I'm Getting Dangerously Close To Making a Dumb Investing Decision
Should I break my investing rules?
YouTube
Spotify
Apple Podcasts
This week on the Investing Power Hour, we brought on Braden Dennis — co-founder of Fiscal.ai — as a third guest on the show. Braden went through what they are building at Fiscal.ai (use our link to sign-up!) as well as what went into the name change. It was formerly Finchat.io, if you were unaware.
We also discussed:
Tesla’s robotaxi launch
Hims & Hers vs. Novo Nordisk
The state of the AI software market
Small-cap of the week: Abercrombie & Fitch
And much more.
Now, to today’s newsletter.
Never invest in apparel. Never investing in dating apps.
Two hard rules I have for myself. My brain says these rules are intelligent because of how finicky, trendy, and viral these industries are. Plus. the money I have lost investing in them. There is no long-term competitive edge if people are not going to be loyal to brands (applies to both dating apps and apparel).
And yet, my gut tells me to buy Lululemon, Match Group, and Bumble today.
Lululemon trades at an EV/EBIT of 11. It is still growing revenue despite fears over competition and an apparel slowdown, while China is doing phenomenal even with depressed consumer spending in that country.
Management has begun to aggressively repurchase stock:
The balance sheet is fairly clean, we can keep reducing share count at this depressed earnings ratio, and revenue is likely (my gut feeling) to keep marching higher over the next five years.
Lululemon’s EPS can grow at 10% - 15% annually while its stock trades at an EV/EBIT of 11. And yet, I don’t want to buy it.
Match Group is reducing its bloated costs through layoffs, has a new CEO in Spencer Rascoff with lots of experience in consumer internet businesses, and its revenue has held up “fine” even though Tinder is supposedly dead.
The stock trades at an EV/EBIT of close to 10. Like Lululemon, it is repurchasing a ton of stock, at a 10% buyback yield over the last twelve months.
Hinge revenue is up 6x in the last five years and has barely started its international monetization. New App Store rules from Apple may help increase profit margins (skipping the 30% take rate from the App Store).
Even if revenue struggles to kickstart growth again, the stock will likely do fine. If Tinder recovers, we could see a 10 bagger over the next decade.
And yet, I don’t want to buy it.
Bumble has cut 30% of its workforce and recently brought back its founder Whitney Wolfe Herd to lead the business:
Bumble App Revenue has stagnated since 2023, but Herd believes there are improvements the company can make to the application to get it back on track.
I am not sold that the Bumble team can do it even with the founder back running things. However, the stock is heavily discounting that this will occur.
Bumble trades at an EV/EBIT of 8. It has a free cash flow yield of 23%!
It has a buyback yield of 25%…
Look, I’m not in love with this business (pun intended) but it is consistently profitable and has a chance to be a 10 bagger if Herd turns things around. I don’t think there is huge downside risk.
My gut says these stocks crush the market over the next five years. But my brain says I should be afraid to buy them.
What do you think?
-Brett