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How Did My Stock Picks Perform? My Year Of Seeking Alpha

Last week was my first anniversary as a writer on the Seeking Alpha platform. In this article, I want to take a look back at what this experience has (potentially) brought me and my readers. My first article was a duo-analysis that included European tobacco company Swedish Match (OTCPK:SWMAF). The gratification from writing that first article has proven somewhat addictive because I have now published a total of 100 articles on the platform. Since I have written a lot for the Pro platform, most of the articles referred to in this reflection will by now be behind the pay-wall. Since I am not allowed to endlessly hyperlink to my own articles anyway, I will not include links to all the articles of the stocks mentioned below. You can find and visit the articles by going to my profile page, although you will need Pro access for a substantial number of them.

Overall, I have tried to publish a diverse range of articles; this allows me to focus both on in-depth coverage of small-cap stocks and wide-perspective analyses of popular large-cap stocks. The large-cap articles usually get far higher page views which allows me to reach a larger audience. Small-cap stocks usually offer richer grounds to seek alpha, which is potentially more profitable to me and hopefully you as well. So let us take a look at how have my stock picks performed.

The Gains:

Zooplus

My top idea on Zooplus (OTC:ZLPSF) has done very well since its publication almost a year ago. I have written an update in the comment section of the article and an update article that can be accessed through my profile page. Zooplus is the leading online European pet supplies retailer and I thought the company would profit from margin expansion driven by its above-average growth rates. The stock had a very high P/E multiple (roughly 100) at the time I wrote the article. I thought the high P/E was scaring investors off, while in reality, the company was selling for a significant discount to its online company peer group. Its price/sales multiple was below 0.7 at the time, which I considered to be unusually low for a company growing at a rate of 25-30% annually.

My thesis revolved around the idea that management was intentionally driving down the company's gross margin in order to capture market share and expand Zooplus' size into a position of durable scale and competitive advantage, which would allow it to structurally underprice the competition while maturing into a 3-4% operating margin business over time. Results published have so far corroborated this conviction and the market has revalued the stock upward as a result. The stock was selling for roughly €55 at the time of publication while it sells for roughly €113 currently. I would not buy the stock at these levels since it already prices in substantial future growth but I am convinced that it remains a good long-term holding for those fortunate enough to hold shares. The value proposition the company offers its customers continues to be highly relevant.

Return since publication in October of 2014: +106%

JD Sports Fashion

My article on Sports Direct (OTC:SDIPF) and JD Sports Fashion was another duo-analysis that focused on the valuation gap between these UK-based retailers of athletic wear. I felt that JD Sports was undervalued when compared to its larger peer Sports Direct because it was selling at a lower P/E despite a better growth outlook;

"given the growth of the sporting goods category (..), the opportunities for expansion in mainland Europe, as well as JD's proven ability to grow through acquisitions the company's current valuation is too low."

Sports Direct is up +8.7% while JD Sports has gained +118% since the article was published. I suppose that vindicates my idea that the valuation discrepancy was unjustified. Growth at this company has exploded due to expansion into other European territories and very strong LFL sales. H1 of 2015 was very strong with a combination of high growth and margin leverage. Since the fiscal year is heavily weighted towards H2, because of Christmas trading, the current period will be more important however. Category dynamics continue to be favorable but since the P/E has expanded significantly since my article was published, I have become more cautious on JD Sports. Stock is a good to hold but not a great buy at this price.

Return on JD Sports Fashion since publication in November of 2014: +118%.

Finsbury Food

Finsbury Food (OTC:FFGRF) is a UK-based specialty baker that had just completed a merger with Fletchers Group when I wrote the article. I felt that despite the dilution arising from the significant stock offering used to finance the acquisition, the deal made fundamental sense because it would allow Finsbury to achieve advantages of scale in an industry characterized by very competitive circumstances. The combination also held a promise of significant opportunities for margin improvements through cost-savings in procurement and for cross-selling each other's products into existing customer channels.

"The acquisition multiple they paid for Fletchers Group (9.33x EV/EBITDA) is a more suitable reflection of underlying business value for companies in this sector. On this basis, Finsbury Food would have an underlying value to a private buyer of roughly 92p per share, implying an upside of more than 50%".

Finsbury Food was selling for 60p in the London market at the time the article was published while its sells for roughly 103.5p currently. This stock also saw its P/E go up due to good organic growth and the benefit from the acquisition. Margins and earnings were both up as a result. I am expecting the favorable commodity environment will continue to work in the company's favor, with input price moderation for dairy, sugar, energy and flour expected to benefit the gross margin. The company has done an excellent job selling themed cakes with Disney characters like Elsa from Frozen. It is expecting to have Star Wars-themed cakes to accompany the upcoming new movie as well. The acquisition of its license-partner Thorntons by Ferrero may offer exposure to more license deals in the future. In my opinion, this stock is a moderate buy.

Return since publication in November of 2014: +71%.

Thorntons (stock delisted)

Thorntons (OTC:THTPF) turned into one of my more troubled picks quickly after I had published an article analyzing its turnaround. The company runs a UK chocolate retail operation that fell on hard times when the economic crisis struck in 2008. After a quickly deteriorating performance forced the board to take action, new management came in which engineered a transformation into a branded consumer business. They were roughly halfway through when I analyzed that the business had potential to double in value on the basis of its proposed strategic plan, which called for downsizing the owned retail operation while growing branded sales in third-party retail channels. My thesis evolved around the idea that consumers would follow the brand into other retail channels because they were already highly familiar with it and the company would stick to chocolate products.

During the Christmas period of 2014, the execution of the turnaround broke down entirely when sales in third-party retail went down instead of up because of poor execution in Thorntons' own distribution chain, which caused delayed shipments, etc. On top of that, the conditions in British retail were so difficult that customers were keeping their inventory down to a minimum. Retailer support from the company was apparently also below par, which is especially important in seasonal sales (like Christmas chocolates). The shares suffered a lot when sales stumbled but all losses and then some were recovered when Ferrero offered to buy the company at 145p. I included this scenario as a possibility in the original article by the way. I believe Ferrero will be able to extract more value from the Thorntons brand than the company itself has been able to do. Ferrero is family-owned and has built several brands into global icons, such as Kinder Surprise, Nutella and Tic Tac. Thorntons' stock was selling for 125p when I made the recommendation. No current opinion on this stock as it has been delisted.

Return since publication in November of 2014: +17%.

McBride (OTC:MCBRF) is a UK-based manufacturer of private label products for the personal and household care categories. Under normal circumstances, I would not get excited about such a business, but I felt that the circumstances surrounding this company at the time were such that the company actually warranted an investment. First of all, management had committed itself to very significant cost savings that, in my opinion, would greatly benefit the operating margin. Secondly, the decline in petroleum prices that started halfway through 2014 would benefit its plastics and chemicals input costs and would thus benefit the gross margin. Since the company was selling for roughly 10x underlying earnings on a 1% net margin at the time, I thought this could provide a triple-leverage effect. With a higher gross margin trickling through to an already improved operating margin, I thought the increased earnings might be rewarded with a higher earnings multiple as well. This is more or less exactly what has happened since; margins were up significantly during FY2015, although sales were somewhat lower than projected in my model at the time (because of weakness in the Euro mostly). The stock was selling for 79p at the time and currently trades around 161p.

I think the...


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