Despite Redbubble Ltd (ASX:RBL) being a “tenbagger” from the lows, and Shaver Shop Group Ltd (ASX:SSG) being a “fivebagger, these companies might even still be buys. This blog post is a bit of a follow up from my last post when I discussed my mistakes. I felt in hindsight I should have been buying more of these shares around May, when both had already provided fantastic trading updates.
In my defence with SSG, I have done quite well in it, but when topping up a bit in June around 60 cents I was quite timid with the amount I bought. Initially I bought the stock around 50 cents in the second half of 2019. RBL is more of a screw up so far, feels like I am the only investor in the country that is not sitting on a significant profit. I own shares with an entry cost of circa $5. One reason of this blog post is to reflect on how much I should have invested here, and what levels does this represent great value?
I have heard of many investors taking a relatively small position initially in a stock, as it forces them to slowly look at the stock in much more depth. When they don’t own any at all it might fall off their radar. That is kind of where I am at here with RBL. Am comfortable it is a very good company to investigate it more and I at least own a position now. SSG is a larger position for me, partially due to the gains I have made to this point.
Redbubble Ltd (ASX:RBL) vs Kogan.com Ltd (ASX:KGN) vs Temple and Webster Group Ltd (ASX:TPW)
Some other reasons for this blog post are the following.
- That maybe I might receive some interesting feedback from those familiar with these stocks. Often my holdings are pretty weird and met with blank stares from other investors. These brands however many investors are aware of. I don’t follow closely stocks like Kogan.com Ltd (ASX:KGN) and Temple and Webster Group Ltd (ASX:TPW), but I might be interested in other opinions from those that follow RBL as well as these two. I get that they are all very different, it is just that I notice many investors (unlike me) have looked closely at all three.
- Later on I also wanted to share some links of interviews that might interest holders or potential future investors of RBL & SSG.
- Also finally, perhaps it is a reminder for investors or potential investors if they haven’t done so already, to buy some of their products. After all, maybe that is a good way to do some of your research, and we are at that time of year for shopping.
My stuff ups
Just to further expand first why I am a bit annoyed for not buying more in May. In small cap investing I think you can develop an edge if you have been following the companies closely for many months. When suddenly and announcement comes out of the blue (like the positive trading updates in these cases), you can act fairly quickly because you already have plenty of research under your belt. Other potential investors may see the great updates but need to spend significant time researching after that to get comfortable. I had been watching RBL & SSG pretty closely in 2019.
With SSG I did act further in a small way and benefited, but with RBL I feel I succumbed to “anchoring”. I had set in mind some rough numbers on RBL and their potential. I got too wedded to where the stock had been in March and couldn’t bring myself to pay significantly higher. If I just had of noted the new information that came to hand and figured roughly what that meant for future cashflows, I should have quickly got comfortable buying them under $1.50 at the time.
Are Redbubble Ltd (ASX:RBL) and Shaver Shop Group Ltd (ASX:SSG) shares still worth it?
Redbubble Ltd (ASX:RBL)
From what I have come across, many who aren’t that positive on these stocks are those that consider them kind of “one off beneficiaries of the lockdown COVID-19” theme. That is, their profits have been pulled forward to some extent, and current growth levels will soon disappoint.
In markets the last few years it has felt that stocks with certain attributes get bid up to huge multiples. They have almost become buzzwords. Attributes that it feels like every funds management shop and their dogs like to put in their marketing spiel. Think of strong MOAT, network effect, founder led, strong management, negative working capital business model, strong balance sheet with net cash, good margins, inflection point in terms of scale, large total addressable market…
So when looking at RBL I think it has all these qualities. So surely in this heated market we will find a crazy forwards earnings multiple? Well I am not so sure that exists here..
We have a market cap of $1.3 billion roughly with a share price of circa $5, but the EV would be circa $1.2 billion.
In Q1 2021, they reported $22 million EBIT. Operating cashflow for the quarter was $27 million. I think there are some flattering timing adjustments within all that. Yet forecasts of $70 million EBITDA for FY21 do not seem like such a stretch. They are sitting on some accumulated losses on the balance sheet and the pile of cash they have should build up further pretty quickly.
Some criticisms of the prospects of RBL?
Co-Founder stock selldown – Fair enough that as a general rule of thumb consider this a red flag to follow up and have a think about. I am personally not bothered by this at all on this occasion. When someone gets to extreme levels of wealth you may decide to take money out of a stock even if you consider it dirt cheap. There might be other causes in your life that you believe in that requires you to diversify a little. You may even want to spend a little bit. Not everyone is like Buffett and still gets the same McMuffin value breakfast depending on what’s on special. In this case the CEO still has a massive investment and skin in the game going forward.
Will their new customers that tried them as a novelty during covid never return? – Personally I was pleasantly surprised by the products I bought from RBL (refer disclaimer at the end of this post). I was half expecting the t shirts to shrink on their second wash or something that you used to expect from the markets in Bali! I thought the price vs quality was a good balance, and noticed plenty of other interesting products, of which I am sure they can expand much more. I even had a bit of fun posting my own designs. Even a non tech savvy gen Xer could manage it simply, albeit a pretty substandard end design (but that was my fault, not the RBL site, which is good).
Shaver Shop Group Ltd (ASX:SSG)
SSG differs to RBL in that you don’t have to plug in as great growth numbers to see some value in the price. Despite significant growth in recent times for SSG, it might already show up in more traditional value screens from the current earnings it is delivering. Admittedly the potential cannot be compared with RBL because RBL have that significant foot in the door of a large global market.
I won’t spend too much time on quant numbers here. However if you want to look at such numbers I have some at the end of this blog post in terms of valuation metrics and forward estimates.
The point I would make here is it seems the market has placed this stock a bit in the “one off beneficiary from the COVID-19) lockdown theme. The earnings multiples are quite modest. As I have held the stock since August 2019, I had in mind catalysts / growth drivers aside from pulling forward some profit momentum because of the covid lockdown. These were factors I noted to myself prior to covid.
I just thought I would list some here.
- Online sales growth (surging even prior to covid)
- Catering to females. Over half the customers coming into SSG are female. It is more in recent years that this opportunity has dawned on management. A long time ago they could come into a store to buy a gift for a male and there wasn’t much to look at for them. Now stores have invested more in catering to female needs.
- In relation to the prior point, they have already invested in freshening up the look of the stores which was already producing results.
- In terms of men, there is a growing trend of acceptability for them to take more care about how they look.
- Consumers are more likely to go to speciality stores for certain niches. The days of buying specialised products from a big general department store like many of SSGs competitors might be becoming a thing of the past. A few years ago SSG’s key competitors were Myer, Target, K-mart, Harvey Norman, Big W.
- Plenty of room for store roll outs. Especially in terms of the NZ opportunity.
- They can be more strategic in the stores they decide to keep as online sales become a greater percentage. Could some lower performing stores cease without much affect to top line revenue, but achieve major cost savings? Can they now streamline the fulfillment processes to cut costs?
- Their product exclusivity range, and recent surge in their digital customer base, may offer good protection to the threat of competition from a big player, SSG’s brand is worth something in that regard.
- SSG is arguably not as vulnerable in an economic downturn compared with many retailers. Some of their product range can be viewed as saving money versus competition from visiting salons.
- Technology enhancements may act as a tailwind in terms of the above point. i.e. new products come into play that can favour DIY treatments.
- The omni channel format suits this niche. Online is very convenient but is handy to know there is a trusted brand and physical shops behind where you can discuss your needs. If you really prefer 100% online experience through SSG though now you can visit their blog to learn advice on DIY haircuts. Well if you are braver than me!
Redbubble Ltd (ASX:RBL) and Shaver Shop Group Ltd (ASX:SSG) podcasts that may be of interest.
Interview with RBL CEO Martin Hosking from September 2020
Interview with SSG CEO Cameron Fox (this is quite old now from March 2018, but useful to see how the company has executed on its plans). Admittedly a lot of the discussion is more personal “life as CEO in retail type thing”, but if you are interested in a stock it is good to learn about the CEO.
Interview with fund manager Chris Stott (discusses SSG at about the 22 minute mark) –
Websites for Xmas shopping perusal – Only way I benefit here is from being a tiny shareholder, no other affiliate commissions! Just thought it is in the context of this post.
- DIY haircuts at your own risk.
Disclaimer – Obligatory disclaimer here that the above is not financial advice of any kind. Also that these companies are somewhat reliant on selling what is in fashion. The author is renowned for having very little fashion sense.
SSG VALUATIONS & FORWARD ESTIMATES SNAPSHOT FROM NOVEMBER 6TH 2020.
If the above type of analysis looks interesting to you compared to the current stock research tools you use for this type of data then note this is from a site called TIKR.
They recently ask me to take a look and use it for free for a while, so far I like the format and have found it useful looking at some of my stocks with it.
At some point I expect there will be a small cost involved for usage, but they are happy to give some users a free run to experience what it offers. If that interests you it is as simple as just requesting access via the link below.
I would be interested in what others think about with their experience with TIKR by the way, I am still in the process of using it a bit more. I wish to be clear and disclose that if they get up and running and monetize the site next year then this blog may receive a small referral commission. I intend to subscribe even when a fee comes in but for at least the remainder of 2020 and probably longer it is totally free to try out.
Feel free to comment on that or on the stocks above. Am I getting a bit of FOMO and carried away by chasing RBL stock? I am hoping it falls back a lot to give more thought in making it a more meaningful position but have some doubt it will pull back too much.. As always comments / opinions encouraged. Even the ones suggesting SSG & RBL are rubbish stocks, I always prefer to hear the other sides of the argument.