I am increasingly thinking of the QV for Shares live portfolio (the shares from all those recommended in QV that I still like as listed in recent alerts) as a virtual fund. If I was a fund manager and I had a fund these are the shares that would be in it. Effectively we are all fund managers of our own funds so these are the shares that should be in your funds, your portfolios – mine too; and, to an extent they are.
If I had the funds I would hold them all, treat crashes as opportunities to add to holdings in all those companies that clearly remained 3G and I would rapidly become rich. This is exactly what I intend to do in coming years and I don’t regard the fact that I am no longer in my first youth as any impediment to doing this. Slow investing, as I sometimes call it, can produce surprisingly quick results.
What I never do, for the benefit of new subscribers, is buy to trade. I always buy to hold, like the founders and many of the other owners of the businesses in which I buy shares. I try to think of myself as a part owner, which is exactly what I become, when I buy shares in a business.
The fund is dynamic so when I find new exciting shares I will add them to the portfolio. My latest new discoveries (some old favourites like Chipotle that I am revisiting for QV) are listed below. I think of them all as what I am learning to call 3G+M, or even 3GM. This means they are 3G (great story, great growth, great chart) plus M, that special hard-to-describe zen bit – the magic that makes these shares/ companies special.
I believe that if you hold the shares in my virtual fund/ live portfolio you will have a portfolio facing forwards to the opportunities presented by the rest of the 21st century, not backwards to the fading glories of the 20th. For me that means your portfolio will be overwhelmingly focused on the US and technology.
I know you would all love me to tell you what and when to sell to keep your portfolio in tip-top condition. I will try but only in a broad brush way because I don’t know when to sell. It is as big a mystery to me as it is to you and to all honest observers of the stock market. What I will try to do is tell you at intervals which shares I like; by implication the ones I don’t select are candidates for sale.
It’s always going to be tricky. For example, the sports goods retailer, JD Sports Fashion, is not in my live list at the moment. They are predominantly a bricks and mortar retailer so many of their shops are shut and they are obviously hurting badly as a business. At the same time JD is a terrific company, well run, focused on brands and athleisure and with an open-ended opportunity to build a global retailing operation with shops as theatre so exciting to visit. They also have an online operation, which will be growing very fast now. They will survive and recover but they have to endure a tricky period, similar to other great businesses like Disney and they will have to adapt – not just wait for normal service to be resumed because that may never happen.
My view is that active investors have to aim to make money and create long term value despite making loads of mistakes and enduring setbacks. We make mistakes because we are emotional and we are trying to predict the future, which is impossible. The trick is to muddle through. We are all human and usually not destined to be billionaires but we can be millionaires if we use common sense and make sure that we always have portfolios full of shares in which we believe – shares in companies, which are 3G plus the magic.
The advantage of 3G is that it is largely factual. If it is not obvious that a company is 3G it probably isn’t. The extra bit is the element of magic; that is where I come in. I believe I have a knack for identifying the companies that have it and that is what you are paying me for – spotting the X factor. I also probably spend more time looking for these shares than you do because you have a life, while I have a computer.
Before highlighting the newcomer stocks I want to talk a little about what I think is happening to the world. I am currently updating the Quantum Leap table. This is a big list of all the shares featured in my print publication, Quantum Leap, since 2009, so 100s of names. The performance I am happy to say is stunning. Somebody who bought and held every share I recommended would have bought some real duds but would still have done fantastically well, beating the FT All Share by a multiple, maybe 10 times or more. En masse, my selections are good including many massive winners.
There is also a message from the table connected with the effect of the virus. I think we have reached a watershed. Shares in old-school companies including banks, retailers, advertising agencies, travel and hospitality businesses and any business, not embracing the modern world and doing it with the help of the latest technology, is in free fall or bouncing around at low levels. Some will recover but it looks to me like a turning point. The post Covid-19 world is not going to be the same.
We are never again going to accept living in cities thick with the exhaust fumes of fossil-fuel cars. People are going to continue to work from home and use virtual meetings to meet up. Will they fly again on the same scale? I suspect not knowing the damage they are doing. Is the virus threat going to be completely eliminated? Maybe not: HIV has been a problem for over 30 years and many other viruses seem pretty endemic. Is current health care infrastructure up to the job? It seems not if health care workers have to die to keep us alive. Will people want to crowd into cinemas, cruise ships, theme parks, even pubs and restaurants in the carefree way they did before? It could take a while, years rather than months before they do. Will the tube system ever again pack in bodies like sardines? It won’t. All this means huge changes are coming for which we are going to need a fundamental redesign of the human infrastructure of planet earth and how we do stuff.
Imagine if we are going back to the Victorian era where maybe a million people walked and cycled to work every day, eating on the way and they walked from the suburbs into the City. If that is the option, in an increasingly white-collar world, working from home is surely going to be the new normal but what does that mean for our homes. Are they big enough? Do they have enough green space? We need a total rethink on numerous levels.
Does going to the shops make sense at all except to go to sexy outdoor food markets or shops which are effectively street theatre. Do we need the packed pavements and often boring shops of Oxford Street any more? Maybe we do but it will have to be fun to go there – not just a battle through crowded streets to enter an even more crowded Primark, where there is nothing on offer that cannot be found more cheaply and easily online.
I have wardrobes packed with clothes – suits, jackets, shoes, socks, overcoats, scarves, jeans, shorts, T-shirts and on and on – the detritus of a lifetime of shopping for a man who never moves home. It’s ridiculous, wasteful and damaging to a wonderful planet I am learning to appreciate more and more. I have way too much stuff. We all need to change big time and it is going to happen. The old world was not working and the virus has really exposed the cracks.
Meanwhile almost anything to do with technology, the virtual world and the stay-home economy is soaring. It’s absolutely bipolar out there. It’s almost like you tell me what they do and I will tell you what their shares are doing.
This is not going to change. This is the brave new world of 21st century investing. Its epicentre is in the US and especially the west coast and all investors need to get with the programme. Quentinvest will help so please read carefully and pay attention. I really do believe my portfolio and I are on the right side of history and the opportunities look very exciting. This is not defensive; this is wealth creation at warp speed, exactly the forces that have made men like Jeff Bezos, Bill Gates, Larry Page, Sergey Brin, Elon Musk and many others so rich so fast.
We all need to grab a piece of the action.
Just as an aside, UK investors often talk about dividends and dividend yields. This is classic old-school thinking. A dividend is a mixture of a bonus and a warning sign – boring share ahead. Many exciting companies don’t pay dividends because they have more rewarding things to do with their money. Some like Apple and Microsoft are sufficiently mature and make so much money that they can do it all – invest in growth, pay dividends and buy back shares, a process often helped by using their mighty balance sheets to borrow money, like our government, almost for nothing. They are OK too but dividends should never, ever be a reason for buying a share. Think of them more like an accident that may or may not happen and is not important when deciding which shares to buy.
So now for the newcomers, which are not all about technology but what they do have in spades is 3G, serious magic and if they are not technology companies they are embracing new technology in the fullest way possible to improve the efficacy of their operations. Do this right and even restaurant chains can prosper.
Axon Enterprise/ AAXN Buy @ $84.9 MV: $5.2bn Employees: 1,323 Next figures: 11 August
Bio-Techne Corp./ TECH Buy @ $279.5 MV: $10.4bn Employees: 2,755 Next figures: 11 August
Chipotle Mexican Grill/ CMG Buy @ $934 MV: $25.8bn Employees: 83,000 Next figures: 28 July
Datadog/ DDOG Buy @ $55.5 MV: $15.4bn Employees: 1,403 Next figures: 11 August
West Pharmaceutical Services/ WST Buy @ $210 MV: $14.7bn Employees: 8,200 Next figures: 23 July
Wingstop/ WING Buy @ $126.5 MV: $3.8bn Employees: 784 Next figures: 30 July
Axon Enterprise, Inc. is a Scottsdale, Arizona-based company which develops technology and weapons products for law enforcement and civilians. Its initial product and former namesake is Taser, a line of electroshock weapons. The company’s dream is that within a decade its electroshock weapons will be so effective that police will no longer carry hand guns. Allied to all the other stuff they make for facial and number plate recognition they are taking us towards a kind of Robocop world.
This is part of what CEO and founder, Patrick Smith, had to say with their latest results:- “Here’s what I’m learning from those customers and what they’re telling me. They’re working with reduced staff due to personnel being on sick. Customers are seeing this crisis. It’s forcing them to adapt and change more rapidly than ever, and technology will play an even larger role as a cornerstone in every new business process needed in the world post-COVID. Whether it’s using Axon Citizen to gather evidence from the public or our prosecutor portal for sharing digital evidence for prosecutors in courts, the world is changing. And Axon thrives on change.”
It certainly does.
“We told you last quarter that we would be live by midyear with our first paying dispatch customer, and we’re thrilled that we launched even a bit sooner. Dispatch is our entry into a $2bn rapidly growing real-time command and control software market. We’re thrilled to be powering the 911 dispatching operations for the city of Maricopa, which is our first launch partner. This software is also critical to our mission to protect life and empowers everyone involved in an incident response: dispatchers, call takers, command, patrol officers, firefighters and medical personnel. The goal here is to shorten the time from hello to hello. That’s what the industry calls the time between when somebody first calls 911 to the time an officer arrives.”
Business is booming.
“We ended 2019 with $396m in cash equivalents and investments, zero debt and an underlying business that generates strong cash flow and high margin recurring revenues. Revenue grew 26pc to $531m last year, driven by demand for our latest generation camera, Axon Body 3, the cloud-connected TASER 7, and our cloud software. And our bottom line performance reflected our ability to scale manufacturing of TASER 7, continued growth of higher margin Axon Cloud software revenue (up 43pc for the full year), and cost discipline. While net income was affected by catch-up stock compensation expense from our highly innovative eXponential Stock Performance and CEO plans, we delivered a record $88m in adjusted EBITDA for the full year, up 43pc, and Q4 2019 adjusted EBITDA more than tripled to $38m, reflecting a 22pc margin.”
The company was completely transformed after 2008 to become an enterprise software business operating out of the cloud.
“In 2008, as the financial crisis ripped the world, we decided to lean in and transform our entire business from being a simple TASER device manufacturing business into an integrated tech company making wearables and cloud software. That transition was anything but easy. And we’ve had many difficult learning curves to overcome. But as competitors in the public safety space retreated, that’s exactly when we advanced into new opportunities and we established ourselves as the clear market leader in cloud-hosted digital evidence management, software and camera sensors.”
Axon is a very exciting long term opportunity.
“We have several moonshots in progress. Before this decade is out, we will launch a TASER weapon that will outperform a 9 millimetre pistol’s stopping power. We will continue to make policing transparent and effective. And we will extend our reach across the criminal justice system, making it both more fair and more efficient. We will continue to create great social value or society and great value for you, our shareholders.”
Bio-Techne Corporation is a holding company for biotechnology and clinical diagnostic brands. It was founded in 1976 as Techne Corporation and changed its name to Bio-Techne in 2014. The company’s brands include flagship R&D Systems (Research and Diagnostic Systems Inc.), Novus Biologicals, Tocris Bioscience, ProteinSimple, Exosome Diagnostics, BiosPacific, Cliniqa, Advanced Cell Diagnostics, RNA Medical, Bionostics and BostonBiochem. The company’s products are used in both clinical and research contexts. The company was co-founded as a “hematology controls developer” by Dr. Roger C. Lucas, who presently serves as its chief scientific advisor.
The company lists its products as: “Proteins, antibodies, immunoassays, small molecules, cell culture media, in situ hybridisation products, protein analysis instruments, diagnostic controls, calibrators, blood gas and clinical chemistry controls.”
In 2013 more professional management took charge.
“Beginning in 2013, the company’s chief executive officer was Charles (Chuck) Kummeth, who had previously been employed by 3M and Thermo Fisher Scientific.”
Bio-Techne is on a strong growth path as demonstrated by the Q3 2020 results reported on 1 May.
“While COVID-19 negatively impacted our business this quarter, primarily due to the temporary shutdown of academic labs, we are playing a critical role in the global fight to develop tests and cures for the virus. Overall, we were having a very strong Q3 until the virus pandemic had a pronounced impact on our business in mid-March. But even so, we ended the quarter with 6pc organic growth. Adjusting for the impact of coronavirus in the quarter, we estimate our organic growth would have been closer to 9pc. Our team also delivered incredibly strong operational results in Q3, with adjusted operating margins expanding year-over-year by 130 basis points to 36.5pc, ahead of schedule and with strong cash flow.”
You can easily see how exciting prospects are for this business:
“Now I’ll get into some details of the quarter. Starting with our performance by geography, the North American market was very strong with low double-digit growth organically in the quarter. Biopharma growth in the region was over 20pc, while academia increased mid-single digit. In general, both end markets were impacted by COVID-19-related shutdowns starting in mid-March, although our academic market experienced a disproportionate negative impact from the virus. The good news is that these are academic labs, not large industrial manufacturing lines. As researchers return to the lab and get back to work, we anticipate utilisation of our consumables will snap back very quickly. Overall, biopharma research activity has been less impacted by the virus, with many labs continuing to operate at varying capacities. I don’t believe we are alone in our belief that once this pandemic is under control, life sciences research will likely increase significantly. It appears everyone in society from governments through the private sector now knows what an antibody is; this can only be good for our industry.
With current stay-at-home policies, many of our customers are spending much more time – of their time online. Therefore, we continue to focus on our digital marketing efforts that have driven significant increases in website traffic across our brands over the past couple of years. Search engine optimisation, continual refinement of our website and digital advertising will remain a growth lever for the company going forward and will be even more important as a differentiator in the current pandemic environment. We have never done more webinars and digital projects to reach out to our customers. For example, we recently held an Exosome Diagnostics webinar for urologists, many of whom are working from home now and had over 100 participants.”
In general the group is powering ahead:
“Finally, we had a surprisingly strong Q3 in Asia. Given the complete shutdown in China in late February, we were prepared for a quarter of negative organic growth in this country, but finished with positive organic growth in the mid-single digits. This fantastic finish reflects the outstanding work done there by the local team. Our employees in China are back to work servicing a research market that has largely turned back on and are expecting to revert to their long-term trend of double-digit growth in Q4.
The rest of Asia also performed extraordinary well in Q3 with growth in the mid-teens. However, many of these countries, including Japan, Korea and India are currently in varying states of lockdown and expected to remain so for most of Q4. Accordingly, we are expecting double-digit negative growth outside of China in Q4.”
The company is also very much front line in the battle against Covid-19.
“These are just a few examples of how practically every division of our company has pivoted resources to find innovative solutions for COVID-19 and participate on a global level to help eradicate this horrible virus. We are uniquely positioned to provide reagents and assays for all aspects of COVID-19 research and diagnostics, and our mission thrives in helping solve these types of problems.”
It is no surprise the shares are forging higher and prospects look outstanding.
Chipotle Mexican Grill is an old favourite in my publications, which took on a new lease of life in March 2018, when Brian Niccoll, formerly CEO of Taco Bell, became CEO, replacing the former CEO and co-founder, Steve Els. He has done an amazing job in keeping what made Chipotle special, while boosting the commercial operations dramatically. Since he arrived the share price has roughly trebled. If he was a footballer I can’t imagine what would have happened to his transfer value.
Chipotle operates over 2,200 fast-casual restaurants and effectively pioneered the concept. Like Shake Shack, they have a reputation for classy fast food. They suffered from a serious blip on the hygiene front, which is why they had to bring in new leadership. My daughter still thinks of their burritos as death warmed up but fortunately the US market has moved on and business was booming prior to the lockdown.
Surprisingly, even with lockdown, it is not too bad because the company has a rapidly growing digital, delivery and drive in and collect operation based on great technology and what it calls Chipotlanes, which have been rapidly rolled out at a growing number of outlets.
“I am pleased to report that only about 100 restaurants are fully closed at this time. These are mainly inside malls and shopping centres as well as 17 locations in Europe, while the rest of our restaurants remain open for to go and digital order ahead and delivery services, which is critical at a time where food options are limited. Cultivating a better world takes commitment from all of us, and we are fortunate to have the financial strength to weather this storm. Jack will provide more details, but it’s important to note that we remain focused on conserving cash while prudently continuing to invest in several areas that will help us show a strong recovery once guest activity begins to normalise.”
The company has been able to react rapidly to Covid-19.
“This is also allowing us to make quick decisions and navigate these evolving circumstances, including recent additional precautions to safeguard our employees and guests. These include increased sanitisation of high-touch, high-traffic areas, providing masks for employees and a tamper-evident packaging seal. Customers can leave instructions in our app and online to request contactless deliveries and carryout. All of these initiatives give our employees and customers’ confidence that Chipotle remains steadfast in our commitment to keeping them safe.”
The digital, delivery and pick-up side of the business is exploding.
“Q1 digital sales grew 81pc year-over-year to $372m. Our highest ever quarterly level, and represented 26.3pc of sales. As people started to implement social distancing, we moved swiftly by driving further investments towards digital and delivery designed to reduce friction, while increasing convenient access. Although Queso Blanco (a new recipe/ dip) is off to a terrific start, we reprioritised our marketing efforts by offering free delivery from 15 March to at least early May and shifted from live sports to more online and streaming platforms. We also announced a successful national delivery partnership with Uber Eats that is helping drive new customers and greater frequency. Collectively, these decisions translated into strong engagement with our guests as evidenced by our March digital sales growing 103pc year-over-year and representing 37.6pc of sales. A recent survey among current Chipotle consumers suggest that about 15pc had Chipotle delivered for the first time during the last two weeks of March based on their desire for fresh ingredients, craveable taste and good value.
We believe this will have a lasting benefit well beyond the current crisis and are pleased to report that we have maintained strong momentum into April with the month-to-date digital mix running in the high 60s.
While, delivery continues to be the fastest-growing part of our digital platform, we are also pleased with our order ahead business, where average daily sales have doubled from the level seen prior to COVID. This is part of the reason that we continue to shift our development pipeline more aggressively towards Chipotlanes, as it helps drive our high-margin digital order ahead transaction.”
Datadog is a monitoring service for cloud-scale applications, providing monitoring of servers, databases, tools, and services, through an SaaS-based (software as a service) data analytics platform.
Datadog was founded in 2010 by Olivier Pomel and Alexis Lê-Quôc, who met while working at Wireless Generation. After Wireless Generation was acquired by NewsCorp, the two set out to create a product that could reduce the friction they experienced between developer and system-admin teams, who were often working at cross-purposes. They built Datadog to be a cloud infrastructure monitoring service, with a dashboard, alerting, and visualisations of metrics. As cloud adoption increased, Datadog grew rapidly and expanded its product offering to cover service providers including Amazon Web Services (AWS), Microsoft Azure, Google Cloud Platform, Red Hat OpenShift, and OPenStack.
In 2015 Datadog announced the acquisition of Mortar Data, bringing on its team and adding its data and analytics capabilities to Datadog’s platform. That year Datadog also opened a research and development office in Paris. In 2016 Datadog moved its New York City headquarters to a full floor of the New York Times Building to support its growing team, which doubled over the course of the year. Datadog announced the beta-release of Application Performance Monitoring in 2016, offering for the first time a full-stack monitoring solution. As of 2017, the company had close to 300 employees (as of today this is over 1,400), the vast majority of which are located in the US (with offices in Manhattan, Boston, and Baltimore) and a new R&D facility in Paris.
This is what an analyst said about Datadog.
“Datadog is a leading provider of monitoring and analytics for cloud-based applications. Software has become central to how organisations deliver differentiated products and user experiences and optimise business processes—fuelling the disruption taking place across nearly every industry. The success of this digital transformation trend is increasingly tied to quality and performance— in turn, driving strong secular demand for IT infrastructure and application monitoring. Datadog’s platform—which integrates and automates infrastructure monitoring, application performance monitoring and log management—provides real-time observability of its customers’ entire technology stacks and is built to address the scale, complexity and dynamic nature of the modern cloud era. Datadog’s solutions fill a void left by legacy tools built for on-premise IT infrastructures, and the company is well-positioned to exploit a lightly under-penetrated, large addressable market. We believe the company’s low-touch land-and-expand customer acquisition model and attractive profit and cash flow characteristics—which are poised to expand nicely over the coming years—position it well for a solid profit cycle ahead.”
In February, pre the Covid-19 crisis, the business was on fire.
“Q4 2019 revenue was $114m, close to 85pc increase year-over-year and above the high-end of our guidance. We ended the year with 858 customers with annual run rate or ARR of $100,000 or more, which is an increase of 89pc year-over-year. The majority or about 60pc of our customers are now using two or more of our products as of the end of the year. As in past quarters, our dollar-based net retention rate was over 130pc as customers increased their usage and adopted our newer products. We also continue to be capital-efficient with free cash flow of $11m and a strong balance sheet
For the full-year, we generated revenue of $363 m, an 83pc increase year-over-year, which was above the high-end of our guidance and free cash flow was approximately at breakeven or around $800,000 for the year.
Our results clearly indicate that the market wants a unified observability platform for DevOps teams, which is becoming a more important lever, but also more difficult to accomplish in a world that is platformed into cloud and internal architectures. [DevOps is a set of practices that combines software development (Dev) and information-technology operations (Ops) which aims to shorten the systems development life cycle and provide continuous delivery with high software quality.] Our performance in 2019 shows Datadog is a winner in this converging world. And our success is driven by our origins as an integration platform that collects many disparate sources of data across teams and silos, by our ubiquity in being deployed everywhere and used by everyone. And by the efficient adoption we get from leading with our infrastructure monitoring product.
As a result and today more than ever, Datadog is the monitoring and analytics platform for dev, ops and business users in the cloud age. We provide clarity and actionable insights into applications and IT infrastructure all in real-time. And we do so to enable our customers to deliver greater innovation and consistently provide an exceptional user experience.”
The imminent results will show how the group is being affected by the pandemic but whatever they show the longer term outlook appears outstanding.
Since I wrote this Datadog have reported their Q1 2020 results (yesterday, after 9pm UK time) and they were outstanding.
“To summarise Q1, revenue was $131m, an increase of 87pc year-over-year. We ended the quarter with 960 customers with ARR of $100,000 or more, which is an increase of 89pc from last year. These customers generate approximately 75pc of our ARR [annual recurring revenue]. We also continue to be capital efficient with free cash flow of $19m and a tax payback that is still around a year or less.
We ended the quarter with about 11,500 customers, which is about 40pc growth from 8,200 last year, which means we added about 1,000 net new customers in the quarter, which was twice the number we added last year. And as in past quarters, our dollar-based net retention rate was over 130pc as customers increased their usage and adopted our newer products.
From an R&D perspective, we continued a rapid pace of innovation. We recently announced the general availability of our security monitoring products to unify visibility across security dev and ops teams.”
West Pharmaceutical Services, Inc. is a designer and manufacturer of injectable pharmaceutical packaging and delivery systems. Founded in 1923 by Herman O. West and J.R. Wike, the company is headquartered in Pennsylvania. In its early years of development, West produced rubber components for packaging injectable drugs, providing a sterile environment for the producers of penicillin and insulin. According to the company, over 100m components and devices are manufactured at its plants every day.
The company was doing well anyhow but thanks to the pandemic business is booming.
“I’m pleased to say that the growth trends we experienced throughout 2019 have continued in the first quarter and the outlook for the balance of the year remains positive. Despite the current challenges so far, we have been able to maintain operations at normal capacity. For the benefit of our customers, we have been able to leverage our world-class global manufacturing network by enabling the right capabilities, scale and flexibility to keep up the increase in demand.
As the pandemic has intensified as expected we have seen an increase in customer orders in recent weeks. We are monitoring order flow to ensure that we’re addressing the true demand for our products. Despite today’s uncertain environment, I am pleased to report that we had a strong first quarter performance and we entered the second quarter well-positioned. We had 13pc organic sales growth in the first quarter largely through strong high-value product sales. This resulted in double-digit growth in adjusted EPS for the first quarter.
As we enter the second quarter, the demand for our products continues to be solid from both existing customers as well as new opportunities from companies looking to develop COVID-19 solutions. Each day seems to bring new challenges; supply chain, transportation, government regulations. And I want to emphasise that across West, we’re operating with a sense of urgency to address and manage these issues.
We expect our full year 2020 reported diluted EPS guidance to be in a range of $3.52 to $3.62 compared to prior guidance of $3.45 to $3.55. West products are needed by patients across the globe and in many cases for the administration of life-saving medicines. As the market leader we are committed to ensure continuity of supply to our customers around the globe.In addition, we are supporting our many customers that are developing potential solutions to address COVID-19 with components for diagnostics, antiviral therapeutics and vaccines. We are confident in our long-term growth strategy.”
West Pharmaceutical Services has been on a strong growth path for years but looks poised to grow even faster in a Covid19 and post Covid-19 world as the planet moves rapidly to up its game in dealing with health care issues. Now we know how vulnerable we are the scale of investment in health care seems likely to explode. West Pharmaceutical is one of a number of companies likely to benefit from these new initiatives and any role it may play if an injectable vaccine is rolled out to protect the world against Covid-19. The annual flu jab could become part of an annual event for entire populations around the world.
Wingstop Inc. is a chain of nostalgic, aviation-themed restaurants specialising in chicken wings. Wingstop locations are decorated following a 1930s and 1940s “pre-jet” aviation theme. The restaurant chain was founded in 1994 in Texas, and began offering franchises in 1998. Since then, Wingstop has grown into a chain with more than 1,400 restaurants either open or in development. In 2003, the chain was acquired by Gemini Investors, which sold it to Roark Capital Group in 2010. Wingstop went public in 2015.
The menu consists of wings, boneless wings, and chicken strips, with a variety of dips and sides. The flavours on the US market that are still available include Hawaiian, garlic parmesan, lemon pepper, mild, original hot, Hickory Smoked BBQ, hot lemon, garlic, atomic, mango habanero, Cajun, Louisiana rub, and Spicy Korean. Currently offered sides include fries (cheese, voodoo, and buffalo), Cajun fried corn, and veggie sticks (carrots and celery).
As of June 2018, Wingstop has locations in the US, UK, Australia, Saudi Arabia, Indonesia, Malaysia, Mexico, Panama, the Philippines, Russia, Singapore, Columbia, and the United Arab Emirates with locations in France coming soon. The restaurant chain aims to reach 2,500 locations in the US and Charlie Morrison, the CEO of the company, believes that is achievable.
Winsgtop is trading unbelievably well given the economic background. In a report on 7 May, CEO, Charles Morrison, said:
“These priorities are the foundation of our operations for our 1,400+ global restaurants each day. The strength of our performance is certainly reflected in our results, including a very strong start to the second quarter, with April same-store sales growth in our domestic operations exceeding 30pc. This topline performance, coupled with significantly reduced bone-in wing prices, means that our brand partners are seeing incredibly strong four-wall performance in their restaurants.
Prior to the outbreak of COVID-19, our off-premise sales accounted for 80pc of our domestic system sales, and digital sales consisted of just over 40pc of our sales. Since closing our dining rooms on 16 March, 2020, 100pc of sales are off premise and digital orders account for nearly 65pc of our sales. We believe the investments made over the past few years to build a world-class digital and delivery foundation for our brand positioned us for the success we have seen during this time. To quantify that, our domestic same-store sales increased more than 30pc in the month of April, far exceeding our own expectations. However, our brand partners, supplier partners, and our delivery partner Doordash have not missed a beat with this strong increase. We remain confident in the solid positioning of our brand in life during the COVID-19 outbreak and after the pandemic subsides.
Our international business, which consists of 160 restaurants, has not fared as well during this time. Our international brand partners rely more heavily on the availability of dining rooms for locations in large malls as well as a market like Mexico, where our business is more of a casual dining model. Internationally, we have been more adversely impacted due to the closure of these dining rooms in response to COVID-19, but have seen the teams react well to this change by leveraging our domestic experience to provide access to take-out and delivery in all markets. We continue working closely with our international brand partners by providing support to help mitigate the impact financially so they can re-emerge stronger and ready for continued growth.”
It is obvious that Wingstop is going to come blasting through the pandemic as effectively as any full-blown technology business. They will no doubt become a textbook example of how a restaurant business can deal with a global health crisis.
The group has ambitions to become much bigger and given the global scale and the phenomenal success of the US business model they look like to achieve and even exceed their targets.
The background also supports Wingstop’s claims to be regarded as a top growth share.
“In 2019, Wingstop’s system-wide sales increased 20.1pc year-over-year to $1.5bn, marking the 16th consecutive year of same store sales growth, and Wingstop achieved over 400pc shareholder return since its 2015 initial public offering. With a vision of becoming a Top 10 global restaurant brand, its system is comprised of independent franchisees, or brand partners, who account for more than 98pc of Wingstop’s total restaurant count of 1,413 as of 28 March, 2020. In February 2019, the company launched its new tagline and creative campaign “Where Flavour Gets Its Wings” and continued the rollout of national delivery. As of 28 March, 2020, Wingstop generated 47pc of sales via digital channels including Wingstop.com and the Wingstop app. The company has been ranked on Franchise Business Review’s “Top 30 Food and Beverage Franchises” (2019), Fast Casual’s “Movers & Shakers” (2019), QSR Magazine’s “The Industry’s 9 Best Franchise Deals” (2019) and “The QSR Top 50” (2019) for limited-service restaurants in the U.S.”
Americans are the kings of the fast-food business. They may not always be the healthiest menus in town but for a tasty treat they are hard to beat and their ability to roll out successful formats across the globe is one of the wonders of the world. Chicken wings are up their with pizza, ice cream and chocolate brownies as some of the world’s top guilty pleasures, which is why they work so well in a stay at home world.
The secret of successful investment is to buy shares in great companies. If you do that and do it as though you mean it you will succeed. Forget cheap, forget c**p, just buy the best and hang on in there and you will win and win big!
Funds permitting I would love my subscribers to buy every share I recommend. If you did that and did not do well, very well, in the medium to long term let me know and I will retire!
Performance is even better if you sell a few but again the strategy is not rocket science. If it feels like a dud it is a dud – sell it! Good companies do well; that’s how we know they are good.
