Kevin, as always I find your articles very insightful, one should always learn from his mistakes. I looked into Cava a year, I found valuation too high and still share price doubled, sometimes the market follows the story and not the essentials
Thank you Maarten. Indeed, sometimes learning from the past is a painful experience, but if we want to improve, we have no choice. What's strange here is that the market did not react to a fundamental improvement in the business, and I can't quite put my finger on why that is unless for the simple reason that few people were looking... Have a great weekend!
I don't know. There is always going to be companies that we can't predict. I think this is one of them. Skin care? Why are these products selling like hotcakes? That is what I want to know. Is it a fad in China more than quality products that will appeal universally? I can hear your frustration here. But this is more gamble than insight. Nothing wrong with a small gamble either. It might be a huge winner, and if it is you want to ride it. But currently my watchlist of star studded companies has become larger than my cash kitty. I have more ideas than cash. The problem isn't ideas at this juncture in the market. The problem is valuation of the whole damn market. No margin of safety there either. Why else is Warren selling stocks like Apple, and BOA like they are suddenly lepers? I am fine sitting here on the sidelines with 40% of my money in stocks,funds etc.. Patience, patience, patience. The world will serve you on a silver platter if you wait long enough. Ted Williams, the only player ever to hit 400, did so because he was super selective about the pitches he would swing at. I am going to let a few strikes go by and probably become a little frustrated that the ball isn't coming to me when I am ready for it. I know the game. The game is cycles. Markets will be at your beckon call before long.
Thanks Eddy. Yeah, I hear what you're saying. But when you find a company performing and the market not reacting. I can't say I've found another small company without debit and profits growing that traded at a 20% FCF yield.this year. But, patience is gold!
I would have pass on buying it on the basis of such a high insider shareholding. I have bought into another company with high insider shareholding with great potential upside from there expanding their business from Australia into the USA. About 1 month after buying the shares the two main insiders each sold 10% of there shares and the share price crashed 20%. They didn't care for the ongoing shares issued to them as performance bonuses from a now lower price fully compensated them. I was not impressed and determined to avoid stocks with more than 30% insider holdings.
Yes, it's a risk. But I've had good and bad experiences in the past. So I'm not setting a hard rule, I do however try to assess what management did in the past, or what they plan to do. However, if the long-term value is up, that 20% might prove just a bump in the road in hindsight.
Fascinating breakdown of a missed opportunity. Even in today's information-saturated markets, inefficiencies still exist - especially in the micro-cap space. A great case study in the power of systematic screening and a superb fundamental analysis. It's exactly these types of opportunities that keep me excited about active investing, even in a world of passive ETFs.
A few thoughts from my experience:
-We've seen similar explosive growth patterns with other Western brands tapping into Chinese consumer demand. It's a trend worth watching beyond just EZZ.
-That FCF yield of 20% was a massive red flag for deeper investigation. In my DUQQQ portfolio, anything above 10% gets immediate attention, regardless of market cap.
-The lack of institutional coverage creates opportunities but also increases risk. I'd be curious about their audit quality and internal controls given the rapid growth.
-Momentum is key in these situations. Setting price alerts is smart, but also consider tracking relative strength vs. the sector. Often, these breakouts happen in clusters.
-Don't underestimate the power of operational leverage in high-growth scenarios. If they maintain 50%+ growth, that EV/EBIT of 18 could look cheap in hindsight.
Keep these breakdowns coming - they're gold for anyone serious about improving their investment process.
True! But Nvidia was never on my radar. So I do not feel as if I missed it. It's different when an idea comes on a shortlist 'to be reviewed' and then the price pops.
A terrific article and a response by Eddy which exactly summarises my thoughts, but I would add these as extras.
Having recently visited Hong Kong I was blown away by the way China is subtly nullifying free speech and the capitalistic ways of good old Honkers (HK). As an Australian, I am aware of just how quickly the CCP can cripple a companies fortunes - virtually overnight - we saw it with wine, lobster and barley exports; from sales hero to zero. Absolute zero.
Major point: when your major, major sales geographic isn’t stable, no matter how beautiful your golden goblet, you have a structural flaw.
Also, when you identify such potential diamonds in the dirt heap, don’t leave it as a potential, make a small commitment, buy a minimum parcel. Ideas are many & are usually forgotten within a week. By adding it to your shares owned list, you are committed to consider it further. Psychologically, as has been tested to death, once you commit you feel stronger about its concepts and possibilities. Every punter at the racetrack feels a greater sense of confident belief after they have placed the bet.
Thanks Damien. I'll think I'll add your suggestion to my process. Taking speculative positiions (1% of portfolio) when something looks good (and the gut agrees), even before having had the time yet to dig deeper.
Another similar Australian share to Ezz is VLS. I’ve owned in the past and admit I sold too early, booking a profit, but missing the long run. I am surprised at its durability and I just didn’t have sufficient faith in its product offerings. A mistake, I cut it when it hit my assessed IV. Probably I should use an IV range from very conservative to top potential and only sell within that range but after giving the company more time to see whether they achieve closer to potential.
I always prefer an error of ommission instead of an error of commission in these instances. That said, I am a huge fan of these rundowns as it can start a process to determine when/if a discussed stock is an opportunity worth another look at a price the user deems appropriate. You plant the seed and we decide if we want to water it....kinda like the tulips mentioned below (lol).
without sticking my head in the numbers - in such nano cap company - this rise in sales in China - is it possible to come from a single city/local geography alone?
I have never seen such one sided sales growth our of a new geography like this. All from China. Highly speculative and I think it's an outlier case, not something that can be repeated. Competition can appear or increase at anytime in China. It would have been a mistake to pass on the 20% FCF yield but a 10 baggers was not predictable. A 2 or 3 bagger was more realistic.
Kevin, as always I find your articles very insightful, one should always learn from his mistakes. I looked into Cava a year, I found valuation too high and still share price doubled, sometimes the market follows the story and not the essentials
Thank you Maarten. Indeed, sometimes learning from the past is a painful experience, but if we want to improve, we have no choice. What's strange here is that the market did not react to a fundamental improvement in the business, and I can't quite put my finger on why that is unless for the simple reason that few people were looking... Have a great weekend!
it was not a mistake. You could have passed on Tulips in holland in the 1600s and missed a double.
We are in highly speculative bubbles in the USA at the moment and everyone looks smart.
are you referring to CAVA?
(nodding in agreement)
yes
I don't know. There is always going to be companies that we can't predict. I think this is one of them. Skin care? Why are these products selling like hotcakes? That is what I want to know. Is it a fad in China more than quality products that will appeal universally? I can hear your frustration here. But this is more gamble than insight. Nothing wrong with a small gamble either. It might be a huge winner, and if it is you want to ride it. But currently my watchlist of star studded companies has become larger than my cash kitty. I have more ideas than cash. The problem isn't ideas at this juncture in the market. The problem is valuation of the whole damn market. No margin of safety there either. Why else is Warren selling stocks like Apple, and BOA like they are suddenly lepers? I am fine sitting here on the sidelines with 40% of my money in stocks,funds etc.. Patience, patience, patience. The world will serve you on a silver platter if you wait long enough. Ted Williams, the only player ever to hit 400, did so because he was super selective about the pitches he would swing at. I am going to let a few strikes go by and probably become a little frustrated that the ball isn't coming to me when I am ready for it. I know the game. The game is cycles. Markets will be at your beckon call before long.
Thanks Eddy. Yeah, I hear what you're saying. But when you find a company performing and the market not reacting. I can't say I've found another small company without debit and profits growing that traded at a 20% FCF yield.this year. But, patience is gold!
I would have pass on buying it on the basis of such a high insider shareholding. I have bought into another company with high insider shareholding with great potential upside from there expanding their business from Australia into the USA. About 1 month after buying the shares the two main insiders each sold 10% of there shares and the share price crashed 20%. They didn't care for the ongoing shares issued to them as performance bonuses from a now lower price fully compensated them. I was not impressed and determined to avoid stocks with more than 30% insider holdings.
Yes, it's a risk. But I've had good and bad experiences in the past. So I'm not setting a hard rule, I do however try to assess what management did in the past, or what they plan to do. However, if the long-term value is up, that 20% might prove just a bump in the road in hindsight.
Fascinating breakdown of a missed opportunity. Even in today's information-saturated markets, inefficiencies still exist - especially in the micro-cap space. A great case study in the power of systematic screening and a superb fundamental analysis. It's exactly these types of opportunities that keep me excited about active investing, even in a world of passive ETFs.
A few thoughts from my experience:
-We've seen similar explosive growth patterns with other Western brands tapping into Chinese consumer demand. It's a trend worth watching beyond just EZZ.
-That FCF yield of 20% was a massive red flag for deeper investigation. In my DUQQQ portfolio, anything above 10% gets immediate attention, regardless of market cap.
-The lack of institutional coverage creates opportunities but also increases risk. I'd be curious about their audit quality and internal controls given the rapid growth.
-Momentum is key in these situations. Setting price alerts is smart, but also consider tracking relative strength vs. the sector. Often, these breakouts happen in clusters.
-Don't underestimate the power of operational leverage in high-growth scenarios. If they maintain 50%+ growth, that EV/EBIT of 18 could look cheap in hindsight.
Keep these breakdowns coming - they're gold for anyone serious about improving their investment process.
Thanks. I'm going to add the relative strength to my process! That's great advice
I remember when Nvidia was $2/share in 2016........hindsight is 20/20
True! But Nvidia was never on my radar. So I do not feel as if I missed it. It's different when an idea comes on a shortlist 'to be reviewed' and then the price pops.
Understandable. Shortlists rock!
A terrific article and a response by Eddy which exactly summarises my thoughts, but I would add these as extras.
Having recently visited Hong Kong I was blown away by the way China is subtly nullifying free speech and the capitalistic ways of good old Honkers (HK). As an Australian, I am aware of just how quickly the CCP can cripple a companies fortunes - virtually overnight - we saw it with wine, lobster and barley exports; from sales hero to zero. Absolute zero.
Major point: when your major, major sales geographic isn’t stable, no matter how beautiful your golden goblet, you have a structural flaw.
Also, when you identify such potential diamonds in the dirt heap, don’t leave it as a potential, make a small commitment, buy a minimum parcel. Ideas are many & are usually forgotten within a week. By adding it to your shares owned list, you are committed to consider it further. Psychologically, as has been tested to death, once you commit you feel stronger about its concepts and possibilities. Every punter at the racetrack feels a greater sense of confident belief after they have placed the bet.
Thanks Damien. I'll think I'll add your suggestion to my process. Taking speculative positiions (1% of portfolio) when something looks good (and the gut agrees), even before having had the time yet to dig deeper.
Another similar Australian share to Ezz is VLS. I’ve owned in the past and admit I sold too early, booking a profit, but missing the long run. I am surprised at its durability and I just didn’t have sufficient faith in its product offerings. A mistake, I cut it when it hit my assessed IV. Probably I should use an IV range from very conservative to top potential and only sell within that range but after giving the company more time to see whether they achieve closer to potential.
I always prefer an error of ommission instead of an error of commission in these instances. That said, I am a huge fan of these rundowns as it can start a process to determine when/if a discussed stock is an opportunity worth another look at a price the user deems appropriate. You plant the seed and we decide if we want to water it....kinda like the tulips mentioned below (lol).
Thanks!
without sticking my head in the numbers - in such nano cap company - this rise in sales in China - is it possible to come from a single city/local geography alone?
might be a very anacdotale trend
It's a great question. I'll dig a little deeper and see if I can uncover more information. If I do, I'll write a follow-up
Interesting retrospective Kevin.
🙏
As always, a very nice write-up!
I have never seen such one sided sales growth our of a new geography like this. All from China. Highly speculative and I think it's an outlier case, not something that can be repeated. Competition can appear or increase at anytime in China. It would have been a mistake to pass on the 20% FCF yield but a 10 baggers was not predictable. A 2 or 3 bagger was more realistic.
I agree. It was a bargain. But the price action is off the charts. I could have never imagined that