Ryshab's Dec 2024 Portfolio Update

[ryshab]

Performance recap

• 2021: -36%
• 2022: -76% (Found Saul’s amazing board Jan 2022, started this style of investing in May 2022)
• 2023: +80%
• 2024: +104%

Here is what this journey looks visually. These numbers in the chart has me putting in new capital and hence the current amount is above what it was during Nov 2021. Without the additions, I am still about 19% under water.

Current portfolio holdings:

• HIMS - 16%
• BSEM - 7%
• NVDA - 7 %
• ARQT - 6%
• SEZL - 6%
• ROOT - 6%
• DCTH - 6%
• ECOR - 6%
• OSCR - 5%
• TARS - 5%
• ANIP - 5%
• ALAB - 5%
• ADMA - 4%
• NU - 4%
• REAX - 4%
• LFMD - 4%
• AFRM - 4%
• MU - 4%
• TGTX - 3%

Portfolio is currently 107% long.

I am not adding any commentary on my holdings that has remained the same from last month as the reasoning for holding them is still the same. I have some portfolio restrictions due to which I wasn’t able to take advantage yet of this dip in the markets. I plan to reshuffle my portfolio a bit starting tomorrow. I have way too many holdings for my liking. I will be trying to reduce my holdings from 19 to closer to 10.

Here are some updated one pagers for some of the businesses I own. I have made some changes based on the suggestions from others.

Changes this month

• New positions: OSCR, REAX, ANIP, LFMD, ECOR
• Sold: TMDX, ARDX, NXGL

Why I added or re-added these positions

• OSCR
  • This is a valuation play. This thing looks so cheap to me. NTM growth could still be about 30%+ and the current P/S is at 0.40. This looks like ROOT level cheap a few quarters ago. They are FCF positive so I threw my hat in the ring to take a shot.
• REAX
  • I have never owned a business with this thin a margin. Very uncomfortable feeling. But again, looks quite cheap. Over 40% potential growth and FCF positive. They are a 9% margin modern day brokerage business which can get to mid-teens margin in the next 2 years. Nothing to brag about but when you start at 9%, getting to 15% is 50% margin expansion. As you would expect, the profitability comes with volume as their FCF rate is around 3%. Speculative play for me as P/S is under 1.
• ANIP
  • I have owned this pharmaceutical business with success in Q4 2023. Then growth slowed and I exited luckily in time. Now growth is back with a potential of 30% revenue growth in the next 12 months. Also, the stock price has been coiling for over 9 months. Very AFRM like chart. So if they execute I expect a nice pop for a few quarters. They are currently at 10% FCF margin with room for improvement.
• LFMD
  • I can 't decide if I want to stay in or not on this business. By traditional metrics, this looks cheap to me. NTM growth is still going to be around 30% and it is 10%+ fcf positive. So I am taking another shot at this. Not very confident if I will hold on.
• ECOR
  • Good product mix and potential hyper growth curve ahead. About 50% growth expected and should inflect to fcf+ territory this year. The stock had a good run but I think it can continue if they perform.

Why I sold these positions

• TMDX
  • Growth stock putting in negative QoQ and lowering guidance. Not interested.
• ARDX
  • Shouldn’t have sold it. My methodology changes confused me as I was adjusting some numbers. I plan to get back into this. I expect high growth numbers in 2025 with inflection to profitability.
• NXGL
  • Too many holdings and needed some cash to buy some other exciting opportunities. The deep red FCF margin worries me and I am happy to be a spectator for a few quarters to see them get closer to profitability before entering again.

Wrapping Up

December was a brutal month with almost 26% being shaved off the ytd numbers. However, even with that I was able to end the year at 104%. By far my best investing year. I am really thankful to Saul and this community in giving me the confidence to manage my own capital and start to turn the corner. I hope everyone had a great holidays and wishing you a very happy new year.

Thank you for reading. Cheers!

[stocknovice]

Excellent year, and I think your visuals are a great addition to the board.

I know it’s a work in progress, but would you be willing to share how you are coming to your assumptions?

I do something similar with company guides, though not as far out into the future.

Thanks.

[ryshab]

Thanks Joe! And congratulations on 6 market beating years out of 7. Also, 72 consecutive portfolio reviews. Wow! Extremely impressive and insightful write ups.

I will try to explain this in three parts, assumptions, quality score and valuation. So please bear with me.

The assumptions:

For calculating NTM growth, I usually just take what analysts are expecting as the NTM revenue number and I add 50% (for margin of safety and law of larger numbers - only 50% and not 100%) of LTM analysts guide raise percent. This gives me a NTM growth rate for my assumptions.

Example: HIMS
LTM Revenue: 1.24 Bil
Current analysts ntm revenue expectation: 1.96 Bil
Analyst raised guidance for 2024 revenue from 1.1 to 1.46. That is 32%.
So I add half of that 16% to NTM expectations which gives me 2.27 Bil. Now the NTM growth rate stands at 83%. This is what I will use in the calculations.

For Margins, I use the current trend and assign an arbitrary number. So if the trend is stair step up, I add to the margins for NTM and viceversa.

For FCF, I definitely want to see stair step up both on TTM numbers and Q0Q numbers. QoQ numbers are not always stair step but I need to see a operational efficiency slope upwards. Otherwise, it’s a red flag.

For dilution, I just use the basic numbers and not the diluted version that include SBC. I think this is a bit controversial but I have experimented with this and it really doesn’t make a big dent unless you go 20%+ in dilution. Mainly because the growth rate is so high that it makes up for all the dilution and still could give you a good potential return.

The Quality Score calculation:
For Quality score, I just add the NTM Growth rate and FCF margin percent. The only exception is if FCF margin is greater than NTM growth rate then I take the difference, split it in half and subtract that from the total. This is to not give too much valuation multiple to businesses that are very profitable but not growing much.

Example: ZS
My NTM Growth rate 21%
My NTM FCF Margin 41%
So quality score generally would be 21+41 = 62.
But since fcf is higher, i take the difference, that’s 41-21 = 20
Then divide by 2 = 10. And subtract from the quality score: 62-10=52.
So ZS final quality score is 52.
If ZS had growth at 41 and fcf at 21, then the score would be 62.

How do I use this score:
Any business putting up above 60 score is a good business to be invested in as long as valuation looks good.

Any business that has less than 20 score, I do not try to get in, even if the valuation looks attractive.

Between 60 and 20, I need to see really favorable valuation to enter. I am trying to get away completely for below 60 score investing. That will give me a lot of margin of safety as the businesses I will own will have solid footing.

Valuation

I simply use the NTM Revenue that my calculation spits out and use the quality score as the FCF multiple.

Example: HIMS
NTM Revenue: 2.27 Bil.
NTM FCF Margin: 17%
NTM FCF = 385 mil.
FCF multiple: 83+17 (NTM growth rate + FCF margin) = 100
NTM market cap = 385 x 100 = 37 Bil.
That’s about 600% higher from current trading prices.

BIG DISCLAIMER:

This is all work in progress. If you remember, Bear put out a valuation thread a while ago and my valuation formula was totally different back then. So things have changed a lot and I am sure will continue to change. This is where I am now. I will continue to learn and evolve this as part of a methodology I am building as a backbone to invest.

Hope this was helpful in explaining some of the forward metrics I use in my assumptions.

[stocknovice]

Totally makes sense. Thanks for sharing.

FWIW, I agree with the rationale behind using 50% of the guide raise percent. One, it’s a good margin of safety. Two, the percentage beats for these companies tend to decrease over time as larger numbers kick in. I something similar in using quarterly guides to create my own estimates: Using Company Guides to Create Estimates.

Anyway, good stuff. I appreciate you clarifying the “My” in My Assumptions.