Industrials

Report by Thompson Research Group

Many market participants are looking for a way to play housing and it would be easy to look at building product distributors and write them off as being overvalued and that you’ve missed out. However, TRG believes this is faulty logic. Builders FirstSource, Beacon Roofing and GMS (as well as others) have margin profiles that have risen to comparable or superior levels in relation to the “premium-valued group” (SiteOne, Pool, Leslie's, Core & Main and Ferguson), but have EV/EBITDA multiples (avg. 10.6x) well below these stocks (avg. >20x). If they gain a more appropriate multiple (for strong SF starts and better margins) on higher EBITDA, then all three companies still offer significant (~70%) upside.

Consumer Discretionary

Report by Arete Research

ETSY is once again allowing its platform to be polluted with items which are hardly 'handmade' goods and degrading the quality of its search results, possibly to grab more GMS and boost its flagging growth. While some investors have been celebrating recent headcount cuts, they are overlooking the structural weaknesses in the business. To revitalise its brand, ETSY needs to 1) Guide to far lower sales as part of an effort to clear the marketplace of counterfeit or inappropriate listings. 2) Focus its attention on sellers rather than buyers. Otherwise, its current approach - denying problems and deflecting value criticisms - will inevitably lead to multiple compression for the stock.

Report by Abacus Research

Short term pain, long term gain - three ideas where negative short term fundamentals are obscuring long term attractive businesses...

CoStar (CSGP) - No competition, plus headroom to increase prices. 2022 EBITDA margins will be ~27% vs. the 40%+ that the business should do as growth matures.
Etsy (ETSY) - Scaled, capital light, low SBC, and management team with a good history of execution. Take rates will rise longer term, thus revenue can compound faster than GMS.
Pinterest (PINS) - Not all users are equal; core users will be sticky and engaged. Worst case scenario the stock is worth ~$25, but in this scenario Abacus are ~50% below the street for EBITDA.

Technology

Not according to Inflection Point Research - their theory for LT growth is rooted in the belief that semi suppliers continue to add more value with more custom solutions, which are inherently single sourced, enabling pricing power. The massive consolidation within the industry creates fewer and larger players resulting in less competition for a given application. The current shortages industry wide are limiting top line growth temporarily but universally GMs are improving due to price increases, which will continue even after a supply/demand balance is reached. Contact us to find out which companies IPR believe will benefit the most.