Wall Street Breakfast With Steven Cress (undefined:INTA)

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It’s a witching day! Steven Cress says as a long-term investor, don’t make any investment decisions on it (0:30) Intapp (Quant Buy) reveals new partnership with OpenAI (2:00) Boot Barn trading like an AI stock (6:10) Costco, DoorDash and Uber (12:12)

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Transcript

Rena Sherbill: It’s Friday, September 18th, and we are here with Mr. Steve Cress. Steve, I am going to start with a comment that was left, we posted yesterday’s episode on our vaunted Wall Street Breakfast podcast, and John Boy commented:

Friday the 18th is a witching day, 1 of 4 per year. Could be a little crazy.

Steve Cress: Sometimes it is crazy. It is today. sometimes it’s not. it is a witching day for the S&P options, for futures, for contracts. all three come today. And sometimes the market tends to be a bit overexaggerated on those days. I would say, as a long-term investor, just consider it like a grain of salt over the shoulder. Don’t make any investment decisions on it.

Obviously if you’re a short-term trader, it can impact your holdings. But what we do in the world of Quant and with our Seeking Alpha contributors, our recommendations tend to have life in more than a few minutes or hours. So I would say whatever happens today, take it with a grain of salt.

And on occasion, there are swings down and look at the fundamentals of a company. And if there’s an opportunity and a stock really you like is off. And you know, by example, say it has A plus grades for growth and for valuation and profitability.

And the stock comes down and it’s a strong buy, you want to take advantage of that. but for the most part, if you’re a long-term investor, just sit back and watch it.

I think the the markets aren’t really reacting to Triple Witch now. I think there might be a little exhaustion in the markets and we’re seeing in the futures, you know, minutes before the opening bell, the S&P (SP500) is basically unchanged. The NASDAQ (NDAQ) is basically unchanged.

I think people are ready for the weekend. TGIF.

Rena Sherbill: TGIF. So our first piece of stock news this morning is Intapp (INTA). Its shares have perked up just under 1.5% in pre-market action after it revealed a new partnership with OpenAI (OPENAI). Steve, what do you have to say about INTA?

Steve Cress: It’s a small software company. And when you scroll down on our stock page, you’ll see sector information technology and the industry is application software. It’s not really that big, it’s 2.81 billion. but the company definitely has good metrics. And it’s kind of had that classic software price performance action this year.

You can see on the last 52 weeks, it’s down about 18.32%. Year to date, it’s down about 19%. And if you crawl like earlier in the year, a lot of investors and traders were speculating that it would be the death of software stocks. So many software stocks sold and it sold off with like fairly attractive fundamentals.

But, as we saw in recent weeks, many software companies were actually producing better than expected earnings and top line growth. And what they were finding is that AI was actually making them more efficient.

I’ve said this on past webinars and calls. I think it was just grossly over exaggerated earlier this year and late last year when people were saying it would be the death of software stocks because of AI.

I’ve often made the reference that you’re not gonna have a a plumber or a baker or an electrician trying to create their own software off of AI.They still need these softwares to operate their business. And in fact, what the software companies are finding is that they’re being able to improve their user experience with AI.

They’re becoming more efficient. And as a result, we’ve seen a couple good quarters from these companies. So in the recent month, even though the stock is down, let’s look at the last five days, the stock is down as well. I guess when we look at this full year experience, what happened is there was a big sell-off in software from December.

All the way through to February and it hit a low of 21. currently the stock is up to 36. So it’s worked its way back. And especially, I’d say during the July period, there was really a heavy rotation out of semiconductors.

And within the sector of information technology, that rotation went into the software stocks as investors were realizing, you know what, earnings are going to be coming through better than expected.

So the stock rallied off of its lows from the end of May at $20 to its current level of $36.69. It has a quant buy. And also the consensus from Wall Street is a buy, and Seeking Alpha contributors a consensus as a buy. So there’s three independent investment research sources.

And in terms of quant, when you look at the valuation on this stock, there are missing metrics for in tap, and that’s because they do they’re at a precarious place where their normalized earnings are positive, but their GAAP earnings are negative.

So when we look at a PE for a company, if there’s negative earnings, nothing’s gonna come up next to the metric. You’re not gonna see a multiple. As we scroll down, you’ll see this is all GAAP so negative earnings quarter after quarter.

However, I will say to the company’s credit, the numbers that were coming in, even though they were negative, they were a positive surprise to many Wall Street analysts, the exception of the last quarter for the GAAP.

But on normalized, it beat. So you can see it came in at a positive 41 cents and it beat by five cents.

I’d say going into the upcoming quarter at the beginning of November on the 4th, we have seven analysts that have revised their estimates up and zero have revise revised it down.So they’re looking positive at the next quarter for Intapp. Quant buy.

Rena Sherbill: Quant buy.

Boot Barn (BOOT) is our second stock in the news. I’m gonna read a quote from CEO John Hazen, who spoke September 15th at the Goldman Sachs Global Consumer and Retail Conference.

We have always had a B2B business where we would sell to oil and gas firms, construction firms, really bulk orders to someone who might want to outfit his entire team in work boots. More and more often, those are data centers.

Shares of BOOT are down nearly fourteen percent for the week amid concerns on consumer discretionary spending. To wit we have a hold. Steve, what do you gotta say?

Steve Cress: We do have a hold and I guess even though this is at a parallel retail company in shoes and boots, perhaps you could say it was trading like an AI stock. With many of the AI stocks, they sort of peaked and fell off after June.

And that has happened with this company, but I’m not so sure it’s on just boot sales. The anticipation of maybe a slowdown in future boot sales as the market is anticipating for data centers and many semiconductor companies that they can’t extend the rallies based on the growth that they’ve had. But the reality is, and the fundamentals are that growth is coming in stronger than expected.

You do not see that in Boot Barn. And as you rightly pointed out, the shares have been weak, whether it’s year to date or over the last five days. On the open this morning, we can see there’s a a little bit of an uptick, and that is in somewhat of a flattish market.

If you look at the Wall Street consensus, it has been off. There is a Wall Street consensus strong buy in the stock. Obviously, the stock has not performed well historically. but when you look at the strong buy, Wall Street is telling you it’s mispriced.

Quant is telling you just hold on to it. We’re not sure it’s out of the woods. I will say when we look at the valuation for the company, it is a C, but some of the conventional metrics, such as PE have it at a discount to the sector.

So if we were to look at forward PE, it trades at 13 times versus the sector at 15 times, roughly a 13% discount. So PE is attractive. Elements such as EV to sales and the all-important peg is actually at a premium. So we combine the growth of the company together with a PE, it’s actually a little bit rich.

So overall, the valuation is in line with the sector. If we take a look at BOOT and growth, that’s actually a different picture. I do like the fact that it’s not only is the overall grade B minus, what I’m seeing is if we look at forward top line growth, we can see that A minus grade gives you that instant characterization that the revenue growth is stronger for this company than other consumer discretionary companies.

And you can see the forward revenue growth is fifteen point five percent versus the sector at four point three percent. If we take a look at EPS, forward EPS is at nineteen point seven percent versus 8.4% for this sector.

So growth at a top and bottom line is at a huge premium.

I really do like these numbers. it does get weighed down by the ROE growth. So there’s a little bit of slowdown in the company’s ROE, but it’s still the growth rate for the RoE is far superior to the sector. I would I’d say this is actually a fairly positive hold.

There’s no question about it. The momentum of the stock versus the consumer discretionary sector has not been good, whether we’re looking at a one-year basis or the near term. the last three months, the stock is down 25% versus the sector only down four percent.

And the same pattern is true for those other price points. But I do like the growth numbers that are coming up for the company. And if I look at the analyst revisions for BOOT, I could see in the last 90 days, 12 analysts have revised their estimates up and zero have revised down.

Now, this is, I guess, probably a tender point. For the upcoming quarter, no analysts have upgraded their estimates and 10 have revised it down. So the analysts are saying they believe the fiscal year should be good. They’re improving their overall annual estimates, but there’s something about the upcoming quarter.

I guess they best have received guidance at some point that 10 analysts have lowered their estimates and none have increased it. Well, if we look at back at the last quarter, it was a handsome beat. It beat normalized EPS by 21 cents, which given at $1.91, and GAAP beat by $59, coming in at $2.29.

There’s just something about the upcoming quarter that analysts are not pleased with. If we do look at the fiscal year numbers, March of 207 is 904, and March of 28 is $10.

So I think that looks fairly attractive in terms of the the growth. Let’s just go to the valuation page really quick. And again, I want to take a look at that peg. Peg coming in at B plus, which is very positive.

So I’d say even the quant as a hold, I would consider this a very positive hold. And when you look at a hold recommendation, you could get into the underlying metrics and determine whether you feel it’s a positive hold or a negative hold. So you do exactly what I did. You go to the premium platform.

You click on growth. And if you click on growth and you have this site where there’s a lot of green, that’s pretty positive. And if the valuation framework is in line, that’s fairly positive as well. We know the stock has come down for certain reasons. and we know those reasons probably have to do with the upcoming quarter analysts taking their estimates down.

But again, for the full year, they’re fairly positive. And I do like the forward growth numbers. So overall, I would say this is a very positive hold.

Rena Sherbill: I think there’s a Nancy Sinatra joke in there somewhere. Like these boots are made for holding or something like that.

Yesterday we had some news out of Costco (COST) that they were hiking prices on some some motor vehicle products. Costco is in the news again today, but for a better reason, they are partnering with DoorDash (DASH) to offer delivery from its US warehouse stores.

It already offers Costco in a few markets, including Australia, Sweden, and Puerto Rico. But the nationwide partnership is a first for DoorDash, which said Costco was among the most searched retailers, not yet on its US platform.

Steve, what do you have to say about Costco?

Steve Cress: Well, Costco is huge. they already do have distribution through Instacart and Uber Eats (UBER). So I think they’re providing their customers with a a good experience. I’m not sure if it will be that meaningful to Costco.

The stock is barely up this morning. Costco’s a store that everybody loves, but the the problem exists perpetually with the stock is it’s always expensive and that’s because people like to own it.

So when we take a look at the valuation, and I believe we mentioned this the other day, and you look at PE, you’re typically seeing PEs with F grades and D minuses. So it’s in the consumer staple sector. The multiple on the stock is 43 times versus the sector at 14 times.

It is very, very expensive. So versus the sector at 195% premium. So it’s hard for an investor to get their head around that type of valuation.

When you look at Costco’s growth, this is something that I consistently see. That overall growth rate will come in at a C+. But when I take a look at the underlying metrics, they look fairly strong.

I always lean towards a positive hold for Costco.

If we take a look at the Peg, even the Peg is freaking expensive. It’s got a D for Peg, it’s at a 76% premium. So it really is a rich and expensive stock. But, there is a growth element to it.

I’m just not sure the valuation framework is worth it.

In terms of what analyst thoughts are going forward, we have in the last 90 days, 11 analysts have revised up. Seven have revised down, and for the upcoming quarter, which is just in a few days, seven analysts have revised up and 8 have revised down.

So that’s a pretty mixed picture. We can see the stock really isn’t doing much here on the news and heading into earnings as well.

But I bet you’re gonna ask about DoorDash next.

Rena Sherbill: You got it, Steve. You’re really getting to know me.

Steve Cress: So DoorDash (DASH), we have a quant hold on. Wall Street Consensus has a buy. Seeking Alpha contributors have a buy. Year to date the stock is down almost 20 over the last fifty two weeks, it’s down almost twenty five percent.

Year to date it’s down about fourteen percent. So it is definitely underperforming the market.In terms of the consumer discretionary sector, it’s a little bit brighter than the overall market.

Let’s take a look at the momentum. So the one year and nine month momentum figures are not great. It’s definitely underperformed this sector. So on a one-year basis, the stock being down almost 25%, as I mentioned, the sector’s only down 12%. But if we look at the three-month performance, there is a bit of a change here.

We can see in the last three months, the stock is up 17% versus the sector down almost five percent. So that tells me over the last three months something is actually happening and it makes me inclined to check want to check out the company’s growth.And when I look at the growth, this actually looks really positive. forward growth is at 26%. Bottom line growth, wow, it’s 148% growth versus the sector.

So things are definitely turning around for DoorDash. I think that’s beginning to be reflected in the stock price over the last three months.

In terms of analyst revisions, in the last 90 days, we’ve had 17 analysts have revised their estimates up. 15 have revised it down. So that’s a very mixed picture there.

However, for the upcoming quarter, on November 4th, 23 analysts have revised up and only four have revised down. So it feels like a transformation is taking place with this company that’s really being reflected over the last one month and three months into the stock as it’s outperforming.

And I will say, going back for quite a few quarters, they have beat expectations in terms of bottom line estimates.So that’s a pretty nice consistent picture to look at with that trend. I am kind of curious.

If we look at the sector, let’s pull up Uber (UBER). Because I feel like Uber has had a bit of a turnaround, but that’s a quant strong buy.

So let’s see what the difference is here. So just like DoorDash’s stock over the last year is down about 25%, and over the year to date time frame.Uber is down 13%. Let’s take a look at the momentum versus the sector. So Uber has not had quite the same positive move over the last three months as DoorDash.

But the reason why Uber is more attractive is when we look at the valuation framework, we can see that it’s actually pretty cheap compared to the industrial sector. It’s only trading on a trailing basis at 15 times, the forward basis is 21 times, which puts it exactly in line with the industrial sector.

If we look at growth for Uber, we see some really good numbers. Forward growth is at almost 15%. but the EPS growth is not as attractive as DoorDash. But where Uber wins out is probably the long-term EPS, the three to five year CAGR.

This is with analysts who really cover the company closely and they have models that go out three to five years, have a growth rate of 26% for Uber. So that helps to bring up all the other grades because that is a more predictive factor for future stock price performance, that long-term growth.

So keep that in mind. That’s 26% for Uber. Let’s go back to DoorDash and see where that is. So for DoorDash, the long-term forward growth rate is 44%. So I’d say like the growth rate for DoorDash looks really good.

It’s just that D minus on the valuation that’s holding it back. It’s a bit more expensive. When we get that D minus grade, that’s kind of like a circuit breaker default. company typically automatically goes to hold. And it just is on the basis that it’s very expensive.

And indeed, when you click on valuation, you just see a sea of red for all the valuation metrics for PE, for EV to EBITDA, for EBITDEBIT, price to sales, EV to sales.Just red, red, red, red, with the exception of PEG. When you combine that growth with the PE, it does look more attractive. And that valuation metric stands at a 41% discount.

So I would view this as a positive hold as well. I really like the growth numbers that I’m seeing from DoorDash and Uber as well. it’s just that valuation is a bit rich for the company. So again I would look at this as a very positive hold. These boots are made for kicking.

Rena Sherbill: I appreciate that. You know, something I’ve learned in these conversations with you is that it’s not well, I should say black and white. It’s not a red and green affair with quant grades. There is nuance to it. And I think that’s a lot of what you’re providing in these conversations. And I’ve talked to you many times and I appreciate this new insight.

Steve Cress: Absolutely. Yeah, I was gonna say, a hold is a hold. It doesn’t mean sell the stock. A lot of times when a a rating will drop from strong buy to hold, people are like, Should I sell it? Should I sell it?

And what I want to point out is in our Alpha Picks product, which has performed extraordinarily well, when we have a company in the Alpha Picks product and it falls to a hold, we actually keep it in there for 180 days as a hold.

So we wait a while and we really want to determine is it a positive hold or a negative hold? And you as a subscriber can do that by going into these underlying metrics and looking at the nitty gritty. So you can see here, this is really expensive, but that peg looks good. And then when you click on growth, you’d say this looks pretty rosy.

So if you own DoorDash shares, I would say definitely consider that a positive hold.

Rena Sherbill: Yes, yes. Appreciate the nuance. Have a great weekend, everybody. Have a great Friday. We are off on Monday, but we will talk to you on Tuesday.

Steve Cress: Look forward to seeing you Tuesday.

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