Selling

Odyssey 1 posted a list of their biggest losers in the 1st quarter.

ExOne (XONE) -47.27%
Westport Innovations (WPRT) -41.68%
Tile Shop (TTS) -39.50%
Lumber Liquidators (LL) -24.45%
3D Systems (DDD) -22.46%
Zillow (Z) -18.85%
Pandora Media (P) -18.10%
Sina (SINA) -17.34%
Atwood Oceanics (ATW) -16.75%
Proto Labs (PRLB) -15.77%

What struck me about the list is that every one of their top 10 losers, except SINA, were stocks that I had been in at one time or another, in at least a test position, and subsequently sold out of. I’m not sure what the significance is, except that sometimes it pays to get out of a position that doesn’t feel right.

Saul

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Saul,

I’m curious, are you or any others that are reading this considering buying any on that list since they all have dropped?

mazske

“I’m not sure what the significance is, except that sometimes it pays to get out of a position that doesn’t feel right.”

I am holding on to UBNT by my fingertips. It is my only loser this year.

Robert

I am holding on to UBNT by my fingertips. It is my only loser this year.

I just purchased a few more shares of UBNT this afternoon. From what I’ve read, the long term prospects look good.

mazske

Everything else has bounced back except UBNT - when my cash comes through I am topping up here in UBNT.
A

any others that are reading this considering buying any on that list since they all have dropped

mazske,

I like TTS and LL. I think both may have bottomed and long-term they seem to have a solid opportunity in terms of expanding footprint of their stores.

PRLB is another one that I 'm interested in but I haven’t had a chance to do my research. It worries me though that their top line growth is only about 20%, yet the trailing PE is a large number. A lot of growth is baked into the stock!

Zillow, again same story as PRLB. It looks pretty expensive to me, but I haven’t done any solid research on them. Saul up board noted that he also considered them to be expensive, which was one of the reasons for him to sell out of Zillow. I have previously written puts on Z, but my price target was more like $65!

XONE, when I last looked seemed like a niche player in the 3D printing space and they were loosing money fast. May be the valuation is more appropriate now, but I 'm not sure about the economics of the business. It could be an acquisition candidate given the 3D battle is largely being fought between DDD and SSYS. SSYS, IMO, is the best of the lot though, so that’s where my money is. I do like writing puts on DDD, so someday may get assigned and be DDD owner.

Pandora I don’t get. There’s too much competition in that space. Spotify, iTunes, so many free options, etc. I haven’t dug into it.

Westport. Hmm. That’s another story. They have good tech, I think, but poor management. So they promise something and always under deliver. The pricing now makes them enticing but I can’t trust this management. Their joint ventures with several well known brands though reinforces the technology value. With WPRT, my intention is to treat it like a punt. I have bough a few LEAP calls at various strikes. The idea is to pay little to have exposure to any potential upside. If there’s no upside, I loose the investment, but its only a small amount. LEAP calls, IMO, are a good way to play these sort of punts.

The rest I 'm not too familiar with.

Anirban

<I’m curious, are you or any others that are reading this considering buying any on that list since they all have dropped? Mazske

Mazske, Let’s look at the list and why I sold some of them.

ExOne (XONE)
Westport Innovations (WPRT)
Tile Shop (TTS)
Lumber Liquidators (LL)
3D Systems (DDD)
Zillow (Z)
Pandora Media (P)
Sina (SINA)
Atwood Oceanics (ATW)
Proto Labs (PRLB)

XONE and WPRT I sold because they were story stocks with great stories but losing lots of money, lots of money. But I sold WPRT at $30. Perhaps you could consider a “punt” as Anirban said, now at $7.50? Who knows? MF still likes it, but they LOVED it at $30.

I sold TTS because they couldn’t get their business together, as I remember. They were at $30 a year or a year and a half ago, but they are now at $9.50. LL has a similar story. Anirban thinks that they may get their acts together, but I have been hesitant with buying companies with chains of stores. (How far can they go?)

PRLB is a great company but at a huge PE for moderate growth.

Z is at over a 200 PE and if they doubled their earnings next year, and then doubled them again the year after, their PE would still be over 50.

DDD and other 3D stocks were hyped and up to huge valuations compared to their growth.

Sina I was never in and know nothing about, but when looking up LL, I happened to notice LLEN, priced now at 10 cents. I have mentioned that 11 out of 13 of the little Chinese stocks I had been in about four years ago turned out to be fraudulent. It looks like LLEN joined the group and it’s now 12 out of 13. They got delisted. Don’t buy Chinese stocks.

Atwood I don’t follow any more and don’t remember why I got out. They do huge drilling platforms, and their ups and downs have to do usually with the oil market.

All in all I prefer buying companies that are doing well rather than ones whose businesses are crashing. In that list at least Z, PRLB and maybe DDD (I haven’t followed them recently) are doing well business-wise, but are overly priced. WPRT may pull out of their nose-dive, but do I want to bet money on that?

Best

Saul

4 Likes

Guys,

No offense but I don’t see how PRLB is so egregiously overvalued. Their current PE is in the low to mid 40s, they grew revenue at 30+% last year and YTD this year, and they grew earnings last year at more than 35%. They have a great new CEO who has a proven track record of growing companies and she appears to really be taking the reigns and moving PRLB in the right direction. I recently bought more at $70 and if this selloff gets too ridiculous, I’ll buy more. Love the company, love the leadership, love the moat.

Jason
Long PRLB

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As far as Z, I believe it was overvalued for awhile, which is why I sold some in the 120s and 130s. Told myself I was going to let the rest run so I didn’t sell in the 150s. I’ll probably look to buy more back eventually. Last November, I bought two chunks in the low 70s when pessimism was too high and those seem to have performed well for me. If it gets to low 100s, I’ll take a pretty serious look at it.

Jason
Long Z

1 Like

I don’t see how PRLB is so egregiously overvalued. Their current PE is in the low to mid 40s

I think if you’re time horizon is 5+ years, and you’re happy to just walk away and let the stock do its thing, then I absolutely agree with you. PRLB is a great company, and I think they will very likely grow into their valuation.

But it’s easy for a stock priced so high to go nowhere for a couple years while they do grow into that valuation. A year ago the stock was at $88. It wouldn’t surprise me at all to see it bounce around between $70 and $90 over the next year or two. It could, of course, rocket up next week to new highs – nobody knows – but it wouldn’t surprise me to see the stock stagnate for a while.

Look at ELLI as a great example of a wonderful business that has shown very little appreciation over the past two years simply because it, too, has been growing into is valuation as the market takes a “prove it to me” approach. It just bounces around.

I think a big part of successful investing is being comfortable with your investments. I personally am more comfortable owning companies at more reasonable valuations (or ideally, great companies that are beat down for some silly reason) – that’s just how I am. I get really nervous when a company seems “priced for perfection” (as much as I hate that term), like TSLA was (is?). That does not mean it can’t go higher, but knowing that 10+ years of growth is built into the price of a significant position of mine just makes it hard for me to sleep at night. And for me, that’s reason enough to move my capital into something else.

One of the things I admire about Tom G’s Everlasting Portfolio in Fool One is that every position is locked up for 5 years. There’s definitely something freeing about that if you’re willing to give up on the idea of trying to maximize returns – which, let’s be honest, is probably a complete delusion for most of us anyway. Most of us aren’t Saul, and despite our best intentions would probably be better off overall in the long run if we followed simple rules like that.

So if that’s your plan, Jason, I applaud it.

Neil
Long ELLI

11 Likes

No offense but I don’t see how PRLB is so egregiously overvalued. Their current PE is in the low to mid 40s, they grew revenue at 30+% last year and YTD this year, and they grew earnings last year at more than 35%. They have a great new CEO who has a proven track record of growing companies and she appears to really be taking the reins and moving PRLB in the right direction. I recently bought more at $70 and if this selloff gets too ridiculous, I’ll buy more. Love the company, love the leadership, love the moat.

Jason, I agree that PRLB is a great company. I agree they have a great new CEO. I agree that if the sell-off gets ridiculous, I’d buy some too. In fact, of the stocks on that list of 3rd quarter losers, PRLB is the one to buy if you want to buy one.

I’ve bought Z twice and made money each time, but it is ridiculously priced, and there is significant danger when a stock could lose half its value and still be at 100 times earnings.

Just my opinion…

Saul

6 Likes

But it’s easy for a stock priced so high to go nowhere for a couple years while they do grow into that valuation. A year ago the stock was at $88. It wouldn’t surprise me at all to see it bounce around between $70 and $90 over the next year or two. It could, of course, rocket up next week to new highs – nobody knows – but it wouldn’t surprise me to see the stock stagnate for a while.

Neil,

I appreciate the feedback and discussion. I’ve seen this with a number of my positions this year and I’ve just come to grips with the fact that 2014 is a consolidation year where many of our high growth stocks had to take a breather to grow into their value. I’m fine with that because 1) I’m still beating the market since the beginning of 2013 and 2) I think it’s setting me up for a good year next year when these companies have more reasonable valuations.

From following this board, I’ve come to realize that Saul is very unique in his ability to know when to buy and sell. While he was buying Z in the 120s and 130s, I was selling some of my position and while I had a position that was 40% of its original size, he rode it to 160 and then got out. Pretty uncanny ability in my mind.

Again, thanks for the discussion.

Jason

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I’ve bought Z twice and made money each time, but it is ridiculously priced, and there is significant danger when a stock could lose half its value and still be at 100 times earnings,

Saul,

When I’m look at Z’s valuation, I always think back to an investor presentation that I reviewed when I first bought the company. In the presentation, they said that they expect their long-term EBITDA margin to be about 30-35%. Based on that, I’ve essentially guesstimated that they’ll have a long-term profit margin of 20% and I always look at that number when thinking about their valuation. So based on their current TTM revenue of about $260 million, their adjusted profit in my mind is about $52 million. With a market cap of about $4.6 billion, their current TTM PE at about 88.

As to whether or not they’ll actually achieve that profit margin, well who really knows! That’s the fun of it! What I do know is that I really like Spencer Rascoff.

Jason
Long Z

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