Nervous Market. Buying $FOUR.
Nervous Market. Buying $FOUR.
June 9, 2024 - Update
My quick weekly take.
The NASDAQ closed 2% up on below-average volume. The chart looks healthy although we might see a retest of the upper box area as we are moving into a week of plenty of commentary from FED officials and the CPI report:
Momentum is good as the MACD line crossed the signal line from below.
From a Macro perspective, the 10-year treasury yield closed the week slightly lower. The next CPI report will be very important in influencing the next move on the 10-year treasury yield. The market has been very sensitive to any macro-data point lately.
My take:
The economy looks still strong enough with a GDP forecast for Q2 2024 at 3.1%
Too hot economy data (economy too strong) puts pressure on inflation, pushing future rate cuts further down the road
A better-than-expected CPI report would be beneficial for the market, especially in the absence of too-hot or too-bad economic data
So I keep walking this thin line until something changes for the better or the worse.
PORTFOLIOS
10X LARGE CAP MOMENTUM POT
here I was stopped from $CHRD. I have a very hard time trading energy stocks. The position closed with a small 2.5% loss. The portfolio is updated below.
This week I am making a BUY STOP order for 57 shares of FOUR 0.00%↑if it touches 73.95 USD. First Stop Loss at 64.9
Below is the chart of FOUR 0.00%↑ and an analysis I did with the help of ChatGPT
Analysis of Shift4 Payments, Inc. (FOUR)
Company Overview and Moat
Unique Value Proposition and Moat:
Innovation and Unique Products: Shift4 Payments continues to demonstrate significant innovation through its SkyTab POS system and comprehensive integration capabilities. This differentiates them from competitors and provides a unique value proposition.
Strong Brand and Market Position: The company’s contracts with major brands and venues, such as Foxwoods Casino and the Kansas City Chiefs, reflect its strong market presence and customer trust.
Market Share and Resilience: Rapid adoption of their SkyTab product, evidenced by a 38% quarter-over-quarter increase in installations, indicates effective growth strategies and market penetration.
Management and Growth Orientation
Growth-Oriented Management:
Strategic Acquisitions: The acquisition of Revel and other strategic moves shows management’s focus on expanding market presence and capabilities. However, the reliance on acquisitions for growth could pose challenges if the balance sheet becomes overstretched.
International Expansion: Aggressive expansion into international markets, including Europe and Canada, with significant wins in the hospitality and restaurant sectors, highlights management’s growth orientation.
Guidance and Transparency: Management has provided clear guidance for the year, reflecting confidence in their growth strategy.
Sales and Financial Performance
Strong Sales Numbers:
Revenue and Earnings Growth: Despite missing EPS and revenue expectations in Q1 2024, the company reported strong year-over-year revenue growth of 29.32%. Free cash flow is expected to increase by approximately 48% in 2024 and 35% in 2025.
Positive Revisions and Guidance: Management has reaffirmed and positively revised their EBITDA and free cash flow guidance, indicating strong future performance expectations.
Earnings Growth and Future Prospects:
Earnings Expansion: Adjusted EBITDA grew 36% year-over-year with a margin expansion of 150 basis points. The company anticipates continued margin expansion and significant adjusted free cash flow growth.
Valuation: Shift4 Payments is attractively valued at 11x forward free cash flow, indicating it is priced cheaply relative to its growth potential and industry peers.
Management Confidence and Transparency
Signs of Confidence:
Open Communication: CEO Jared Isaacman and the management team have been transparent about their strategic review process and future prospects, addressing key challenges and opportunities directly.
Proactive Strategies: The management team is actively involved in capital allocation, focusing on high-return opportunities, including product innovation, share repurchases, and M&A activities.
Conclusion and Investment Confidence
Shift4 Payments shows strong signs of having a moat through innovation, a strong brand, and rapid market share gains. Management is clearly growth-oriented, focusing on new opportunities and international expansion. Financial performance is robust, with strong sales numbers and positive future earnings guidance. Despite the challenges associated with relying on acquisitions for growth and a competitive industry, the company’s strategic positioning and innovative solutions make it a compelling investment.
Investment Confidence Rating: 9/10
Rationale: The rating reflects the attractive valuation at 11x forward free cash flow and the strong expected growth in free cash flow. The company's innovative products, strong market presence, and strategic acquisitions enhance confidence in its ability to continue growing despite competitive pressures and balance sheet concerns.
WATCHLIST
Some of the names I was considering this week:
ACLS ADBE AGX ANIP DOCS ESPR HALO HOOD HQY INCY INDI MBLY NABL
TCPC TTWO UBER UI CREX ESPR HURN IREN AEHR TIGR YOU
I am not doing anything else.
That’s all for the week!
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Important: This is not investment advice. Consult a licensed financial advisor before making any investment decision.