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There are two types of SoFi (SOFI) investors:
Let's talk about that! 
I'm Hoda Mehr, founder, and CEO of Stock Card, and on this blog and its accompanying YouTube channel and Podcast show, I share detailed fundamental analyses and interesting investment stories.
This post is part of a series I started a few weeks ago to fundamentally research companies to manage my real-money portfolio. I've already researched Canopy Growth (CGC), Fastly (FSLY), Snap (SNAP) , Shopify (SHOP), Airbnb (ABNB), Unity (U), JD.com (JD), NVIDIA (NVDA) and several others. I'll continue with this series for a few more weeks. Remember, this content is for education and sharing ideas and not advice to buy or sell any securities. Sign up for a free account on Stock Card to get notified of these blog posts, YouTube videos, and Podcast shows every week. We only ask you name and email address when you sign up.
I had always ignored SoFi. At some point, I assumed the business focused too much on student loans and didn't think it could scale to very large business. At another point, when the government put a hold on student load payments due to COVID, I disregarded SoFi as a dead business. But in all honesty, I never fundamentally researched the company.
Today, let's change that. So many of you on YouTube, Twitter, and the Stock Card platform have asked about SoFi. It is one of the top 10 most viewed stocks on our platform. The most important question that grabbed my attention is whether SoFi is a possible 100-bagger stock, because it is a legacy bank disruptor and is shaping the future of fintech. If that's true, then I cannot ignore SoFi anymore. Today, I stop speculating and fundamentally research the company using our usual 6-part framework:
SoFi's Revenue & Growth Potential
Visiting SoFi's website, the company comes across as a full-fledged financial service provider, offering loans, bank accounts, credit cards, insurance, and other financial products.
However, looking at its financial statements, SoFi is still a lending company and makes most of its revenue from offering various loans and collecting interest on those loans from its members. The company also sells those loans to other financial institutions and collects revenue from the sale, or at least, that's what it used to do before it stopped selling loans in Q1 2023. Based on my math, nearly 70% of SoFi's revenue is related to lending activities. The rest of its revenue comes from financial services like credit cards and insurance products and a technology platform that sells banking products to other companies. When talking about SoFi's revenue, we must discuss the big elephant in the room – the student loan business. SoFi started as a student loan platform and is still a leading student loan provider in the U.S. market. It focuses on high-interested mid-term student loans. Because student loan payments and interest accumulation on the loans have been on hold since 2020 due to Covid-19 financial hardship, and the government has offered a student loan forgiveness program, there have been limited opportunities for SoFi to originate new loans or collect interest rates on the balances. Therefore the company's stock price was negatively impacted for quite a while. Now, and partially thanks to SoFi's legal actions, the student loan repayment is expected to resume in 2023, and the interest accumulates on the outstanding balances. Therefore, the negative sentiment about SoFi is gradually evaporating. There is still a lot of argument about the timing of the student loan repayments and the loan forgiveness program, but investing in SoFi just because of its student loan program isn't a good case for long-term investment in SoFi, and long-term investors shouldn't worry about it too much. Let me tell you why? According to the company's CFO at the latest Morgan Stanley conference, the total addressable market for student loans that SoFi can access is about $200B in the loan amount, and SoFi already has a 60% market share in that category. The student loan market has no significant growth opportunity for SoFi long-term investors looking for companies with rapid revenue growth and profitable operation. If all SoFi does is return to its old student loan program, we should stop researching now. But the company has been clever and used the student loan hold period to transition its business to a one-stop-shop platform for all-money-related needs of its members. So the negative or positive sentiment around the student loan programs is irrelevant to long-term investments, especially if we are looking for a company that shapes the future of fintech and can generate a significant return. The rest of SoFi's business, specifically its short-term, high-interest-rate personal loans to members with high credit scores, other financial products such as bank accounts, and its technology platform that serves other businesses with their banking infrastructure needs, are more important to our long-term investment strategy. Before we dig further in, there is an immediate red flag here. For a small $8B company, SoFi is doing too many things. It issues loans, securitizes and sells loans, offers various financial products and services, and sells banking infrastructure. Each of those segments can be a full-fledged business by itself. I fear that the lack of focus and doing too many things at the same time can be a double-edged sword. On the positive side, it diversifies SoFi's revenue away from the complex lending and loan reselling business. On the negative side, it makes the business quite complex to run. Having that red flag in mind, let's explore potential growth opportunities SoFi had created for itself by diversifying away student loans. It has expanded into broader banking services by getting a national banking charter certification through a bank acquisition in the U.S. in 2022, and it offers banking infrastructure tech to other financial institutions through acquiring the Galileo and Technisys platforms in 2022. These moves create at least three growth opportunities:
So what does all this mean for SoFi's topline? There are positive trends and forces in the market to believe the company's revenue can grow in the years to come even if the student loan segment doesn't return to the pre-COVID and low-interest rate era. SoFi's Bottom Line
Let's pull up SoFi's Stock Card to continue our research. I leave a link to SoFi's Stock Card in the show notes. If you've been with me for a while, you already know I built Stock Card to help me and fundamental investors like me easily research and pick companies for the long term. If you are new around here, check out StockCard.io, look up your favorite stock or ETF ticker, and see how intuitive and easy it is to research them on Stock Card.
Back to SoFi, on the bottom line, the company doesn't generate positive income and is still losing money. But the losses have shrunk to $34M quarterly in Q1 2023, compared to a negative $110M in Q1 2022. Also, the company generates positive adjusted EBITDA. The adjustment comes from adding back stock-based compensation and amortization to the loss from operations. Those are positive improvements. Assuming SoFi can continue to sell high-yield personal loans and expand its embedded finance tech platform business, we should see more profitable operations in the near future. However, one red flag to be mindful of is that even though the company is steadily growing its banking products, evidenced by rapidly growing deposits by customers into SoFi's banking accounts, that business segment is making heavy losses. It's because SoFi offers high-interest-rate bank accounts and charges no fees to attract new members. Assuming high-interest rates stay around for a while, eventually, bigger banks will catch up, and SoFi may lose its deposit and member growth. We must monitor how well SoFi converts its banking customers to lending customers, turning them into profitable members before others catch up. Otherwise, the banking product divisions will become a profitability drag. SoFi's Balance Sheet
Losing money makes us wonder about SoFi's balance sheet. Does it have enough cash to keep funding its loss-making operations, and more importantly, does its balance sheet allow issuing more personal loans where the company still makes most of its revenue?
As we dig into its financial statements, it's good to see SoFi has a solid balance sheet. It raised money through convertible notes in 2021 and now has more than $2B in cash and cash equivalents. Moreover, because the company has started accepting deposits into its bank accounts, it now has access to those deposits to improve its ability to issue new loans. The company has a fair balance sheet. And the management doesn't believe it needs additional fundraising to continue funding its growth. SoFi's Accounting Methodology Issue: Despite management's take on its balance sheet strength, because the business doesn't generate free cash flow, it isn't too far-fetched to believe SoFi may need to raise additional capital or borrow money if things don't pan out as planned. For example, if deposit growth slows down or if SoFi needs capital to allocate to R&D expenses and acquire new companies to shore up its tech platform side. Moreover, there is an unlikely case that the regulators ask SoFi to use a different accounting methodology for its lending business. This has been the topic of heated conversation between SoFi bulls and bears, and regardless of your position in that fight, it makes sense to understand the risk. So far, because SoFi has been issuing and reselling its loans to other financial institutions, it didn't need to calculate any loss provisions in the loan values on its balance sheet. Typically, lenders who carry the loan and don't sell them have to put 7% of the loan's values as loss provisions on their balance sheet. If SoFi is forced to follow a similar accounting methodology, the loss provisions will deplete its assets significantly, which may force the company to raise capital or borrow money to continue to fund its loans and unprofitable operations. This is the primary reason a Wedbush analyst had recently downgraded SoFi and has caused the stock price to come down from its recent highs. I'd leave a link to an excellent article on this accounting issue on Seeking Alpha in the show notes. As a side note, Seeking Alpha is one of our preferred news partners, and you can access recent articles and news related to any stock on its Stock Card by clicking on the News button on top of all Stock Cards. Back to SoFi's loan value accounting red flag, SoFi didn't need to follow that methodology because it had always originated and then immediately sold those loans to other institutions. In Q1 2023, the company changed its approach and is holding on to its loans. Management argues it is because it generates a higher yield by holding on to the loans. The bears argue that it is holding on to the loans because other financial institutions aren't interested in buying high-yield, unsecured personal loan portfolios in the current economic conditions. According to the Wedbush analyst, we can expect regulators to catch up and force that accounting methodology change on SoFi which will result in reducing the value of SoFi's assets on the balance sheet, forcing it to raise capital and dilute investors. No one really knows whether this will happen or not, but we cannot ignore its possibility as a red flag. We now know enough about SoFi's financials to discuss its valuations. SoFi's Fundamental Recap
Let's recap SoFi's fundamentals.
SoFi's Valuation
There are many positives about SoFi and some red flags we just discussed. But can the company realistically become ten times bigger by disrupting the legacy banks and leading the embedded finance market? It's time for valuation analysis. At 5 times the price-to-sales ratio, investors believe SoFi can grow its revenue by five times, which means an 18% compounded annual growth rate in the next ten years, all else equal. Is it possible?
If SoFi was only in the lending business, 18% consistent annual revenue growth wouldn't be easy. If we believe the company can keep growing its financial product business, 18% annual growth may not be too difficult to believe. With $2B annual revenue and 5.6M in members now, SoFi makes about $350 per member. If the company grows its member base to the same 50 million members as CashApp by Block, the estimated revenue will be $17B, eight times bigger than its current estimated annual revenue. I know there are a lot of assumptions involved, and growing the membership base to 50 Million is a giant undertaking, but at least it gives us a sense of the feasibility of its current valuation. There is a path, even if it has a low probability, the SoFi grows into its current valuation and even higher. Let's assume SoFi generates $17B in revenue, which is not too far from Block's current revenue. And it gets a 2X price-to-sales valuation at that level. It can be a company with $34 B in market cap. That means SoFi can be a 4-bagger, giving us a 400% return. But, that story I gave you is with the assumption that SoFi stays a tech company, builds its embedded finance business, and moves away from lending as its core business. If SoFi focuses on lending and banking, then price-to-sales and high-growth valuation ratios won't be applicable to it. Many argue because SoFi is a bank, the better valuation ratio is the company's price-to-book value which is about 1.6 times on the day I'm researching the stock. This is almost the same price-to-book valuation as JPMorgan Chase. So Investors are already pricing SoFi the same as the biggest bank in the U.S. As a matter of fact, the stock has recently received a few valuation downgrades from financial analysts from Piper Sanders and Bank of America due to high valuation concerns. So whether SoFi is overvalued or undervalued depends on which direction you believe in a lending and banking business or a banking infrastructure provider. Is SoFi A Buy Now?
I see many risks, especially short-term, that can hinder SoFi from ever implementing its broader aspirations in embedded finance. I can also see the growth potential in that story if all goes well. But in business, as in life, you rarely get lucky for everything to go well. So this is one of those cases in which you can buy a small amount and monitor the company's track record in implementing its strategy. We are likely dealing with a volatile stock in the short term, especially if any news comes out about student loans, interest rates, regulatory interventions to force SoFi to change its accounting methodology, and SoFi's ability to grow its b2b business.
If the stock price goes down in response to short-term news, we should return and redo our analysis to see whether the company is moving in the right direction. Those can be good buying opportunities assuming SoFi is on track to implement its banking infrastructure plans. After all, investing in big winners requires a lot of patience and monitoring. SoFi has a good direction, and it's all about whether it can implement and execute its plan and do some of the short-term risks related to its lending business. You also have the less risky option of investing in an ETF that is holding SoFi in its top holdings, which you can get from the company's Stock Card by clicking on the top ETFs holding SoFi. See you next time!
*This promotion is for 50% off Annual VIP Plan with Stock Card. After your first payment cycle, your plan will continue at the standard plan rate. Renews automatically. Cancel anytime. The offer ends on 30/06/2023 PST (extended 24 hours).
Novavax, Pfizer, and Moderna were at the top of the world during the Covid-19 pandemic.
The global demand for a new vaccine to save humanity and the economy from a disaster and collapse was the most important topic, and the companies that researched and developed the vaccines were the kings of wall street. Where are those stocks now, and should we invest in them now that the hype has subsided and whether there are reasons to believe the companies can still benefits from their COVID vaccine and investments that other investors don't see yet? Let's talk about that! 
I'm Hoda Mehr, founder, and CEO of Stock Card, and on this blog and its accompanying YouTube channel and Podcast show, I share detailed fundamental analyses and interesting investment stories.
This post is part of a series I started a few weeks ago to fundamentally research companies to manage my real-money portfolio. I've already researched Canopy Growth (CGC), Fastly (FSLY), Snap (SNAP) , Shopify (SHOP), Airbnb (ABNB), Unity (U), JD.com (JD), NVIDIA (NVDA) and several others. I'll continue with this series for a few more weeks. Remember, this content is for education and sharing ideas and not advice to buy or sell any securities. Sign up for a free account on Stock Card to get notified of these blog posts, YouTube videos, and Podcast shows every week. We only ask you name and email address when you sign up.
The rise and fall of vaccine stocks are one of the latest and most fascinating wall street stories.
All three stocks are now drastically lower than their all-time highs of the pandemic era, which means there may be an opportunity to buy them at a great price benefiting from the fact that the market is now up to the next big hype and has forgotten all about vaccine stocks. Demand For Recurring Annual Covid Vaccine Shots
On the demand side, vaccine companies expect a new FDA recommendation will require the medical system to upgrade COVID vaccines with a new strain of the virus, and as a consequence, vaccine companies expect billions of dollars of vaccine revenue in the U.S.
Additionally, there is a high expectation to combine COVID and flu vaccines so the population can get immunized in one shot and the entire health ecosystem can be more efficient. According to the President of Moderna at the Jeffries investment conference, there is demand for 50 to 100 billion vaccine shots. Compare that to 150M flu vaccine shots in the United States, and the 50 to 100 million doses are reasonably in demand. This means there is an opportunity for additional revenue and potentially recurring revenue from future COVID vaccinations in the future. Let's jump into the fundamentals and see which company is better positioned to benefit from the ongoing COVID vaccine demand. Novavax (NVAX) Fundamental Analysis
The company's market cap is about $600M, on a minimum of $1.4B forecasted revenue and $700M in cash. Investors must expect the revenue to decline drastically to price the company at $600M in market cap, less than the cash it has on hand.
Looking at its latest quarterly earnings, Novavax made no money, or worst, it has reported a negative revenue. It makes no free cash flow and carries more than $2B in total liabilities. At first glance and looking at immediate data, the company is doomed. However, if you review the company's latest earnings reports, it is forecasting an annual revenue of between $1.4 to $1.6B coming from 2023 COVID vaccinations and the possibility of producing a combined influenza and Covid vaccine. It has already secured $800M in vaccine orders for 2023. The company is also reducing R&D and cutting costs to improve its financial stability. So the company isn't fully doomed. However, I'm quite concerned about the large liabilities. Let's say Novavax uses $700M to pay ⅓ of its liabilities and uses all its revenue to pay for its operating expenses. It is still left with about $1.2B in liabilities. It needs to keep reducing its operating expenses so its revenue from future vaccines surpasses its costs and pays off the rest of its debt for several more years before it has any money left to return to investors. To add insult to injury, Novavax is dealing with a $700M dispute with GAVI, the Vaccine Alliance. The dispute is related to advanced payments by GAVI, and Novavax claims that the payment isn't refundable. The legal dispute is still ongoing. With all those challenges, it feels like the stock is overvalued even at a 0.4-time price-to-sales ratio. Of course, we shouldn't forget about it its patent and technology value. So at best and in the absence of a major new outbreak, Novavax is a cigar-butt stock that may still have another last puff left in it. Pfizer (PFE) Fundamental Analysis
Pfizer is a $220B company that makes $93B in revenue, is profitable, and holds more than $30B in cash and cash equivalent assets. It also pays more than a 4% stable dividend. This is a drastically different company compared to Novavax. It generates more than $26B in free cash flow too. It is a vaccine stock, but its survival isn't by any means dependent on Covid vaccine. So why is the company priced only eight times its earnings?
Going through its earnings report, the company wants to show its growth potential, excluding Covid-related products and expects between $20 to $25B in revenue by 2030 from its pipeline. A company such as Pfizer has a rather stable and reliable trajectory based on its multi-decade operating history, and if you look at its historical Price-to-Earnings ratio trend, it is hovering at a historically low level, indicating possible upsides. Moderna (MRNA) Fundamental Analysis
Moderna is a $47B company with $5B in expected revenue from the COVID vaccine program in 2023. It was profitable last quarter and has nearly $17B in cash and cash equivalent. Like Novavax, it is also working on the combined flu and Covid-19 vaccine, but unlike Novavax, it has several other products in the pipeline. Moderna is focused on bringing its mRNA technology to other vaccines, such as HIV, Lyme, or Norovirus, and therapeutics, such as different kinds of immuno-oncology and rare diseases among others.
On further review of the company's financials, you'll see that most of its net income last quarter came from income tax benefits driven by R&D credits. The company has drastically increased its R&D expenses. Although you do not like to see a drastic cost increase, an R&D expenditure increase for a biotech company that isn't plagued by significant liabilities, like Novavax, is good news. It is an indicator of potential future revenue. At a 2.5 times price-to-sales ratio, with significant cash on the balance sheet and a solid pipeline to develop new mRNA-based vaccines and treatments, Novavax seems to be a typical high-risk - high-reward biotech bet. However, be mindful that the 2.5-time price to sales is based on last fiscal year's revenue of $15M thanks to the COVID-19 vaccine revenue. This year, so far, the company has only confirmed a $5B in revenue which brings the price-to-sales ratio up to more than nine times. Moderna can be a good bet if you can tolerate the risks. Investing in biotech always comes with the risk of delayed drug developments, significant market sensitivity to even the smallest news about the drug development programs, and the possibility of never getting an actual product out into the market. Which Vaccine Stock Is A Good Buy Now?
Let's recap what we discusses so far and decide what to do with these old Vaccine Race winners:
In my point of view, Moderna has a chance for a significant return but comes with the typical risk that comes with biotech companies. Pfizer is most likely the most reliable investment of the three, but it won't be a big 10-bagger. And, lastly. Novavax be a big blind bet for a chance on a significant gain but also a very high likelihood of losing all your money. I'll see you next time!
*This promotion is for 50% off Annual VIP Plan with Stock Card. After your first payment cycle, your plan will continue at the standard plan rate. Renews automatically. Cancel anytime. The offer ends 30/06/2023 PST.
Apple (AAPL):
And a brand that inspires! A tech company that doesn't stop innovating. And a stock that pays consistent dividends. Apple is the perfect company. But a perfect company doesn't mean a perfect stock. Apple is priced at more than 30X its earnings and more than seven times its sales. Can it grow into its current seemingly ambitious valuation? Today, I review Apple's latest product and feature announcements at its worldwide developers' conference, WWDC, and discuss its fundamental analysis and valuation to decide whether it can get even bigger than its current roughly $3T market cap and whether it is still a good stock to buy now. Let's talk about that!  I'm Hoda Mehr, founder, and CEO of Stock Card, and on this blog and its accompanying YouTube channel and Podcast show, I share detailed fundamental analyses and interesting investment stories.
This post is part of a series I started a few weeks ago to fundamentally research companies to manage my real-money portfolio. I've already researched Canopy Growth (CGC), Fastly (FSLY), Snap (SNAP) , Shopify (SHOP), Airbnb (ABNB), Unity (U), JD.com (JD), NVIDIA (NVDA) and several others. I'll continue with this series for a few more weeks. Remember, this content is for education and sharing ideas and not advice to buy or sell any securities. Sign up for a free account on Stock Card to get notified of these blog posts, YouTube videos, and Podcast shows every week. We only ask you name and email address when you sign up. Apple becoming the largest publicly traded company in the world is one of the most fascinating stock market stories. The stock has generated a 120,000% price return since its IPO and has consistently paid dividends since 1989, eight years after it went public in 1980. How has the company achieved such an extraordinary return? There is never only one reason for a company's success. But, for Apple, if we can narrow down our answer to the most important reason for its success, it has to be about building a strong competitive advantage and moat by keeping its customers loyal and engaged for decades. And if there is any way Apple can continue growing, it has to be its ability to keep strengthening its moat. As you watch the company's announcements at the latest WWDC conference, you'll see evidence of it fortifying its competitive moat. Before discussing how Apple can continue building it's moat, Let's talk about the elephant in the room. What Does Vision Pro Launch Mean For Apple's Investors?The most talked-about portion of WWDC was the release of Apple's new Augmented Reality glasses. People are so excited about this product release. The Virtual and Augmented Reality market is expected to grow 46.00% annually between 2021 and 2025 globally. AR and VR glasses will become a $7B market by 2027. If Apple manages even to own the entire market, the new Vision Pro glasses aren't going to make a dent in the company's nearly $400B revenue per year. There are some caveats to my argument:
How Does Apple Build and Protect Its Moat?Apple's WWDC wasn't all about the new Vision Pro AR Glasses. The company talked about a slew of new features and technologies that are much more important to its future and its ability to grow revenue and expand its moat. Specifically, two things captured my attention:
Let's talk about the M2 Chips first. In 2021, Apple moved away from using Intel's chips in its devices and switched to designing chips, naming them Apple silicon. These semiconductors are powerful and designed to handle Apple's specific needs. The company is now releasing the second generation of its chips, called the M2 series, which are much more powerful and can handle extremely challenging workloads such as enabling professional video and audio editors to stream and render high-quality content. Interestingly, during the presentation, the presenters kept comparing Apple silicon-powered devices with Intel-powered ones and emphasized the superior speed and performance of Apple Silicon. It kept reminding me how much Intel has fallen to the point that its stock may not be saved anymore. I have done a detailed analysis of Intel's stock which I leave a link to it here. Back to Apple, the chips are so powerful that the new Mac computers can now run high-fidelity games such as Death Stranding. These powerful semiconductors open Apple's doors to the world of computer gaming in addition to its growing mobile gaming. The chips are strong enough that famous game maker, Kojima San, accepted to appear at WWDC and endorse Apple's technology calling it s a new era for Apple's gaming. Of course, it's not all about gaming. These powerful chips make all Apple devices more powerful and keep Apple at the forefront of the personal devices market. The second note-worthy portion of the WWDC was about a slew of small but interesting software improvements and new feature releases. Apple is notorious for observing its users and figuring out ways to make them a little bit more comfortable and a little bit more dependent on its ecosystem. If you listen to any of the features Apple released during WWDC in isolation, they mean nothing. But they delight users at tiny moments and solve their day-to-day problems one small feature at a time. Features like better profiles, stickers, Journaling on your phone, and many more. As they say, "Trenches are dug one shovel at a time." And these days, Apple's competitive moat is built one small feature and software improvement at a time. Do all that moat-building and competitive advantage translate into Apple being a great investment now? Apple's Fundamental RecapLet's look at Apple's fundamental analysis:
Apple's ValuationUsing common valuation ratios such as the Price-to-Earnings ratio of more than 30 times, and the Price-to-Sales ratio of more than seven times, Apple is overvalued. A high valuation ratio, such as more than 30 times Price-to-Earnings, shows investors' expectation of higher earnings and profitability in the future. In this case, using a PEG ratio can be a more reliable indicator. The PEG ratio considers the historical growth rate in a company's earnings and paints a better picture of its valuation. Apple's PEG ratio is 2.5 times. This means Apple investors expect the future earnings will grow faster than its historical growth rate. Is it reasonable to assume that Apple will be much more profitable in the future than today? How Can Apple Become More Profitable?There are a few things that can improve Apple's profitability in the future. The most important factor is the growing share of the Services in the company's revenues. Service or software are much more profitable than hardware and devices. We have seen the share of services grow in total Apple's revenue, which may translate to higher earnings. However, Apple is still a hardware company looking to lead the hardware market, evident by its new VR glasses launch in the latest Word Wide Developer Conference. Overall, it seems Apple is a strong, well-managed, cash-generating company that investors are too excited about now. So what should we do with Apple stock? Is Apple Stock A Buy Now?If you own Apple's stocks, holding on to them isn't a bad idea. It is an overvalued stock, but that doesn't mean the share price will drop anytime soon. Because of its reliable dividend and market leadership, the stock is one of those shares many indexes and large funds tend to own and hold for the long term. Therefore there is limited price drop risk, especially if no major economic crisis or unexpected factors impact Apple. If you don't have Apple's shares, buying them at the current valuation most likely wouldn't give you a significant return, and it only preserves your capital. If you are looking for reliable and steady investment, picking up shares of broad market index ETFs such as SPY or similar mutual funds would give you the same result with less risk because you will diversify by owning a broad market ETF while still owning Apple indirectly. The company is among the largest holdings of almost all broad market indexes. To find such ETFs, you can go to Apple's Stock Card and look for the ETFs that hold Apple in its top 25 holdings. For example, Vanguard Information Technology (VGT) or iShares's Global Tech ETF (Ticker: IXN) are ETFs with big exposure to Apple and reasonable costs and risks. By investing in them, you will benefit from possible Apple price increases while protecting yourself against possible price drops that come with owning an ETF that diversifies your holding into other large and successful companies worldwide. It is also worth monitoring Apple's price for possible buy-the-dip opportunities. For example, if some external factors drag the stock price down while the company maintains its moat, you may have a chance to get a better return. Before I wrap up, I have to say that if you look for investment opportunities to double or triple your money, Apple most likely won't be the best choice, even if the stock price drops a few percent in the future. You can only generate outsized returns by investing in Apple's of the future that are much smaller and unknown at this point. See you next time!
The year is 2033. Rows and rows of people are ushered through narrow captivity corridors by the robot overlords. The sharp smell of fire and ash is making people gasp for air. The humanoid robots are scaring, capturing, and hunting people. AI finally took over. What's that? It's 2023, not 2033? AI hasn't dominated the world yet! Okay, phew! So if AI hasn't yet dominated the world, what can it do? Well, according to UiPath's business description, AI can help organizations scale digital business operations rapidly. Oh, that sounds like a good idea! It can save businesses a lot of money. But is the stock fundamentally strong and worth investing in so we can make much money too before AI takes over the world? It may very well be. More importantly, is it priced cheaper than AI stocks such as Nvidia, giving us room to grow without taking the high valuation risk? Today, we will discuss all that and research UiPath (PATH) fundamentally to decide whether it is worth investing in and holding for the long term before AI takes over the world. Let's talk about that!  I'm Hoda Mehr, founder, and CEO of Stock Card, and on this blog and its accompanying YouTube channel and Podcast show, I share detailed fundamental analyses and interesting investment stories.
This post is part of a series I started a few weeks ago to fundamentally research companies to manage my real-money portfolio. I've already researched Canopy Growth (CGC), Fastly (FSLY), Snap (SNAP) , Shopify (SHOP), Airbnb (ABNB), Unity (U), and JD.com (JD), and several others. I'll continue with this series for a few more weeks. Remember, this content is for education and sharing ideas and not advice to buy or sell any securities. Sign up for a free account on Stock Card to get notified of these blog posts, YouTube videos, and Podcast shows every week. We only ask you name and email address when you sign up. Artificial Intelligence is the talk of the town. Just recently, we saw Nvidia's stock jumped more than 25% in one day after announcing a surprising revenue forecast thanks to heightened demand for data centers that can handle generative ai applications. I posted a detailed review of Nvidia a few days back, and I'll share a link to it in the show notes. The gist of it was that Nvidia is great but too expensive. Which means if we are not investing in NVDA, then what do we invest in that benefits from the same trends and has solid operations while it is not priced as the next best thing after the sliced bread? UiPath could fit that description, at least, that's what Cathie Wood and the ARK Invest team of innovation-obsessed investors believe in. Let's dig into UiPath's top and bottom lines, revenue and profit trends and direction, balance sheet strength, and free cash flow status, and decide whether it is worth paying the 8-time price-to-sales ratio for the stock. UiPath's Fundamental AnalysisUiPath makes money by selling other companies the licenses to use its automation software or paying a subscription fee to access UiPath's platform on the cloud. It grew its revenue by 42% annually, compounded to $1.3B in annual recurring revenue in the first quarter of this year. Growth in recent years has slowed down slightly to 28% year over year and 17% for a quarter-over-quarter. But still, the company is growing. While UiPath's operations weren't profitable in the latest quarter, the company has been profitable in the past, and by adjusting the numbers for non-cash expenses such as stock-based compensation, the operations are still profitable in the latest quarter. Similarly, it used to generate free cash flow in the past, and in the latest quarter, it is free cash flow positive on a non-GAAP basis. Most of the adjustment is attributed to the cash used in the purchases of marketable securities. Ideally, you'd want a company that generates free cash flow consistently and doesn't need adjustments to show positive figures, but still, it's good to see non-GAAP free cash flow. The good news is that UiPath holds nearly $2B in cash and cash equivalents with no significant debt, giving it a resilient balance sheet. We can be comfortable knowing that it has enough cash to reinvest in its future even if it doesn't generate free cash flow for a quarter or so. UiPath's Fundamental RecapLet's recap UiPath's fundamental analysis:
UiPath's ValuationTo grow sales eight times in 10 years, which is the stock's current price-to-sales ratio, UiPath needs to grow its revenue by 23% annually. The good news is that the required growth rate is lower than UiPath's compounded annual growth in the last few years, even though its latest quarterly growth rate isn't as high. It is certainly cheaper and more reasonably priced than Nvidia while still benefiting from the AI boom. It isn't exactly the generative AI infrastructure developer that Nvidia is, but certainly, it has a rapidly growing market. Most importantly, it allows companies to adopt the generative AI application within their organizations which can boost its revenue in the coming quarters. However, there are still valuation risks associated with the stock. If by any chance the revenue growth slows down and the company doesn't make up for it with higher profitability, then we will be in serious problem. It isn't a slam dunk stock, but nothing is. Remember, the company is a recent IPO but was founded in 2005, almost 18 years ago, so by now, it should have found it's selling rhythm. Is UiPath A Buy Now?At nearly $10B in market cap, it is just at the threshold of small companies I like to invest. I already indirectly invested in this stock because of ARKK's 6% allocation to this company. If you don't have an ETF like ARKK that bets big on UiPath, this can be a stock to buy now and monitor and add more as it continues to prove it can grow its revenue rapidly and expand its profits. If UiPath isn't up to your liking, but you still want to research AI stocks, type artificial intelligence in the search bar and get the list of AI stocks and ETFs on Stock Card. I'll see you next time!
On May 24th, 2023, $750M Nvidia jumped 26% after its earnings release while reporting a 13% year-over-year revenue growth decline. How can a mega-cap stock jump nearly 30% in one day, and how is that possible when revenue growth decelerates? The answer is the AI boom. The company designs and builds semiconductors and chips that power data centers with the computation capacity to run generative artificial intelligence applications and large language models. The data centers are foundational to other large tech businesses, such as Microsoft and Google, who want to meet the rush of demand by companies of all sizes for generative AI applications. Aside from the recent price rally, Nvidia's stock price is no stranger to big jumps in price thanks to similar technological boom cycles such as cryptocurrencies. As a matter of fact, in five years, the stock went from a low of $35 per share in 2018 to a high of $400, generating more than a 1000% return on the day of recording this episode. The question is, after a 5-year 1000% gain, is it too late to buy Nvidia? Let's talk about that!  I'm Hoda Mehr, founder, and CEO of Stock Card, and on this blog and its accompanying YouTube channel and Podcast show, I share detailed fundamental analyses and interesting investment stories. This post is part of a series I started a few weeks ago to fundamentally research companies to manage my real-money portfolio. I've already researched Canopy Growth (CGC), Fastly (FSLY), Snap (SNAP) , Shopify (SHOP), Airbnb (ABNB), Unity (U), and JD.com (JD). I'll continue with this series for a few more weeks. Remember, this content is for education and sharing ideas and not advice to buy or sell any securities. Sign up for a free account on Stock Card to get notified of these blog posts, YouTube videos, and Podcast shows every week. We only ask you name and email address when you sign up. Before discussing Nvidia's fundamentals and assessing whether it's time to buy, let's point something out. If you are already investing in the broad market index ETFs such as SPY or QQQ, you already have a big exposure to Nvidia. The stock is the 4th largest holding in SPY ETF and the one I the largest stocks in the QQQ ETF. So no! it's not too late to buy Nvidia, you are already an investor if you are an index investor through your 401K or other similar accounts. You now need to ask whether you'd want direct exposure to Nvidia too. The stock has a few interesting fundamental characteristics that can help you decide whether the company has more room to grow. Let's go through the stock's fundamental analysis using our usual fundamental framework:
NVIDIA's Fundamental AnalysisNvidia makes money by selling computer chips that it designs and builds for other technology companies to run data centers, make video games and computers, and build autonomous vehicles. Interestingly, Nvidia doesn't manufacture its own chips. It works with Taiwan Semiconductor (TSM) to make the actual chips. But the company develops the technological architecture and the software that makes those chips unique and powerful. There are two important fundamental characteristics in what we just discussed:
NVIDIA's Topline & Bottom Line: Fundamentally speaking, Nvidia has solid top and bottom lines, two important factors we consider when researching a stock. It's also important to notice that the roughly 30% jump after the recent earnings report comes from the company's forecasted $11B revenue for the next quarter, up from the $7.2B in the year's first quarter thanks to the AI boom which strengthen its topline growth and health. NVIDIA's Free Cash Flow: Having a growing topline is good, but better is the company's ability to turn that revenue into cash. Typically, free cash flow is a good indicator that a company's business is working. And Nvidia doesn't disappoint. It generated $2.6B in free cash flow. NVIDIA's Balance Sheet: On top of its cash-generating business, it has more than $19B in cash and cash equivalents on its balance sheet against roughly $7B in current liabilities. Nvidia generates cash and has access to enough cash to invest in its future growth without any concerns. Why Does NVIDIA Want To Issue New Shares? Talking about cash and balance sheet, there is a rather surprising announcement but the company's SEC filings. It has announced that it may sell up to $10B in new shares at some point, raising additional capital. It's surprising because of all the cash it already generates and holds on its balance sheet. Raising capital doesn't sit well with current shareholders because it increases the number of shares and dilutes the existing shareholders' ownership of the company. Most likely, the company is trying to take advantage of the AI boost to its market cap to authorize share issuance without worrying about the market's negative reaction if it was announced at any other time. My guess is that the new shares can be used to fund the repayment of its current debt, or Nvidia expects it needs much more capital and R&D to stay competitive in the market and that investment is much higher than the cash it has on hand and can generate in the future. Nevertheless, both reasons don't sit well with me and are a red flag in my books. NVIDIA's Valuation: Aside from those fundamental metrics, the important question we should discuss now is whether the company deserved the 25% jump on the earnings release day and the follow-on price increases since then. Today, when I'm researching, Nvidia boasts a 200+ price-to-earnings and 37+ price-to-sales ratio. The Forward price-to-earnings ratio of 53 times indicates the company is expected to be more profitable in the future, but still, these valuations seem quite extraordinary. To grow into 37 times the P/S ratio in 10 years, Nvidia must grow its revenue by roughly 43% annually all else equal. Nvidia has grown by almost 30% per year compounded in the last few years. But still, 43% compounded annual growth is quite aggressive. Moreover, the generative AI market is expected to grow by 27% annually in the next ten years. Even if Nvidia grows as fast as the market, it still has a 16% difference between the market growth and the required growth rate to grow into its current valuations. That's HARD to do. Before summarizing Nvidia's fundamental analysis, and discussing what we should do with the shares, let me invite you to look up Nvidia's Stock Card to research the company on your own. I leave a link to its Stock Card in the show notes. Better yet, if you don't feel comfortable paying such a high price for Nvidia, we recently launched the generative AI stock list on Stock Card so you can find stocks like Nvidia working in this rapidly growing industry. Type "generative AI" in the search bar and get the list. I leave a link to that list in the show notes too. NVDIDA's Fundamental RecapNow, let's recap Nvidia's fundamental analysis:
Is NVIDIA A Buy Now?Knowing all that, what should we do with Nvidia shares? I have no doubt NVDA's stock price can and may go up in the coming months. That's how hype-driven stock prices tend to move. They go up until something disrupts their momentum. In the case of Nvidia, any new stock issuance, any disruption to the huge revenue forecast, competitors' announcements, or any supply challenges can qualify as a disruption, and then, it can easily give back its 25% jump in a day. If you own NVDA as I do, taking some profit off is not a bad idea, especially if you have other or better investment options. And, then, buy the stock back when it comes off the AI hype. Be careful that you may sell, and the stock may still go up. You need to be satisfied that you took some profit, reduced your risk, and can sleep better. Remember, investing is a game of probabilities. The investment return is not an absolute figure. You need to consider how much risk you take to generate a return and whether that risk is justified. After Nvidia's big recent jump, the probability of a decline goes up, and staying away is a prudent strategy. Also, remember, as we discussed at the beginning, if you are investing in SPY or QQQ index ETFs through your 401K or automated passive investing, you already have massive exposure to Nvidia. Ultimately, you need to decide whether you are okay to chase the momentum and risk higher drop probabilities or prefer to take some profit off now and wait for the next cycle by adding the stock to your buy-the-deep watchlist. I decided to sell my Nvidia shares, and if you were a Roll with Our CEO portfolio follower, you must have received an update notification. See you next time!
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