size company. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I start by comparing my inputs with those of Member Sentiment (MS). Based on only 22 studies (eight outliers including my own excluded) over the past 90 days, averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and Payout Ratio are 4.8%, 6.0%, 25.3, 19.0, and 63.6%. I am lower across the board. Value Line’s projected average annual P/E of 19.8 is lower than MS (22.2) and higher than mine (17.0).

MS high / low EPS are $10.76 / $5.94 versus my $9.62 / $8.29 (per share). MS low EPS seems unreasonably extreme. $5.72/share would be the lowest since $5.61 [was $5.46 in previous FC] in 2017. Looking closer at MS, six studies (27.3% of the sample) use $0.00 as low EPS (definitely unreasonable). Excluding these raises the mean to $8.16, which is close to mine. My high EPS is lower due to a lower growth rate. Value Line’s high EPS is $10.00/share. I am lowest of the three.

MS LSPF of $131.70 implies a Forecast Low P/E of 22.2: greater than the above-stated 19.0. MS LSPF is 16.7% greater than the default $5.94/share * 19.0 = $112.86 resulting in more aggressive zoning [the large discrepancy is another suggestion that MS low EPS may be extreme]. MS LSPF is also 22.2% greater than mine.

My TAR (over 15.0% preferred) is less than the 15.8% from MS. MS sample size is too small to allow for a valid comparison alone. Based on input selection below or near the bottom of analyst and historical P/E ranges including LSPF less than multi-year lows, I believe MOS to be at least decent in the current study.

Regarding valuation metrics, Relative Value [(current P/E) / 5-year-mean average P/E] per M* is low at 0.67. PEG exceeds 3.2 (overvalued) per Zacks and my projected P/E. PEG is high enough to make me question whether it even applies here (gut feeling that I can’t logically explain).

Generally speaking, I have doubts about DEO partially due to data inconsistency. I don’t see anything historical or projected close to the 11.8% sales growth listed at Manifest Investing (“Bull Sessions” on Apr 2, 2024). Numbers don’t add up from CFRA. YF has mostly missing data. MS is wonky and while this is largely due to the low sample size resulting in a failure to exclude studies that would usually be outliers, having any studies with $0.00 EPS estimates is something I rarely notice.

Some would try to set me straight, but for me DEO’s frail EPS projections also don’t jive with a wide economic moat.

Maybe currency conversion from sterling to USD is injecting some fuzzy math into the mix. This should not be the case as indicated here: “[As of Jul 1, 2023, Diageo] decided to change its presentation currency to US dollars… applied retrospectively, as it believes that this change will provide better alignment of the reporting of performance with its business exposures.” This would be post hoc rationale in a post hoc press release that is mysteriously dated > 6 months (Jan 30, 2024) after the change. As an ADR trading on the NYSE, I don’t have 10-K’s for clarification.

I lowballed Forecast Low P/E to get LSPF more than 20% below the current price (a minimum I try to uphold). The highest dividend yield over the last 10 years is 3.4% in ’16. With the current annual dividend of $4.01/share, any stock price below $116.90 would push the dividend yield > 3.4%. This is an argument to use a higher LSPF thereby raising U/D to 3.1.

As I have it, though, DEO is a BUY under $131. With a forecast high price around $202, TAR should meet my 15% criterion around $101/share.

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NAPA Stock Study (4-16-24)

Posted by on April 4, 2024 at 09:05 | Last modified: April 17, 2024 15:09

I recently did a stock study on Duckhorn Portfolio Inc. (NAPA) with $8.23 closing price. Previous studies are here and here.

Value Line writes:

     > Duckhorn Portfolio, Inc. is an American producer and purveyor of wines
     > from California and Washington state. The company operates approx.
     > 900 vineyards, produces 900,000 cases per year. Major brands include
     > Duckhorn, Decoy, Goldeneye, Paraduxx, Migration, Canvasback,
     > Calera, Kosta Browne, Greenwing and Postmark. In the U.S., sells
     > wines through wholesale distributors or directly to consumers in
     > wineries and through a wine club membership.

This small-size company went public in 2021 and has financials available since 2019. Over that time, Duckhorn has grown sales and EPS at 14.4% and 33.4% per year, respectively. Lines are mostly up, straight, and parallel.

Over the past five years, PTPM leads (trails) peer (industry) averages while increasing from 12.4% (’19) to 23.4% (’23) with a last-5-year mean of 19.3%. Debt-to-Capital is down from 40.1% (’19) to 21.2% (’23) with a last-5-year mean of 28.8%.

ROE is lower than industry averages and about even with peers with a last-3-year mean of 7.3%.

Current Ratio is 6.8, Quick Ratio is 0.9, and Interest Coverage is 6.9. Value Line assigns a B+ rating for Financial Strength.

With regard to sales growth:

I am forecasting toward the lower end of the range at 3.0% per year.

With regard to EPS growth:

I am forecasting conservatively below the long-term-estimate range (mean of four: 4.1%) at 2.0% and using 2023 EPS of $0.60/share as the initial value.

My Forecast High P/E is 25.0. High P/E over the last three years (only data available) is 47.2, 48.6, and 32.3 (mean 42.7). The last-3-year-mean average P/E is 35.5. I am forecasting below the range.

My Forecast Low P/E is 11.0. Low P/E over the last three years (only data available) is 31.1, 33.1, and 20.7 (mean 28.3). I am forecasting well below the range.

My Low Stock Price Forecast (LSPF) of $6.30 is default based on $0.60/share initial value. This is 23.4% less than the previous close and 22.2% less than the 52-week low.

These inputs land NAPA in the BUY zone with a U/D ratio of 4.3. Total Annualized Return (TAR) is 15.0%.

PAR (using Forecast Average—not High—P/E) of 7.7% is less than I seek for a small-size company. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I would normally look to Member Sentiment except only two studies besides my own have been done over the past 90 days. Mine does have the lowest projected sales and EPS growth along with the lowest Forecast High and Low P/E. Mine also has the lowest TAR. My Forecast High P/E is equal to Value Line’s.

My forecast high EPS is $0.77/share versus Value Line’s $0.88/share.

My study appears to have a solid MOS except for a questionable Forecast High P/E. At 25, I’ve gone below the [brief 3-year historical] range and matched Value Line’s projection. This is a 73% increase from current, though: with what catalyst? As the Value Line analyst writes, “the stock lacks a reliable nexus for its valuation at this juncture.”

Relative Value [(current P/E) / 5-year-mean average P/E] per M* is very low at 0.41.

The stock is trading near its 52-week low and has been in a downtrend since the start of 2022. Value Line’s prospects on stock price [turnaround] are bright and its low projection of $17/share is just above my $16.60. These prospects don’t seem to align with anemic growth projections. ROE seems stuck around 9%, which doesn’t impress me either.

Despite the lackluster growth forecast, NAPA is a BUY under $9.50 and meets my 15% TAR criterion right now.

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FIVE Stock Study (4-15-24)

Posted by on April 2, 2024 at 14:49 | Last modified: April 15, 2024 16:31

I recently did a stock study on Five Below, Inc. (FIVE) $157.48. Previous studies are here and here.

M* writes:

     > Five Below Inc is a specialty value retailer offering merchandise targeted
     > at the tween and teen demographic. The Company’s edited assortment of
     > products includes select brands and licensed merchandise.

Over the past decade, this medium-size company has grown sales and earnings at annualized rates of 20.5% and 23.0%, respectively. Lines are mostly up, straight, and parallel except for EPS declines in ’21 (inclusive dates 2/1/2020 – 1/31/2021 as FY ends 1/31) and ’23. PTPM leads peer and industry averages while ranging from 7.8% (COVID in ’21) to 12.9% (’22) with a last-5-year mean of 11.1%.

Also over the past decade, ROE leads peer and industry averages despite falling from 34.5% (’15) to 21.7% (’24) with a last-5-year mean of 22.7%. Debt-to-capital is lower than peer and industry averages with a last-5-year mean of 53.9%.

FIVE has no long-term debt (leases and uncapitalized rentals, only), a Current Ratio of 1.7, and a Quick Ratio of 0.6. Value Line gives a B++ rating for Financial Strength (“A” six months ago), and M* assigns a “Narrow” (“Wide” six months ago) Economic Moat

With regard to sales growth:

I am forecasting below the range.

With regard to EPS growth:

I am forecasting below the long-term-estimate range (mean of five: 20.0%). My initial value will be ’24 EPS of $5.41/share.

My Forecast High P/E is 32.0. Excluding ’21, high P/E over the past decade ranges from 39.5 in ’16 to 54.4 in ’15 with a last-5-year mean of 53.6 and a last-5-year-mean average P/E of 40.1. I am forecasting below the range (close to current P/E).

My Forecast Low P/E is 20.0. Over the past decade, low P/E ranges from 20.2 in ’18 to 36.4 in ’15 with a last-5-year mean of 26.6. I am forecasting below the range.

My Low Stock Price Forecast (LSPF) of $119.00 is default based on $5.41/share initial value. This is 24.4% less than the previous close and 17.7% less than the 52-week low.

These inputs land FIVE in the BUY zone with a U/D ratio of 5.0. Total Annualized Return (TAR) is 17.2%.

PAR (using Forecast Average—not High—P/E) of 13.3% is solid for a medium-size company. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 195 studies (my study and 83 outliers excluded) over the past 90 days, averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 14.9%, 16.3%, 37.4, and 25.3, respectively. I am lower across the board. Value Line’s projected average annual P/E of 30.0 is lower than MS (36.4) and mine (32.0).

MS high / low EPS are $10.89 / $4.84 versus my $10.88 / $5.41 (per share). My high EPS is in agreement while MS appears to be using low EPS from ’23 rather than ’24 released about one month ago. Value Line’s high EPS is $11.00: in agreement with the two others.

MS Low Stock Price Forecast (LSPF) of $126.60 implies a Forecast Low P/E of 26.2: more than the above-stated 25.3. MS LSPF is 3.4% greater than the default $4.84/share * 24.4 = $122.45, which results in more aggressive zoning. MS LSPF is also 6.4% greater than mine.

My TAR (over 15.0% preferred) is in good agreement with the 17.3% from MS. MOS seems robust in the current study since it agrees nicely with MS data seemingly based on ’23 annual EPS.

Regarding valuation metrics, PEG is 1.3 and 1.7 per Zacks and my projected P/E, respectively: the latter being overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] per M* is slightly undervalued at 0.73.

FIVE is a BUY under $176 and with a forecast high price around $348, TAR meets my 15% criterion right now.

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Investing in T-bills (Part 19)

Posted by on March 28, 2024 at 11:04 | Last modified: April 11, 2024 12:04

I’ve covered a lot of quality detail in this mini-series involving T-bill investing, option trading, municipal bonds, and margin requirements. I will finish today tying up a few other loose ends.

Despite the title “Investing in T-bills,” some may actually consider it trading. As discussed in the fourth paragraph of Part 12, my bond-ladder structure requires a T-bill purchase every week. This may be deemed frequent for those who associate “investing” with long-term buy-and-hold (i.e. few required and/or infrequent transactions). I consider it investing in terms of maintaining an interest-generating vehicle over a longer-term period, but it does require a minimal time commitment.

Prior to the Part 8 revelation that overall option decay of synthetic long stock (SLS) substantially weakens its candidacy as a proxy for long shares, I had two other thoughts about taking advantage.

First, using only long calls instead of [together with short puts to form] SLS would limit the unlimited [to zero] downside risk. Something similar can be accomplished by purchasing roughly half the number of shares and using remaining free cash to invest in T-bills. The capital requirement of half the shares would still be greater than either long calls or SLS, but shares are not subject to the additional payment for time premium.*

Despite the weakened candidacy mentioned above, long calls carry a different risk profile than [SLS or] long stock; backtesting could be used to determine what strategy might be superior.

Second, SPX SLS may be a good proxy for any large-cap ETF or mutual fund. Edge realized by large-cap ETFs or mutual funds that beat the S&P 500 [in some years, at least] would be more than offset by the additional 5.0% return on capital saved by trading SLS instead of long shares.

The Dimensional US Large Company Portfolio (DFUSX) is one such example that does not bear out as advertised. A couple years ago, I spoke with an investment adviser (IA) who uses Dimensional Funds for clients. By retaining most benchmark components while excluding just a few, he said, Dimensional funds outperform. On 4/11/24, I looked at DFUSX holdings (as of 2/29/24) to find 504 stock holdings. The most-recent S&P 500 update I can find (Investopedia from 9/26/23) reports 500 companies have issued 503 total stocks. At 504, DFUSX has added and either not excluded or substituted thereby contradicting the IA. DFUSX also has a somewhat-perplexing 505th position: S&P 500 futures. With stock futures usually in contango, this represents a slight drag over time.

SLS no longer seems like a good proxy for DFUSX given the weakened candidacy mentioned five paragraphs above.

In summary, I would avoid SLS as a proxy for long shares to be used for non-option traders [paying an option-trading IA to manage]. While I think T-bills [or something comparable] are a necessary component to supplement an option portfolio, SLS may be a poor proxy even for option traders given the additional expenses related to taxes and transaction fees.**

* — Suggesting that even before the Part 8 discovery, I knew about the time premium expense—
       just not how much more time premium is lost by the long call than gained by the short put.
** — As mentioned in this second paragraph, I need to expand the sample to verify the ~0.5%
         SLS edge.

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