Quick IPO Analysis: Rapid7 [2015/6/13]

Today, we will look at the prospectus of Rapid7, a cyber security IPO.

I have learned about this IPO filing through Google Alerts. Thank you Google. Google

Alerts is  a good way to be on top of news and investment ideas. But just make sure that

you don't subscribe to too many alerts then it gets annoying.

1.3,900 customers over 90 countries. 30% of Fortune 1000. Wow, compound 35% growth from 2011 to 2014

2. Gartner Inc estimates that by 2020, 60% of enterprise information security budgets will be allocated for rapid detection and response approaches. Data Corporation estimates that the overall market for security data and analytic is $12.6 bn in 2015.

3. Emerging growth company. Lot of R&D expense due to intense competition.'

4. Wow, such a long risk section but nothing so out of the ordinary.

5. High renewal rate (85%). Also, security services tend to be sticky. Expanding gross margins :D

6. No red flag in the notes.

**Assessment

Pros: High growth, expanding margins, good industry :D Also, helps the world. Cyber security will only become more important. Potential acquisition target by competition or just large tech firm (e.g., Microsoft).

Cons: No high level manager specializing in technology (No CTO). Usually, you want some tech personnel at the top but I guess the executives have tech experiences.

I am not totally sure about the security product but I love the growing revenue and expanding gross margin and the increasing R&D/ marketing. These measures are likely to help Rapid7 grow more quickly.

I need to do more due diligence but it may be a good buy.




From Snapshot Serengeti

Quick IPO Analysis WingStop [2015/5/21]

So let's see what WingStop's IPO has to offer~

*I originally start reading the S-1, then got busy so now I am reading the S-1/A.


1.Offers divers flavors and has strong brand. Social media savvy? I guess this could be a strength. They use hashtags to prove their point haha.

2. Experienced management team.over 20% operating income margin, 10% net income margin. These are good numbers for restaurants.

3. Bone-in chicken wing price risk. I guess they may not be so good at hedging as Fogo de Chao.Chicken cost represents 65% of all purchases.

4. Use of proceeds to repay debt...well, not the best usage of capital but it is a PE controlled company.

5. Wow, strong net income, almost 23%!

6. Oh, internal control weakness

7. According to Technomic, fast casual segment generated approximately $34.5 billion in sales in 2013.

8. WingStop has growth potential in the US and international, it is not saturated yet.

9. 30% goodwill, 70% leverage. At a quick glance, there does not seem to be a red flag.

Assessment:

Pros:
-Strong growth, revenue is growing quite fast without much impact on the margins.
-High net income.
-Seems to have some moat with its menu


Cons:
-The firm does not seem to be good at hedging its supply. With the recent avian flu, I expect that the increased costs will affect the profits, especially when  chicken accounts 65% of all purchases.

-Not much moat. I can see gourmet chicken wing restaurants easily taking away market share. Or KFC stepping up the game.

I think the firm has some moat and growth but I need to do more due diligence. The avian flu will definitely impact the firm's bottom line. For research, I should go try some wings :D



*From WingStop S-1/A

Quick IPO Analysis Fogo De Chao [2015/5/11]

I love Fogo de Chao. Love its meat and food~ Let's see if I will love its stock equally :D


1. Adjusted EBITDA is here!

2. Fogo de Chao is 35 years old and features up to 20 cuts of meat.

3. Each restaurant generates 8 million with a gross margin of 32.5%, this is really high.

4. I am not sure if interactive and approachable fine dining experience is the case. Basically, I just tell what meat I want not sure if that is really interactive or approachable.

5. An average person spent $59, yup, this is definitely high end category. On average, a new restaurant recovered 40% of the initial investment within the third year. So within seven years, everything will flow to profits directly, wow.

6. Make more by using bars, alcohol only accounted for 17% of the revenues.

7. Have an expert real estate team so this should be favorable. I am not sure if I can evaluate this though.

8. They decreased food and average cost even when beef price jumped 20%. This is really operation skill :D

9. Anti-takeover...not so lovely governance structure.

10. OK more than half of the assets is goodwill!! hmmm...Has some debt.

11. Restatement of SAR plan...ooohhh not big but still not good.

Assessment.

Pros: High gross margin, strong operating history, and experienced management. Good at managing costs.

Cons: There is restatement, which is never good.

Overall, I think Fogo de Chao may be a good buy given its operational strength. Further, due diligence coming up~






*From Fogo de Chao S-1

Quick IPO Analysis: PGA Holdings Inc [2015/5/5]

Let's see what we can learn from PGA Holdings, Inc.'s prospectus~


1. Press Ganey provides measurement and performance analysis for healthcare organizations. This is a good field: health care+ big data.

2. It has 30 years of experience. This is good. Oohhh it serves 62% of acutre care hospitals and most large hospitals.  Annual retention rate is 94%!

3.  National Health Expenditures data reported by the Centers for Medicare & Medicaid Services, or CMS, the United States spent $2.9 trillion on healthcare in 2013, accounting for nearly 18% of GDP

4. Most comprehensive patient data base! Yup, the reason why Google is so great. 

5. Emerging growth company..PE backed. Net income margin is low.

6.Ugh Adjusted EBITDA says capital structure is irrelevant to operations. Really? If you are highly in debt, you will surely cut costs and raise prices...

7. Weak internal controls~Yes, heavily indebted.

8. Nice revenue recognition policy, billed 50% upon execution. Combined with 94% retention rate, which 100% billed upon renewal. Love the fact cash comes in first.

9. 50% of asset is goodwill and they have 6 million in cash, if they don't get paid, the interest cannot be paid. Whoa! This is really tight.

10. Lot of acquisitions. This would be a big risk given funky things happen during acquisitions  and synergies are overrated but in case of buying data, it is actually quite a synergy. Once you build a large proprietary data base, the return to scale, increases, just look at Google.

Assessment:

Pros: With such consumer capture and valuable data. it can easily be an acquisition target. The firm can pay make the interest payments and regulatory risk seems low given how slow the US reforms healthcare.

 Cons: Huge goodwill and debt, and low cash....if there is a liquidity shock, this firm will clearly be in distress.

I think it would be a relatively safe play to invest in the firm given its strong revenue generation. There is a high likelihood that a larger analytic firm may buy the firm given its data and technologies.




*From Floating Forests

What I have learned today [2015/5/3]

1. Ohhh Turkish sand coffee looks good :D I guess the even heating from the sand makes the coffee more consistent?

2. Hong Kong uses the DNA from litter to construct pictures of litters. Pretty clever :p

3. Dufl provides a service of delivering travel bags to frequent travelers who does not want to pack their bags. Basically, the traveler shows how he wants his bag to be organized and sends to Dufl's storage and when he travels Dufl sends the bag to his destination's hotel. I guess it's a nice idea but I just wonder about insurance and having it picked up by Fedex. I guess good hotels will do it for the guest but for other destinations hmmm....

4. There are lot of IPO investment advisory services. I wonder how good they are.

5. I learned that working too many hours makes me quite dizzy...oooh my head is going to explode...I sort of knew this...but a reminder. Health comes first.
 



*From Penguin Watch

What I have learned today [2015/4/30]

1. IPO data has a lot of errors. When combining data sets make sure that the errors do not compound because it will make a mess!

2. Defense companies do not have much fixed cost. It is all variable and part of the pension is paid by the government! wow! Not too enthusiastic in supporting defense companies although they are necessary.

3. BLS is quite independent from the executive branch. I sort of the head that feeling but it is nice to know that it is run by career bureaucrats.

4. Many IPOs are acquired quite soon.

5. India's GDP is 80% consumed by Indians so as long as India grows (which it is), expect to see lot of billion dollar companies :D




*From Penguin Watch

IPO Analysis: Bojangles [2015/4/28]

As a researcher studying IPOs, I like to read S-1s although it gives me a headache due to its length and complexity. However, as I read more, I am getting better. I remember when I first read the 10-K. Well, actually, it was magical but still I struggled. Now time for the S-1s :D

Today I cover Bojangle's S-1.

Here are my notes, I actually go through the filing now.

1. Not a big fan of pictures....

2. Bojangles is 38 yr old. Breakfast menu ears $650,000 per restaurant...

3, Adjusted EBITDA is here...meaning that they are not really making a profit....Revenue is growing at 12% from 2011 to 2014. Net income grew five fold from 2011. to 2014. Hmmm...why don't they emphasize net income growth?!

4. Ok, they say people are loving more breakfast and chicken. I guess it's true, breakfast menu from McDonalds been doing well and chicken seems to be the new beef (?)

5. Population growth in the south is higher than average?! Ok, this is bad comparison, CA is growing quite fast...averages can be deceiving.

6. Yes, loyal culture. I know because I lived in NC for longer than I expected :p

7. Average check was $6.68, this is clearly affordable.

8. Emerging growth company~ and controlled company exemption....wow, talk about lack of disclosure. This is bad.

9. Wow, it has an operating margin of 10% and a net income of 5%, this is actually quite impressive for a restaurant!

10. Ok, I literally took this from the S-1.
"Adjusted EBITDA represents company net income before interest expense (net of interest income), provision for income taxes, depreciation and amortization, items that we do not consider representative of our ongoing operating performance and certain non-cash items"

So Bojangles doesn't pay interest and taxes and there is no wear and tear? Man, I corporate finance was an important part for 99% of the firms....guess not...

11. Chicken price is a major risk. Chicken feed price is rising....Ohh...one supplier. This is a risk...

12. Strict covenants hmmm...

13. Ok...the risk factor section basically puts everything that can go wrong...haha too much. I am surprised that they did not put act of God. Yes, they have one store in Honduras and there are worried about foreign corruption act.

Wow they are even worried about analyst coverage....

14. Don't know how to interpret option tables...what is high? what is low? should study.

15. It is PE backed, a relatively new board...

16. Certain relationships and related party transactions: Advent basically runs the firm..They also have the staggered vote, and all the anti-take over defenses.

17. Nothing much with underwriters, law firms, and auditors.

18. Why the heck does it have such a large goodwill?

19. Ok they have an interest swap for their debt...hmmmm....Adjusted EBITDA does not consider interest rate payment and they have an interest swap...hmmmmm

Love the profit margins but concerned about the lack of transparency and limited growth prospect. Can it go further west or even south?

For now, no recommendation.

PS
Took me about 50 minutes to go over quickly. Please do your full due diligence. I just did this exercise to show how to skim through S-1.  Skimming is never sufficient and can lead to disasters so please do your homework :D


*From Bojangle's S-1

What I have learned today [2015/4/26]

1. Many criminals that claim insanity are not actually insane...now this is scary.

2. In Chile, developer can go to prison if the building collapses.

3. Colombia has a culture of really objectifying women, overly emphasizing beauty. Wow...where are the feminists when we need them? Should pray Colombia and help them abandon the distorted expectations about women.

4.Casino did not pay $41.8 million to a slot machine winner claiming that the slot machine had computer glitch. Somethings are just too good to be true.

5.Security experts hacked surgical robots. This is scary, they hacked the pacer before now surgical robots. The chances of someone hacking surgical robots is very low but I guess it could happen....would be a good Hollywood movie plot.

6. A French company going to make custom perfume that smells like someone you like. Ohhh imagine the good memories from the smell but also the confusion if you smell it from unexpected places. Also, I can see people trying to use this perfume to get attention from potential spouses or clients. It could happen...Must ensure that the perfume's secrecy is well kept.

7. So many errors in the IPO data....wow.

8. The modern credit card was created by Diner's club.




*From Floating Forest

What have I learned today [2015/3/26]

I used to write what I have learned today in my diaries but then I sort of got lazy and forgot. Well, I would like to bring back that decision by starting my "What have I learned today?"

Yes, this will force me to be more effective also crush my ego. No, I am kidding, I actually enjoy this sessions.

So here are some interesting things that I have learned today.

1. IPO underwriters can use the due diligence and reliance defenses when sued. Basically, due diligence defense states that they did a reasonable job checking and the reliance defense blames the experts.

2. I have learned that auditors get sued a lot but we never know what happens. I think they mostly settle.

3. Gold mining stocks are still going down and I have entered to early!! Ahhh...I think I will cut my losses. Remember, you can make up your losses later, stop the hemorrhage.

4. I have learned that chow mein is only about 500KCAL but gives me overwhelming energy to do pull ups like crazy :D Yes, when I really wanted to work out really hard in college, I would eat a Big Mac and go straight to the gym.

5. I have experienced the praying brings more blessing than you can imagine ^ ^


*From the Milky Way Project

****Please share what you have learned today :D****